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Naoki Akaishi: Thank you very much for joining us in spite of your busy schedule. We would like to begin NTT Holdings briefing session for the 6 months ended September 30, 2025. I am Akaishi from IR. I will be serving as the facilitator. First, let me introduce the speakers. Mr. Shimada, Representative Member of the Board, President and CEO; Mr. Hiroi, Representative Member of the Board, Senior Executive Vice President and CFO; Mr. Nakamura, Senior Vice President, Head of Finance and Accounting; and Mr. Hattori, Senior Vice President, Head of Corporate Strategy Planning. The announcement will be broadcasted live, and the video will be available on demand later. Also today, we will skip the earnings presentation and start with a Q&A session. Please refer to our IR website presentation materials for the documents regarding this presentation. We will take questions from those who are attending in person and then those who are preregistered attending via the web conference system. [Operator Instructions]. Now we will start the Q&A session. Naoki Akaishi: First, we will take questions from the floor. [Operator Instructions]. In the front row, on the right-hand side from my side. Satoru Kikuchi: My name is Kikuchi from SMBC Nikko Securities. Your company plan, you have not revised the plans. But looking at the contents of it or the breakdown of it, there are quite a change. The data center transfer gain is about JPY 20 billion less than the fiscal year start plan and SBI Sumishin due to the TOB of that, there's an overlap there, too. And NTT DATA, TOB has been completed, and noncontrolled interest is going down. So the profit is going to be boosted upwards. And also at the press conference, Mr. Shimada, you were saying that DOCOMO in the second half is going to accelerate its reinforcement of the customer base. At the start of the fiscal year, you were saying that the second half, the expenses will be controlled a bit more. It was the explanation. So I feel that there is a difference from there. And even though DOCOMO underperforms, the other areas, there's a buffer about around several -- [ JPY 10 billion ]. And I believe in the first half, there wasn't much that was used over there. So there are various changing factors that have occurred, but the content of the plan has not been revised at this point. You're saying, "It's okay. We're going to completely achieve it. Don't be worried about it." If that is the case, that's fine. But it seems that, that is actually not the case. So can you explain thoroughly one by one, that will be greatly appreciated. That's my first question. Akira Shimada: Kikuchi-san, thank you very much for your question. First of all, what we don't have a clear visibility yet is DOCOMO's competitive environment. From the second half of last year, in practice, the MNP as well as the quality issues were the focus point of Mr. Maeda and has been implementing initiatives to respond to that. So no more thinking. You think that last year in the second half, a lot of money has already been injected, therefore, compared to the first half of this fiscal year, you may think that the second half will not have an increase in cost, especially on a year-on-year basis. Normally, that will be the situation. However, if you look at the current most recent competitive arena, the competitors are seriously responding to the competition. And also for us, this fiscal year, we have in mind that we cannot lose this race. Therefore, if they're going to further strengthen their competitive -- competition measures, then we have to respond to that. But this is the area that we don't have a complete visibility. But on the other hand, how are we going to absorb that cost? This as well, just simply revising the forecast and allocate expenses to this. That's not the case, but utilizing the unutilized assets or reduce the cost where competition is not the issue. We need to look at the situation in a comprehensive manner. But having said that, on the other hand, selling assets, that is going to require a certain amount of time. Therefore, suddenly, if we try to do it in the fourth quarter, that will be difficult to do. Therefore, in this third quarter period, what kind of competitive environment is going to face us is what we need to see. And depending on that, things will be changing. So for now, we are responding to various things, and we would like to achieve the targets. But depending on the environment, we don't know what the environment of the competition is going to become. We don't know various things. So we would like to keep a very close eye on the third quarter competitive arena and respond to that. And for the data center, you said one by one. So regarding the data center is JPY 26 billion less than what we have originally assumed. However, as Sasaki-san from NTT DATA was explaining, actually, the order situation is quite strong. And net sales for the second half -- second quarter, the domestic unprofitable projects came about, and there was negative factors, both domestically and internationally. However, for domestic and overseas, the order situation is strong. So whether all that is going to cover this negativity, we don't have a clear picture, but they're also reinforcing the sales activities as well. So I'm hoping that they will be able to absorb this. And also, wholly owning NTT DATA, whether that will -- regarding boosting the bottom line because of that, currently, the financial expense is slightly increasing. So of course, this is one factor. However, we have not revised it because of this. And regarding the Sumishin SBI or SBI Sumishin, moving forward, how much of the services can be brought about that will bring synergy to us is the key. And so within DOCOMO, it is thoroughly being reviewed -- well, not just DOCOMO, but SBI Sumishin Net Bank as well. They want to grow. So together with them, this part is being considered and reviewed. And of course, I would like them to come out with a certain outcome. Well, the key is the mobile business is a consumer side competitive environment. That is going to be the key. Satoru Kikuchi: So that means that looking at various situations, you will consider selling assets. Well, you have done quite a bit of that 2 years ago. And there are assets that will generate profit? Are there any left, because you've done it 2 years ago? Unkown Executive: What we did 2 years ago is the [ sale of ] asset of NTT EAST and WEST. So DOCOMO business also has various assets on hand. So within DOCOMO Group, I want them to think of what can be done. Satoru Kikuchi: My second question is about the finance part. Regarding the business, I want to take a deep dive later for each company. But the finance part, then you have issued foreign bonds the other day. And I thought that you will provide us with explanation after everything is done, like the NTT DATA's TOB expenses and SBI Sumishin Net Bank's TOB that will be covered with DOCOMO's asset sales and the data center investment. So from next fiscal year onwards, the necessary capital -- what we are concerned about is the shareholders' return, which is the dividend and share buybacks. 6 months ago, you were saying that the direction and policy is not going to change and will be continued. And is that really possible? And also, when you wholly owned DOCOMO through TOB, the cash flow at the holdings company, you had about JPY 900 billion, and you were going to pay back your debt and shareholders' return investment. With that amount, you were able to make it through somehow. But currently, with NTT nonconsolidated, how much of cash flow are you expecting? And that cash flow, do you have to repay your debt? I think that's a discussion point. I think you don't have to repay and lower the leverage. But what kind of allocation of cash are you thinking of to maintain shareholder returns or maintain investment? I would like you to share your views. Takashi Hiroi: So Hiroi is speaking. I would like to answer your question. Well, this fiscal year, NTT DATA has been wholly owned, and SBI Sumishin Net Bank, we have acquired them. So cash-wise, it is quite tight. And also looking at NTT DOCOMO's performance with the cash flow that is recorded, they are using the surplus of the cash flow for the -- responding to the competition. So I think we will be at the bottom and a tight situation in terms of cash flow this fiscal year, making investments for growth and increasing cash is what we're aiming for. EBITDA is JPY 4 trillion, is the target we have. And we are progressing towards that. So once we see the effect of the investment in the medium term, this gap is going to be fulfilled, and the financial position is going to improve. But in terms of the soundness of the financial situation and balancing that with the shareholder return, basically, what we are doing right now is, the share buyback and the dividend level, basically, we are continuing to increase the dividend. We believe we will be able to solidly maintain that. And this fiscal year and next fiscal year for a little bit, we will have a tight cash flow situation. And of course, we can think of utilizing debt. But basically, the current credit rating of A-, we would like to maintain that rating and to do things so that we don't cause trouble for the bondholders or bond investors as well. That is how we would like to manage the financial position. That is all. Naoki Akaishi: We will take the next question in the front row, left-hand side, please. Daisaku Masuno: I'm Masuno from Nomura. I have a question for each segment. Starting with the Global Solutions overseas data center. Earlier, NTT DATA President made a press announcement. I believe that we can accelerate investment. I believe that more risk should be taken to accelerate investment. I felt that the President was a bit cautious. Do you have any thoughts about accelerating investment for DATA? Akira Shimada: Well, we want to accelerate. To be honest, we do want to accelerate our investment. But there's the construction capacity that needs to be factored in. So construction speed and also, are we going to do this with our own equity? That is another question. If we're going to tap into the funds from third party, then that will give us more power. And that is something that we are studying. We studied that possibility earlier, but the environment did not work out. Now the current environment is more favorable to involving third-party investment. So we will consider that in more earnest. And in terms of the construction speed, it does depend on the location, but we would like to accelerate investment globally in a way that is well balanced. And of course, we have to enhance projects with higher profit. For example, in India, the return is quite high. And so we would like to focus in areas where the return is higher. In terms of the construction capacity, that is a physical impediment. In terms of funding, from equity investors, lowering the equity ratio or involving third party is not that favorable, rather increasing debt through project finance rather than lowering the equity ratio. That would be our hope. We have no idea about -- we don't think about increasing equity or decreasing the equity ratio. We're just talking about using third-party funds for investment. So it's not like a third-party joint venture. No, that is not the case. Daisaku Masuno: My second question is regarding DOCOMO. One year ago, at the IR Day, when the medium-term plan was presented, DOCOMO's consumer business operating profit was to rise. And the premises for that was that the sales promotion will be made more efficient for the year ended March '27. But looking at the current situation, the promotion efficiency is actually declining. And so if the competitive landscape doesn't change, I believe that the current sales promotion efficiency will continue into the next fiscal year. So if your competitors don't reduce the sales promotion, what's going to happen in the next fiscal year? So the final year of the medium-term plan? Akira Shimada: Well, this may be similar to my answer to Kikuchi-san earlier. You are right that the scenario has changed somewhat from what we had imagined it to be 1 year ago. So our sales promotion cost is about the same as our competitors. In the past, DOCOMO was able to keep the sales promotion cost lower than our competitors. So what happened as a result of that was that our market share was going down. So now we are expanding about the same level of marketing cost as our peers. Now with the current status continue, if that is the case, then, of course, we will need to revisit the scenario. So reducing the marketing cost just by ourselves would mean that we reduce market share, the customer base itself. So we need to think about the balance. But the overall market is also seeing cost increase across different items, and how we absorb that cost increase is a struggle for not just us, but for all our competitors. So what kind of the competitive landscape you will see going forward is -- needs to be watched. And by closely observing that, I'm sure that I'll be able to better answer your question. Then accounting-wise, even if DOCOMO sells some of its assets, then, for example, we exclude that. And the data center sales, that is also excluded as well. So going up or down, that will not have a bearing on how it is valued. I think we need to show that DOCOMO recovers on its normalized basis. Daisaku Masuno: Lastly, for the regional communication business, can we say that the recovery is on track? I'm sure that the quarterly result is not sufficient, but the second quarter results didn't seem that satisfactory. Do you think that the structural reform is on track? Akira Shimada: In terms of NTT EAST and WEST, basically, the situation is on track. NTT WEST had some profit decline factors, which we had communicated to you before. There are assets that needed to be reduced from the books, which have become unnecessary. And these were already in the plan. So for making efficiency, introduction of AI at the call centers and using more AI in the support teams, all of that is on track. So for the NTT EAST and WEST, I'm not worried about the projections. Naoki Akaishi: [Operator Instructions] The person in the second row, please. Kazuki Tokunaga: Tokunaga from Daiwa Securities. I have two questions. The first is regarding the new Takaichi administration. Looking at the media report and looking at the Minister of MIC's press conference, they are going to work on the amendment of NTT law. However, having said that, up to now, quite a bit has been considered. And it seems that it has settled down once. So moving forward, what else can be considered is something that I cannot imagine. Therefore, at this point, for your company regarding NTT law, what you are seeking for? Or do you have any expectations for the new government is my first question. Akira Shimada: How the NTT law should be, as you have mentioned, Tokunaga-san, with the amendment that was done in the last 2 years, we believe that it has been moved forward quite a bit, is how we look at it. The major issue that remains, if I may say, is the total volume regulation, meaning that only have that imposed on NTT and is NTT the only one that should abide that due to securities manner -- securities reasons. And as Masuno-san mentioned, to improve the efficiency of NTT EAST and WEST, how they should do their work or how the organization should be, how they should conduct their work this time, there was quite of a deregulation done. So regarding the organization, changes are still remaining for improving efficiency. But within the law, it's stipulated that the discussions will resume 3 years from now. So there is no necessity at this point to rush on things at this point. However, at this point, what we would like the government to consider is regarding universal service provision. Well, the rule itself has been amended. But regarding the detailed how the system should be designed is not completed. So more than the amendment of the NTT law itself, but what has been amended this year -- up to this year, the content of that, we need to accelerate working on the details of that. Kazuki Tokunaga: The second question is kind of a follow-up question to Masuno-san. So there's -- in two parts. Regarding NTT DOCOMO, there may be a possibility of a scenario change and NTT EAST and WEST are in line as the plan. But I'm actually looking at a different direction. NTT DOCOMO, maybe July and September was tough. But in October, the MNP is turning positive. So in terms of the customer acquisitions, I believe that for the mobile communications, it's going to come back. But compared to the IR Day that was done -- IR Day, maybe the profit recovery level is quicker than that. So the first point is that the changes of scenario for DOCOMO, which KPIs is it? The revenues? The profit? And the second question is, including the rate change of NTT EAST and WEST, maybe we should not expect a large increase in profitability. Akira Shimada: So first of all, regarding NTT DOCOMO and NTT EAST and WEST, Tokunaga-san, regarding DOCOMO, you are a bit optimistic. But as Shimada mentioned before, that's different from how we look at it because the market competitive environment is quite intense. In October, the MNP has recovered, as you have mentioned. But at DOCOMO side, the marketing activities have been reinforced, and that's been increasing. And as a result of that, they're gaining the numbers. And we believe that this situation is going to continue, or we have to look at it that this is going to continue. So regarding NTT DOCOMO, in terms of the revenues and profits, we cannot be optimistic about it. But regarding NTT EAST and WEST, it is true that regarding the rate increase, we are implementing initiatives so that we'll be able to do so. But as we have assumed at the beginning of the fiscal year, the revenue and also the cost efficiency initiatives are progressing as planned. So I don't think there is a major change. And this fiscal year, GIGA School -- as we see in GIGA School and others, there's a large-scale investment, and that is done by the regional areas' sales rep for NTT EAST and WEST. And actually, that is bearing fruits, and that is contributing to the operating profit. That is the current situation. Thank you very much. Naoki Akaishi: We will now ask the members. [Operator Instructions] Okumura-san from Okasan Securities. Yusuke Okumura: I'm Okumura from Okasan. Can you hear me? Unkown Executive: Yes. Yusuke Okumura: I have two questions. First, regarding the data center business. This may be a question that I should pose to NTT DATA, but about JPY 90 billion book value asset was sold at about 2x the price. But the total IRR of these assets -- what was the total IRR? And also, the data center book value is around JPY 2 trillion now. So what is the unrealized value -- unrealized profit from this? Should we assume that it's about JPY 1 trillion? And also regarding the data center portfolio, what is the utilization rate? Or what is the contract period? Can you provide some KPIs for investors? Takashi Hiroi: So this Hiroi speaking. In terms of the data center REIT, IRR, we are not able to provide concrete numbers, but we are aiming for pricing that is aligned to the investors' perspective. So we believe that a fair valuation is being realized. And in terms of our entire data center business, what is the total value? What is something that we can provide better color on? Well, we are promoting more disclosure on the data center business. Data center valuation, there is a market for that. So EBITDA and profit-based multiple. So some kind of a total value can be assumed for our assets. And perhaps you can reference that in order to value the data center business as a whole. Yusuke Okumura: Now in terms of my second question, in terms of the creation of synergy with NTT DATA, I'd like to ask about the revisions to your medium-term plan. What kind of discussions are ongoing? So the synergy of having NTT DATA as a 100% subsidiary, will you just be updating EBITDA or the leverage ratio? Or will you be introducing new KPIs, like EPS? Or will you be considering balance sheet restructuring or changing the medium-term targets? Are you having those wide-ranging discussions? Can you share with us what is being discussed? Akira Shimada: This is Shimada. We are still in the process of discussing the synergy. And I actually mentioned this in the press conference. We need to first review NTT DATA's medium-term plan. And President Sasaki of NTT DATA also mentioned in terms of the global synergy that can be harnessed as a group. That is one very important factor. So NTT DATA's medium-term plan will be announced in spring next year. And the consolidated business plan will also be revisited at that time. So at this time, numerical targets or contents, how much we will review the medium-term plan, it is too premature to say because we need to have more concrete items to be able to provide more color on this. Yusuke Okumura: I apologize for asking a premature question. Naoki Akaishi: I would like to take a question from Morgan Stanley MUFJ Securities, Mr. Tsusaka. Tetsuro Tsusaka: This is Tsusaka from Morgan Stanley. Can you hear my voice? Unkown Executive: Yes. Tetsuro Tsusaka: I have one question regarding the mobile business and also a question related to the NTT DATA. Regarding the mobile business, before, you were not spending money than your competitors, but you are spending now at the same level as competitors, and you're still losing. And I think this is quite of a serious situation. And the other point is listening to Mr. Maeda's presentation for NTT DOCOMO, it seems that various things are being in place or prepared. However, didn't feel something that will stand out as becoming the core for them. So as a holding company, the strategy of NTT DOCOMO, are you making a decision that is really going well? Or if there is a question -- if your question towards the NTT DOCOMO's strategies, towards NTT DOCOMO directly, are you in a position that you can instruct them directly as a holding company? Or are you taking such an action to them is what I'd like to know? And the second question is related to NTT DATA. And at the NTT DATA, the President of NTT, Sasaki-san, was saying that it's global. And Shimada-san, you mentioned that it's global as well. And for global center business, you hold the #3 position globally. So you have quite of a solid presence there. But for the other businesses, I don't think they -- you can say that they have succeeded overseas, well, numerically -- from the new number perspective. So the reason why you are focusing on global -- the data center being a global business is fine. I understand that very well. But for the other businesses, that being global, I feel that there's no track record that has been achieved, is how we can see it. So how should we think about that? Akira Shimada: First of all, Mr. Tsusaka, thank you very much. Regarding the mobile business, whether a discussion is done or not, we are having a discussion with them. Because we are having the discussion, that is why the direction has been changed since last fiscal year, basically. They need to solidly and surely protect their customer base. And as I mentioned before, without spending cost or money and just damage their existing customer base, there's no future for the business. Therefore, we wanted them to thoroughly respond to the situation. For the second quarter, actually, the [ Elmos 0.5 giga ] was stopped as a plan, and there's an impact of that. And in fact, we slightly lost against the competitors. But as of October, MNP is net positive now. And the second quarter situation, I think, is a temporary situation, is how I look at it. But what's more important than that is regarding quality. We need to improve the quality, especially because everybody now is watching a lot of video. So the challenge is in the metropolitan areas, around the railway routes. We need to work on that, and we need to increase the number of base stations. However, today, it was said that in the second half that they're going to increase the construction process by threefold, but that needs to continue into next fiscal year. And also the 5G base station that has become old needs to be new, and we are replacing that to a new one. And that needs to be completed through this fiscal year and next fiscal year. So those are the two key points. And we are aligned with DOCOMO on this. And they are thinking of various cost reductions, but these are the necessary costs that needs to be spent. So for this year and next fiscal year as well, in terms of implementing new equipment and facilities is something that is necessary. Therefore, how are we going to overcome this situation and have a bright prospect for FY '27. Of course, I don't know the numbers for FY '27 yet. However, these type of factors will come about, and we are aware of that, and we are continuing our discussions on it. And regarding NTT DATA, at the global discussion, recently, the demand for AI is coming about quite strongly. And the tech services customers, conventional tech service customers is where the AI demand is coming from, especially South Europe, like Spain, Italy, in that region, the needs is heightening. In Germany, unfortunately, the automobile industry is not doing well. So there's an impact from that. And the U.K., performance is coming back slightly. And in the United States -- well, the U.S.A. is about the same situation like Southern part or Southern Europe. So we do have expectations to a certain extent in those regions. So the product itself is transforming and having the customer base is quite valuable. So in the areas other than data center business, to turn it around into a positive business, I want the business to be managed in that way. Thank you very much. Naoki Akaishi: Thank you very much. So we have exceeded the allocated time. We would like to take one more question either from the floor or remotely. Since there seems to be no further questions, we would like to conclude NTT Holdings presentation. Next will be from NTT DOCOMO. So please stay in your seats. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good afternoon, ladies and gentlemen, and welcome to the ThredUp's Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on November 3, 2025. And I would now like to turn the conference over to Ms. Lauren Frasch. Thank you. Please go ahead. Lauren Frasch: Good afternoon, and thank you for joining us on today's conference call to discuss ThredUp's Third Quarter 2025 Financial Results. With me are James Reinhart, ThredUp's CEO and Co-Founder; and Sean Sobers, CFO. We posted our press release and supplemental financial information on our Investor Relations website at ir.thredup.com. This call is being webcast on our IR website, and a replay of this call will be available on the site shortly. Before we begin, I'd like to remind you that we will make forward-looking statements during the course of this call. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our earnings release, supplemental financial information, and our Forms 10-K and 10-Q for more information on these expectations, assumptions, and related risk factors. We undertake no obligation to update any forward-looking statements. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and the supplemental financial information, which are distributed and available to the public through our Investor Relations website at ir.thredup.com. Now I'd like to turn the call over to James. James? James Reinhart: Good afternoon, everyone. I'm James Reinhart, CEO and Co-Founder of ThredUp. Thank you for joining our third quarter 2025 earnings call. Today we'll discuss financial results for Q3 and update our expectations for Q4 and fiscal year 2025. I will provide an update on our perspective about the consumer, discuss ongoing innovation in our AI-driven product experiences, and end with a reminder on our compounding competitive advantages in the growing resale market, specifically how we expect new product development will increase that advantage in 2026. I will then hand it over to Sean Sobers, our Chief Financial Officer, to talk through our financials in more detail and provide some guideposts as we look ahead to 2026. We'll close out today's call with a question-and-answer session. First to the results. The third quarter was our strongest year-over-year growth in nearly 4 years and the fourth quarter in a row of accelerating growth. Revenue growth accelerated to 34% year-over-year. Gross margin was 79.4% and adjusted EBITDA was 4.6%, all of which exceeded expectations. Once again, these results were driven by exceptional customer growth and orders in our business. I said this last quarter, and I'm pleased to say it again, we acquired more new customers in the third quarter than at any other time in our history with new buyer acquisition up 54% year-over-year. Active buyers were up 26% year-over-year and orders were up 37% year-over-year. Our approach in 2025 and into 2026 is straightforward: Maintain our gross margin efficiency, gradually expand the bottom line, but largely reinvest incremental dollars we generate back into growing our marketplace through product improvements, marketing spend, and long-term innovation. Turning to the macro. We talked about the impact of tariffs at some length on our last 2 calls, so I will not belabor those points here. Overall, we believe the effect of tariffs and the closure of the de minimis loophole have been a boost to acquiring new customers and could be a structural tailwind going forward as prices rise in the apparel market. Our strategy is to take some price, but largely improve our competitiveness on a relative basis. At the same time, we remain cautious on the state of the broader American consumer and believe that price and value will be of utmost importance this holiday season. While this could theoretically be beneficial to the secondhand market by enhancing the value of comparative offerings, we think a reduction in overall holiday spending or a wallet share shift to new gifts is something we'll have to navigate adeptly. Turning to the product and customer experience. While many of our customer-facing features over the past 18 months specifically drove improvements in our funnel and margins, the third quarter was best characterized as a consolidation and clarification of our mission, vision, and value proposition. In late September, we launched a fully rebranded experience on ThredUp. The unifying theme is "Fashion, Meet Forever, which speaks to our ambitions of building a more emotional long-term relationship with our customers. ThredUp has been a brand mostly defined by logic and quantitative rigor over the past decade. And while we will never abandon that part of our DNA, we know shopping is inherently emotional. And by tapping into our customers' hearts through storytelling and cultural relevance, we can elevate both our brand and secondhand shopping to new heights. We saw the green shoots of this in October as it was the best month for new customer acquisition in our history, up 81% year-over-year, driven primarily by historically low acquisition costs. Of course, as a customer-assessed company, we did not miss the chance to launch our rebrand alongside 2 powerful new product features, the Daily Edit and the Trend Report. With the Daily Edit, every customer will receive a newly personalized feed of 100 items that are refreshed daily. This was a major technical advancement in our personalization capabilities, powered by AI models we've trained in-house that can generate real-time user and item embeddings, allowing us to better understand each customer's style preferences and serve them a fresh curated feed every day. The Trend Report is using AI to combine macro and social trends alongside internal search and customer trends, then generating imagery and style feeds in real time that help customers shop what's on trend. Now let me turn to selling on ThredUp. Since the founding of ThredUp more than 10 years ago, we've maniacally focused on building competitive advantage in our supply chain. Our investments in infrastructure and data have been central to the success of our marketplace, expanding ways we can process clothing at ever-increasing levels of scale and profit. Our investment in building a novel, dynamic, and robust data layer for secondhand clothing has enabled us to develop additional ways to compete in the evolving resale market. The first new supply growth vector we built on top of this core infrastructure was our Resale-as-a-Service business or RaaS, which now powers resale for dozens of brands. This month, we are launching RaaS programs for New York & Co. as well as Cotopaxi, a brand that is near and dear to my heart as someone who loves the outdoors. It's the first large brand to launch after our RaaS strategy shift 6 months ago, and it's just one of many expected to come over the next few months. Our Cotopaxi launch is a showcase of the suite of services we can power for brands, including take-back programs and resale shops as well as cash out programs for customer acquisition and bulk consignment for inventory management. Earlier this year, we launched our second supply growth vector, The Premium Kit. With virtually no marketing investment, this product was an instant hit with sellers and has grown to be more than 20% of the supply in our marketplace. Premium kits deliver superior monetization for sellers, access to in-demand products for buyers, and accretive margins to ThredUp compared to our regular kits. Today, I'm excited to announce the third vector of growth, which is the launch of direct selling on ThredUp, often known as peer-to-peer. While currently in a closed beta, given the way direct selling is expected to impact buying and selling on ThredUp, I thought it important to detail in advance our approach to serving this large part of the resale market. We have been working on the launch of direct selling of ThredUp for more than a year, but I personally have been working on this strategy for many years. I felt strongly there was an opportunity to serve this market as resale became more mainstream, mobile technology matured, and our operations hit a level of scale and margin where we could build a superior, differentiated customer experience. That time is now, day 1 of direct selling. But let me explain. The problem for sellers in the peer-to-peer market is the friction that still exists in listing, pricing, fulfilling, and servicing the items available for sale. Many items don't sell. Those that do don't always touch the right price and post-purchase management of returns and seller reputation becomes an ongoing headache. The result is that most casual sellers participate for a while or they mix and match across peer-to-peer platforms, but they never love the experience. While public data is hard to find, our longitudinal research has suggested that the majority of items listed on current peer-to-peer platforms never actually sell. For buyers on peer-to-peer marketplaces, it's very much buyer beware, a lack of quality merchandising and curation, low trust or buyer recourse in the event of a bad transaction keep many buyers from shopping more than periodically. For platforms, the incentives are to race to the bottom on fees to acquire sellers and to encourage as many listings as possible. This leads to rampant product pollution, limited curation, and the flea market quality that leads to short-term success, but long-term value erosion with weak network effects and limited moats, a new peer-to-peer marketplace pops up every 5 to 7 years, skinning buyers and sellers off the top with the renewed promise of that it will be better this time, join us over here. The fact is that this is a big market, and we believe it's mostly broken. Against that backdrop, here's our new approach. First, our marketplace will focus on casual sellers, the exceptionally large long tail of sellers who consistently get crowded out. The number of items the seller can list will be based on their selling success. Flooding the site with low-quality items will not be an option. Second, sellers will be independently verified so that buyers will be able to shop with total confidence. We plan to mitigate the potential for fraud at every opportunity. Third, sellers will not pay fees to list items. ThredUp will provide premium listing, merchandising, and photography tools that make the sellers' life easier. We believe if done right, that suite of tools will be worth paying for over time. Finally, and unique to ThredUp, sellers will have a seamless experience to choose between direct selling and the Clean Out Kit to meet their needs at any point in their selling journey. ThredUp is now a one-stop shop for most apparel selling needs. Turning to buyers. We are excited to solve the most important parts of buyer friction. First, returns. We believe the single biggest challenge with the peer-to-peer model is seamless returns. Leveraging our decade-long investments in our supply chain and infrastructure, we can now see this as an option to buyers given our power to resell return items in our marketplace. Second, trust. With every seller vetted and ThredUp's brand and customer service standing behind our sellers, buyers can shop with confidence. Third, we will bring standards of merchandising, listing quality, and curation to the peer-to-peer buying experience. We will bring a new wave of merchandise to buyers, but in an organized and thoughtful way backed by the Generative AI products we launched over the past year. And we will be methodical in our rollout, opting for quality and long-term defensibility over quantity. We acknowledge we're in the early days of this new vector for growth, but we are excited to bring our experience, expertise, and unique assets to solve this large customer opportunity. We believe the supply and demand we can unlock in this effort will further accelerate our flywheel for years to come and that this launch couldn't be more timely given the economic uncertainty present for many American households. Finally, before I turn it over to Sean, let me place some of the work in Q3 into the context of our longer-term strategy. On our last call, I discussed in detail the three important competitive advantages we've been building. First, our operational infrastructure and supply chain continues to prove a defensible asset. Having invested more than $400 million in infrastructure, software, and data to invent how a managed marketplace can work at scale, we are now capable of building customer-facing experiences more rapidly on top of it. Our RaaS business, our premium kit, and now the next generation of direct selling are examples of business lines built on top of this core infrastructure. Second, we believe the investments in a unique proprietary data layer have helped us build a direct listing beta product that can work better for sellers while providing endless ways for buyers to shop well-curated merchandise. Third, marketplaces are hard to build and sustain. But when you get the flywheels going, they are very hard to stop. Our marketplace has exceeded over prior years, primarily through building a quality transactional experience. By updating and elevating our brand, we have the potential to deepen customer attachment and stickiness, making ThredUp a household name for years to come. In expanding ways that customers buy and sell on ThredUp with the launch of direct listings, we believe that over time, we can increase our wallet share as well as widen the moat in our marketplace. With that, I'll turn it over to Sean to talk through the financials in more detail. Sean Sobers: Thanks, James. I'll begin with an overview of our results and follow-up with guidance for the fourth quarter and full year 2025. I will discuss non-GAAP results throughout my remarks. Our GAAP financials and a reconciliation between our GAAP and non-GAAP measures are found in our earnings release, supplemental financials, and our 10-Q filing. We are extremely proud of our Q3 results in which we accelerated revenue growth and exceeded our adjusted EBITDA expectations. For the third quarter of 2025, revenue totaled $82.2 million, an increase of 33.6% year-over-year. Our performance was driven by investments into marketing and inbound processing that drove our marketplace flywheel. As we discussed on our last call, we started spending on marketing and processing earlier in the quarter, which allowed us to generate our significant top line beat. These investments, coupled with improved buyer metrics resulting from a series of new customer-facing products we've rolled out over the past 18 months, generated our fourth consecutive quarter of accelerating growth. These drivers resulted in another record quarter for new buyer acquisition with new buyers up 54% year-over-year. We also benefited from repeat purchases by new buyers acquired earlier in the year as well as improved conversion for both new and existing buyers. We finished the quarter with 1.6 million active buyers for the trailing 12 months, up 25.6% over last year, while we had 1.6 million orders in the third quarter, up 37.2% over the same time period. For the third quarter of 2025, gross margin was 79.4%, a 10 basis point increase versus the same quarter last year. Our outperformance versus our expectations was largely a result of higher average selling prices due to the rapid growth in our premium supply offering. Adjusted EBITDA was $3.8 million or 4.6% of revenue for the third quarter of 2025. We improved adjusted EBITDA margin by 410 basis points over last year as we leveraged our multiyear investments and benefited from our revenue outperformance while still making investments into marketing and inbound processing in order to drive our top line. Turning to the balance sheet. We began the third quarter with $56.2 million in cash and securities and ended the quarter at $56.1 million, reflecting just $100,000 in cash use. We are proud to have generated $2.4 million of free cash flow for the quarter and $3.4 million year-to-date. We continue to expect to be free cash flow positive for the year. We spent $3.7 million in CapEx in Q3 as we made several opportunistic investments in order to support automation. We now expect CapEx for the year to be closer to $10 million, similar to what we expect in 2026. Now I'd like to provide a bit of context for our updated guidance. Though we remain cautious on the current consumer environment heading into a highly competitive holiday season, we are pleased to be raising our top line expectations for Q4 to align with the positive trends we are currently seeing in the business while maintaining our Q4 EBITDA margin outlook. As has been our strategy throughout this year, we see continued opportunity to invest in marketing and inbound processing to drive growth. With contribution margins in the low 40% range and healthy LTV to CACs driven by scale and recent improvements to our product experience, we plan to flow any incremental dollars above our guide back into our growth-driving opportunities. With all of this in mind, the fourth quarter, we now expect revenue in the range of $76 million to $78 million, representing 14% year-over-year growth at the midpoint and $3 million higher than our previous outlook. The sequential step down reflects the expected seasonal slowdown in resale around the holidays, combined with our planned pullback in marketing dollars as CAC spike during the highly competitive period. Gross margin in the range of 78% to 79%, adjusted EBITDA of approximately 3% of revenue in line with our previous expectations and basic weighted average shares outstanding of approximately 126 million shares. For the full year of 2025, we now expect revenue in the range of $307 million to $309 million, reflecting 18% year-over-year growth at the midpoint. This updated view is $8 million above our previous guidance, incorporating our Q3 beat and the raised outlook for the remainder of the year. We are raising our gross margin range to 79% to 79.2%. Adjusted EBITDA of approximately 4.2% of revenue, this incorporates our Q3 beat while maintaining our Q4 outlook. And basic weighted average shares outstanding of approximately 122 million shares. As we look into next year, our planning process contemplates 2026 revenue growth in the low double digits, in line with U.S. online resale industry growth expectations. On EBITDA margins, we are planning for slightly better expansion than we currently expect in 2025. Since we are planning to iterate on and roll out direct selling methodically throughout 2026, our current forecast does not include this new growth vector. We will provide a more detailed outlook on our Q4 earnings call in March. James and I are now ready for your questions. Operator, please open the line. Operator: [Operator Instructions] And your first question comes from the line of Ike Boruchow from Wells Fargo. Irwin Boruchow: Congrats. A quick clarification and then a question. Sean, on the comment you just made on next year, just to make sure I heard you right. So initially for next fiscal year, you're assuming revenue can grow low double digits with similar EBITDA margin expansion that you're putting up this year, which I assume is 4.2% relative to the U.S.' 3.3% last year. So basically 100 bps margin. Sean Sobers: Yes. So we said a 90 bps expansion we expect for '25, and we'll do slightly better than that in '26. Irwin Boruchow: And then, James, maybe just to talk about the revenue. And again, I'm not nitpicking it all. I'm actually trying to understand how you think about revenue growth because it's been a roller coaster the last 12 months and a good way for you. But just how are you thinking about the compounding effects of customer acquisition, the experience improvements, all intertwined with what is a much lower growth rate next year that you're starting to plan? And then really just longer term, I mean, this business IPO-ed doing, I think, 25% plus and then it went negative last year and now you're in the 30s. So I guess just what's a sustainable growth rate for this model as you kind of see it over a multiyear period? James Reinhart: Yes, I mean, I think we've been pretty consistent saying we want to be a Rule of 40 company, which our long-term EBITDA model is 20% to 25%, which implies growth in the high teens to 20%. And I think that's the path that we're on. I think the guide for this year is 18% coming off a flat '24. I think given it's the first week of November, as we look to '26, I think starting with kind of low double-digit industry growth rate is probably a good place to start. And look, I think the plan for '26 and then into '27 and beyond is very similar to '25, which is let's methodically expand EBITDA. As Sean mentioned, we're going to continue to expand rates similar to last year, if not more, and then flow those dollars back into the growth rate. And I think if you look at the sort of anatomy of 2025, that's exactly what we did, which is we took dollars and we flowed them back through, and that produced 4 quarters of accelerating growth. So I think that's the same playbook for '26. I just think given all the uncertainty in the economy, let's turn over some more cards, right, before we guide the full year in '26. But I think we feel very good about '25, and I think we feel very good about the multiyear path to being a Rule of 40 company. Operator: And your next question comes from the line of Bernie McTernan from Needham & Company. Bernard McTernan: Maybe just a couple on peer-to-peer to start. How will these products look on your website relative to goods coming in from the Clean Out kits? I guess, would be question one. And then maybe second on that, if you just talk to the unit economics of $1 of the expectation for what the unit economics of the peer-to-peer sales will look like versus the traditional Clean Out kits? James Reinhart: Yes. Hello, Bernie, yes, I mean, the product displays will actually look pretty sharp. I think we've done a lot of work using AI to produce high-quality imagery. So I think you're going to see best-in-class imagery for how they look on site. And in early beta, we're already seeing that come true. I think you really do see a rich set of products. So my guess is that consumers are actually going to really appreciate the diversity of the imagery and the quality product experience that we've put forward. So I actually feel very good about that. On the unit economics, I think we have built a variable unit economic model that supports peer-to-peer being a strong long-term EBITDA driver, right? And so typically speaking, you have lower top line, like revenue from peer-to-peer, but it generates superior margins because of the way that it flows through on a variable basis. You don't touch all the items in the same way. Sellers make more money, right? Buyers are happy. So I think, Bernie, if you kind of look across similar models that have been around a long time, they generally generate superior long-term profit pools. And I think we can build a superior customer offering and benefit from great economics. So I feel good about both areas, but I would caveat all that to say that we're early in the journey. And normally, we wouldn't talk about this for some time. But given how much it will impact the customer experience, it will become obvious to anybody browsing the site, the difference. And so wanted to be more detail oriented and explain it in advance. Operator: And your next question comes from the line of Bobby Brooks from Northland Capital Markets. Robert Brooks: I was hoping to get a little bit more granular on the buyer growth. So overall, up a very healthy 26% year-over-year, but with new buyers up 54% year-over-year. So I was just wondering if we could hear of that 320,000 or so buyers you added year-over-year, maybe what the mix of that was towards new buyers? And then secondly, could you discuss how your marketing approach may differ between getting prior buyers back on the platform versus new ones? James Reinhart: Yes, sure. Hello, Bobby. Yes, I mean, as you know, the active buyers is a trailing metric, right, versus new buyers is a quarterly metric. Generally speaking, about 1/3 of the total new buyers -- the total buyers that we're adding at any point, 1/3 of them are customers that we had previously who had churned that we resurrect as customers. So think about it as 1/3, 2/3 is customers we've seen before. And I think as we go forward, I think we'll continue to focus on driving new buyer growth. And with the rebrand, I think we are expecting that as we move up the marketing funnel a little bit, we'll actually capture more lapsed buyers in there. And so I think we're optimistic we'll actually recover resurrect customers who've churned maybe who don't get our e-mails or push notifications the way they do today. So that's kind of the approach to the marketing mix. Hopefully, that's helpful. Robert Brooks: Yes, that's definitely helpful. And then I was just -- I was surprised that in your opening remarks, you mentioned how you won your first new large RaaS partner since the shift in that go-to-market strategy for RaaS. Could you help me understand why there was kind of a large lag between the change in the go-to-market and the new partner that joined this quarter? And also point it seemed like your commentary, you had some pretty good visibility or confidence on new partners joining that channel over the next year or so. Could you just discuss what's driving that visibility and confidence? James Reinhart: Yes. I mean it's -- we announced the new strategy 6 months ago. Most of the contracts that you have with these brands are multiyear contracts. So it's really just a lag effect, Bobby, of how contracts come up for renewal. Think about it more like enterprise. And so I think now we're getting into renewal season for retail brands end of this year and into next year. And so the pipeline feels very good for some of these brands to either sign for the first time or switch over. But that's the way I think you should think about it. It's the lag around the contract renewal process. Sean Sobers: And 6 months isn't a long period for an enterprise transaction. James Reinhart: Yes. Yes, exactly. I'm actually delighted about the speed upon which a lot of customers are reaching out to become part of the RaaS portfolio. Robert Brooks: Yes, I agree with that. I had a -- I thought it was a little bit long, but yes, 6 months to turn around on an enterprise channel is quite quick. Just any more on -- so it just seems like general contract timing is giving you that confidence in landing some more new ones? James Reinhart: Yes. Yes. No, definitely. I think we feel like the pipeline is good, and we'll see how Q4 kind of concludes, but I think you'll continue to see momentum with us launching new brands. Robert Brooks: Fair enough. Congrats on a great quarter I'll turn in the queue. James Reinhart: Thanks. Operator: And your next question comes from the line of Dylan Carden from William Blair. Dylan Carden: James, sorry if you said this. So will the direct -- the peer-to-peer product be listed alongside the consignment? Is this sort of a separate site? And I'm just kind of curious a broader discussion of sort of the synergies that you see between these 2 businesses, I guess, beyond just simply sort of the captive audience. James Reinhart: Yes, Dylan, you'll be able to browse them together or separate, right? And so very much if you think about Amazon, right, the ability to shop 1P or 3P consistently. I mean I think this is a very well-established convention in commerce these days. So consumers will be able to flex in and out of it however they like. And what was your second question, sorry, Dylan? Dylan Carden: Kind of the synergies between the 2 platforms and well… James Reinhart: Yes. I mean the primary driver is the feedback from sellers. So we've heard consistently for some time how many sellers are sending some stuff to ThredUp but then selling high-quality stuff on other platforms, specifically peer-to-peer platforms. And so in the research that we did, we found there was really a compelling opportunity to centralize all of the sellers' needs and give them that flexibility to do both. So I see the opportunity to really consolidate selling of secondhand online through the ThredUp platform. And then I think there's huge benefits on the buyer side, buyers get greater selection. I think that can help drive customer acquisition efficiency. And then in our DCs being able to leverage our supply chain and logistics network. So I see synergies on both sides, but primarily, it's all about sellers and supply over time. And I think this just gives us another tailwind in that market. Dylan Carden: Awesome. And then for either of you, the deleverage -- or sorry, rather the leverage in the marketing line item is kind of impressive. I'm just curious if you could speak to sort of efficiencies you're seeing in marketing. And then maybe just sort of the lag effect in your customer acquisition given kind of the active customer growth versus the revenue growth. James Reinhart: Yes, Dylan, we continue to see sort of historically low CAC. I mean I think it's a combination of the product experience being better. We talked about the conversion rate last quarter. That has continued to improve. I think the ad market, we've continued to find opportunities buying ads, whether it's on Google or Meta and just really taking advantage of some soft spots as buyers now -- sorry, as other brands sort of navigate tariffs. And then from a lag effect, yes, I mean, the new buyer growth continues to be exceptionally strong, and you'll see active buyers sort of trail that. But we feel very, very good about our ability to be aggressive in market acquiring customers. And I think you should see that this year. And there's no reason, frankly, we can't continue to acquire customers next year at a similar or better rate, given that we're going to be spending more dollars in marketing next year over '25. And this year, we spent more than '24. So I think the trajectory on the acquisition side is as good as it's ever been. Operator: And your next question comes from the line of Dana Telsey from Telsey Group. Dana Telsey: Nice to see the progress. Can you expand, James, on the premium selling kits, what you're seeing there and what percent of the mix do you think it could become? And also on the AI investments that you've made, how that's leading to conversion? Is that a step-up from last quarter? What are you seeing there? And then I just have a follow-up. James Reinhart: Yes. Sure, Dana. Premium has really grown nicely this year from really 0 to north of 20%. I think there's more room to run on it, Dana. I mean, certainly, the buyers that we have are really drawn to the premium mix. And so I think we're continuing to invest in scaling that. I think it'd be premature to know what to predict like what the steady state rate is of premium, but I would say it's probably higher than it is today. And what we're seeing is the premium brands out there that customers are loving are the ones that we're seeing the fastest growth. FARM Rio, Mac Duggal, Vuori, like those are all brands that I think are hitting the sweet spot of premium, and we just want to get more of them. And then on the AI side, I would say the product conversion rates continue to trend positively. I think the rebrand launched September 22. Alongside of that, we launched a new personalization strategy that was very powerful. And then we launched this Daily Trend Report that also, I think, is capturing what's in demand and using our AI tooling to deliver that in real time for customers. So you have better personalization plus better curation and trend forecasting on top of that having superior products flowing in. I think that's a recipe for the success that we saw in Q3. And I expect that to continue not just in Q4, but into '26. Dana Telsey: And then the new buyer growth, which is very impressive, demos of the new buyers and what you're seeing? And then just after that, just marketing spend, how do you see marketing spend in '26 compared to '25? James Reinhart: Yes. I mean I think on the marketing spend side, we're going to continue to spend marketing at higher rates than we -- on a percentage basis, the same, but more dollars overall. I think Sean said a number of times, we think it's the last thing we'll probably try and leverage in the business as we pursue the growth strategy. Dana Telsey: And the demos of the new buyers? James Reinhart: Demos remain the same, remain the same. Yes, it's been a very similar story. I think it's probably the third quarter in a row that we've been talking about record buyer growth and the demo of the buyers is consistent with what we've seen previously. Operator: And your next question comes from the line of Matt Koranda from ROTH. Matt Koranda: Nice job. I guess I just wanted to hear a little bit more unpacking of what you think is enabling the large acceleration in sales in the third quarter. Would you say it's the new tools that are available? Is it sort of the new buyer growth that you've alluded to? Are you getting more repeat from existing core customers? Maybe just unpack the trends that are driving the acceleration in the third quarter? And then also just curious on the fourth quarter growth that you guided for 14%. I guess, is that what you have observed actually quarter-to-date? And what causes sort of the deceleration there relative to the 30-plus percent growth you've been on? Sean Sobers: Yes. Let me tackle the fourth quarter piece. We've baked in everything we've seen to date in the guidance. So you can do the math how you want on that. But the midpoint of the guidance is 14.5% on Q4. James Reinhart: And typically, Matt, like October remains very strong, but then the minute you switch to holiday, you start to see wallet share shift to new gifts. So I would say that October year-over-year was stronger than the 14%, but we tend to see November, December be a little softer. Sean Sobers: I would add in the difference between like Q3 and Q4 is the comps that we're comping off of last year because last year's Q3 was a minus 10% growth and the Q4 last year was plus 10%. So if you think about it on a 2-year stack, actually, Q4 is growing really nicely. Matt Koranda: Yes. Now I think I understood it. James Reinhart: And then as far as like your first question on what's driving Q3, you sort of hit the tools, the buyers and the macro. I would say that the -- generally speaking, you're seeing consumers looking for value. So at the macro level, I definitely feel like we are being sharp on price and the value proposition. And I think probably on average, drawing more customers in with that approach. And then I think the tooling that we've built is improving conversion. And so I think we're having success in the story that we're telling in the market around ThredUp has great brands at great value. And then when customers are getting to the site, they're converting at higher rates. And I think that's been driving the flywheel for a few quarters now, and I think really worked exceptionally well in Q3, and we're optimistic that will continue. Matt Koranda: Makes a lot of sense. Maybe just one on the direct listings. Exciting to see that development, and I see the betas on the site right now. I guess how will the process work for sellers to begin to be vetted? And then I noticed it looks like no fees right now for sellers. So how do you envision, I guess, layering in seller fees over time as you get the volume ramped up in that channel? James Reinhart: Yes. I think on the vetting side, we're going to do a couple of things. So one is we have more than 0.5 million sellers on ThredUp today that we have already vetted, right? So the people who are already sending us Clean Out kits are vetted for peer-to-peer in advance. So I think we have a huge head start. And then on top of that, we're going to do -- we're either going to work with some third-party vendors to do vetting ourselves or just take an extra step for customers, whether that's making us scan a picture of their driver's license, right, or scan a QR code that we send to their house. But we're going to take seriously this idea of ensuring that these are high-quality sellers. I think it's become such a problem in the broader market of fraud and low quality. So we're going to take that seriously and probably invest on average more than other peer-to-peer markets might. And as for fees, don't get me wrong, we are going to monetize the transaction, but we'll generally be charging buyers some percentage of the fees. And then for returns, which we've talked about, we're effectively launching an insurance product, which is for buyers who want to be able to return items they're going to be buying an insurance like ability to return, and we can price that based on what we're seeing in the market. And I think for sellers over time, while I don't anticipate us charging fees to sellers, I do actually think we're going to build a lot of tooling that will help make their lives easier in selling items. And I think if those tools are high quality, you can imagine sellers subscribing to a suite of tools to improve their listing, their merchandising, all the things that make the seller process robust. So I see many, many ways that we can monetize this stream of buying and selling on ThredUp. And the market is so large, I think there'll be lots of ways to do it. Operator: And your next question comes from the line of Oliver Chen from TD Cowen. Oliver Chen: Nice job. Congrats. So on the revenue beat in Q3, what was driven by repeat versus new customer acquisition? And as we look ahead to 2026, how are you thinking about how those drivers interplay into your guidance? Also on the peer-to-peer model, which is really interesting and obviously very important. How would you compare and contrast on Poshmark or Mercari? I know it's been a difficult market in terms of profitability and fees. And it sounds like you're balancing control and scalability versus curation and fraud. And third question, Generative AI is something you've been very, very good at. On the peer-to-peer model, what role will that play there? And then we're doing a lot of work around OpenAI. Your thoughts on Agentic and the evolution in terms of brands and long tail, just different characteristics of Agentic and conversational commerce continues to be an important growing traffic consideration. James Reinhart: Thanks, Oliver. You got a lot in there. So if I miss anything, you let me know. I mean, I think on the Q -- on the revenue beat, consistently, existing buyers are still the driving force. Historically, it's 80% of our revenue is coming from existing buyers, and it hasn't varied that much to date. It's still -- while we're acquiring lots of new customers, the bulk of buyers on ThredUp are existing customers. And so you're even seeing the new customers we acquired over the past couple of quarters becoming repeat customers at higher rates in Q3. On the peer-to-peer piece, you asked on the competitive set. Look, I mean, frankly, there's been very little innovation and product work done by a bunch of these other peer-to-peer platforms. I think they've lost the plot a little. And so I actually think we can build something that's far superior to what's out there today. And so I see huge opportunity to build something that sellers and buyers love. I think it's clear there's a market out there. And the question is how to serve that market really effectively, and I'm confident we can do that. On the GenAI piece for peer-to-peer, yes, a lot of the tooling that we've built over the past year is being used to deliver a superior direct selling experience. That's everything from listing photography, curation, merchandising to how we price, to how we display to buyers. So I don't think we could have done this over a year ago, right? So a lot of this has been in development based on technology shifts in the market that I think have been pretty profound. Just a nice segue to your last question, which is on OpenAI and Agentic commerce. I think it's a big part of what's coming. I'm convinced that agents is going to be a part of how people shop in the future, but I can't tell you when. So I'm quite confident that we're in the middle of the change, but I'm not sure of the timing. And because I think shopping is a little different -- shopping for fashion is a little different than buying peanut butter. And so I think the peanut butter use case is a little bit more well defined. I think in fashion, it's going to take a little bit more time. But we're staying close to all of the large players in the space. Anybody who's building sort of customer-facing chat clients, we are in conversations with. Today, if you go to OpenAI and talk and ask ChatGPT about selling used clothes, we're at the top of that list. And so we're going to keep investing to make sure that, that stays true. Oliver Chen: And what -- on the peer-to-peer angle, James, what will be your competitive advantages? It sounds like customer engagement in the existing sellers. But what would you say? Because it's been a race to price in that marketplace, but it does sound like there's new technology now and you've investigated P2P for a long time. And then, Sean, as we think about CapEx in the forward years, is there anything we should know about like in terms of how that interplays with some of these new endeavors? James Reinhart: Yes. On the selling piece, I think if you look at the market for sellers, really, it sort of has lended itself to this professional seller network, which has crowded out your casual seller. And I actually think the most interesting part of the market is the long-tail casual seller. And so right now, the incentives for some of these platforms because the product experience isn't great, is to just get flooded with stuff. And so I think our approach is a much more measured, curated experience in direct selling that I think will benefit sellers by driving liquidity and sell-through for them and also delighting buyers with a better experience. I think for buyers, in particular, returns is a huge piece of friction in this market. Trust is a big piece of friction in this market. And I think we are delivering something that, I think, a far better experience, both on the trust and safety side as well as the ability to do returns and remove that big piece of question -- that big question mark among buyers of like, can I trust what I'm going to get, who stands behind it. So I think there's actually big advantages we're bringing to the market, and I'm excited to kind of keep going. Sean Sobers: And Oliver, on the CapEx, like I said on the call, we'll do $10 million about this year, and that will be consistent for 2026. And then once we get to 2027, we're probably at the point where we're filling in the Dallas DC. So we'll give you guys more of a view there, but I'd expect it to be more than the $10 million, but we'll give you information as we go along there. Oliver Chen: And finally, James, we've talked about AI together a lot. As you think about like first-party data as well as LLMs and partnerships with different LLMs, like how do you see that evolving in terms of your competitive mode in AI and how AI has a lot of open source. However, the proprietary tools that you develop are quite necessary since a lot of this is also not very generalizable. James Reinhart: Yes. I mean I think that we are benefiting from being a technology company and an infrastructure company at heart. I think all the tooling we built I think, has allowed us to move faster and stay ahead. And at the end of the day, I think Amazon has proved this out time and again that having the right products and being able to deliver them to customers is of utmost importance. And so in secondhand, I think we've got an incredible product selection across our DCs that's improving every day. And I think then when you add in direct selling, you just are compounding that supply advantage. And in resale, supply is the name of the game. And I think we're continuing to distance ourselves from others and having the best supply out there. Operator: And there are no further questions at this time. I will now hand the call back to James Reinhart for any closing remarks. James Reinhart: Well, thank you all for joining our call today. We set out on a mission to inspire the next generation to think secondhand first. And I think this year's results so far are just beginning to show what's possible in the years ahead. It's such an incredible time for ThredUp right now. I want to thank all the teammates for being a part of this journey and look forward to sharing further progress next quarter. Thanks. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good day, and welcome to Addus HomeCare's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead. Dru Anderson: Thank you. Good morning, and welcome to the Addus HomeCare Corporation Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2025 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its third quarter 2025 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir. R. Allison: Thank you, Dru. Good morning, and welcome to our 2025 third quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Heather Dixon, our President and Chief Operating Officer. As we do on each of our quarterly earnings calls, I will begin with a few overall comments, and then Brian will discuss the third quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions. As we announced yesterday afternoon, our total revenue for the third quarter of 2025 was $362.3 million, an increase of 25% as compared to $289.8 million for the third quarter of 2024. This revenue growth resulted in adjusted earnings per share of $1.56 as compared to adjusted earnings per share for the third quarter of 2024 of $1.30, an increase of 20%. Our adjusted EBITDA was $45.1 million compared to $34.3 million for the third quarter of 2024, an increase of 31.6%. During the third quarter of 2025, we experienced strong operating cash flow at over $50 million for the quarter. As of September 30, 2025, we had cash on hand of approximately $102 million. We ended the third quarter with bank debt of $154 million, leaving us with net leverage of under 1x adjusted EBITDA, allowing us the flexibility to continue to evaluate and pursue strategic acquisition opportunities. As most of you know, Heather Dixon became our President and Chief Operating Officer on September 15, with our former President and COO, Brad Bickham, moving to the position of adviser to the CEO until his official retirement in March of 2026. I want to welcome Heather to our team and thank Brad for all he has done for Addus over the past 9 years. This transition has been moving forward over the past several weeks as Heather and Brad have worked closely together to make this change as seamless as possible. I appreciate the efforts of both of them, along with the members of the operations team during this transition. While we will miss Brad, we are very excited to have Heather join us as part of our leadership team. As we mentioned on our last earnings call, both the states of Texas and Illinois have announced rate increases for our personal care services. The Texas rate increase was effective on October 1 of this year. The Illinois rate increase will be effective January 1, 2026, subject to the standard federal approval process. We believe the Illinois and Texas rate increases as well as favorable reimbursement support from many of the states in which we operate is due to the recognition of the value that personal care services provide to both state Medicaid programs and managed care partners through a reduction in the overall cost of care. We continue to believe these and other benefits associated with home-based care put us in a favorable position as changes to the funding and other aspects of various Medicaid programs are implemented as part of the OR. We continue to work through our legislative efforts in other states to help them understand the benefits for supporting these services with future rate increases. On July 30 of this year, CMS finalized the fiscal year 2026 hospice wage index and payment rate update, resulting in a 2.6% increase effective on October 1 of this year. This increase reflects a 3.3% market back increase, reduced by 0.7% productivity adjustment. Based on our current geographic and acuity mix, we expect to realize a 3.1% increase in our hospice rates. We are appreciative of this increase as it helps offset a portion of the added costs associated with providing this critical service to patients and their families. As for our home health, on June 30, CMS released the calendar year 2026 proposed home health payment rule. This proposed rule projects a 6.4% aggregate reduction in Medicare payments to the home health agencies in 2026 compared to 2025. As you would expect, there has been a great deal of advocacy put forth by the home health industry working with CMS to positively affect this potential rate reduction. While we do not have a finalized home health rate for 2026, we are hopeful that these efforts will have a positive impact on the final rate, which we expect to be published in the next few weeks. During the third quarter of 2025, we continued to experience strong hiring performance, especially in our Personal Care segment. For the third quarter of this year, we achieved hires per business day of 113, which is an increase of 6.6% over the second quarter of this year. In addition to our strong hiring numbers, we saw our starts per business day improved to 86 for the third quarter. Clinical hiring remains consistent with what we have experienced over the last 2 years and has been mostly stable outside of a few more challenging urban markets. Now let me discuss our same-store revenue growth for the third quarter of 2025. For our personal care segment, our same-store revenue growth was 6.6% compared to the third quarter of 2024. During the third quarter of 2025, we also saw personal care same-store hours increase by 2.4% compared to the same period in 2024. We also experienced incremental improvement in our percentage of authorized hours served. On a sequential basis, personal care same-store billable census was up slightly as we continue to see the impact of Medicaid redeterminations in Illinois near its end. In Illinois, our personal care admissions have started to exceed our discharges, which we expect should lead to census growth by the end of the fourth quarter of this year. As we have stated over the past several quarters, we expect volume growth to comprise a greater percentage of our personal care same-store revenue growth going forward. Turning to our clinical operations. Our hospice same-store revenue increased 19% when compared to the third quarter of 2024. Our same-store average daily census increased to 3,872 for the third quarter, up from 3,534 for the same period last year, an increase of 9.5%. Our third quarter 2025 same-store admissions were up 6.5% year-over-year. For the third quarter of 2025, our hospice median length of stay was 30 days, up 2 days sequentially. During the third quarter, we saw an improvement in our Medicare cap cushion as a result of our balanced admissions growth, which resulted in no additional cap liability being accrued during the quarter. We have been very pleased by the continuing growth in our hospice segment over the past several quarters as a result of our operational improvements. While our home health same-store revenue decreased 2.8% when compared to the same quarter of 2024, we have seen year-over-year admissions level out. I also want to point out that over 25% of our hospice admissions in New Mexico and Tennessee are currently coming from our Addus home health operation, which overlap in these 2 markets. We are pleased to see more patients receiving the benefit of the full continuum of post-acute care and anticipate a similar dynamic to develop in Illinois, where we also have both home health and hospice operations and we will continue to evaluate opportunities in other markets. In our earnings release yesterday, we announced that on October 1, we closed on our acquisition of the personal care operations of Del Cielo Home Care Services, which operates in the South Texas market, including Corpus Christi, increasing our personal care density in this area of Texas. This transaction continues our acquisition and development strategy of enhancing our geographic coverage and density in Texas. Our team is excited about this acquisition, and I want to officially welcome the Del Cielo Home Care team to the Addus family. Going forward, our development team will continue to focus on both clinical and nonclinical acquisition opportunities to increase both the density and geographic coverage to our current states. While the proposed home health rule will most likely continue to delay any meaningful home health opportunities, we will be evaluating smaller clinical transactions along with personal care service transactions that fit our strategy. Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing to our elderly and disabled consumers and patients. We all have come to understand that the overwhelming majority of clients and patients want to receive care at home, which continues to remain one of the safest and most cost-effective places to receive this care. We believe the heightened awareness of the value of home-based care which we are seeing is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients and their families. With that, let me turn the call over to Brian. Brian Poff: Thank you, Dirk, and good morning, everyone. The third quarter marked another strong financial and operating performance for Addus in 2025, as we continue to deliver consistent organic growth and benefit from our recent acquisitions. Our results were highlighted by 25% top line revenue growth and a 31.6% increase in adjusted EBITDA compared with the third quarter last year. Our personal care services segment was a key driver of our business with a solid 6.6% organic revenue growth rate over the same period last year, including a 2.4% increase in hours per business day. This growth trend has consistently tracked well above our normal expected range of 3% to 5% over the past several quarters, supported by strong hiring trends and favorable rate support for personal care services in some of our larger markets. This includes a statewide reimbursement increase in Illinois, our largest market, which was effective January 1, 2025, and a recent 9.9% rate increase in Texas that was effective on September 1, 2025. With Texas now being our second largest personal care market, this increase will have a positive impact on our business going forward, adding approximately $17.7 million in annualized revenue, with margins consistent with existing Texas personal care business of just over 20%. State of Illinois, which represents our largest PCS market, has also announced an additional 3.9% increase, which is set to be effective January 1, 2026, subject to customary federal approvals and will add approximately $17.5 million in annualized revenue for Addus, with margins consistent in the low 20% range. Our personal care results also include the Gentiva Personal Care operations, our largest acquisition to date, which we completed on December 2, 2024, and 2 months of operations for Helping Hands Home Care Services acquired on August 1, 2025. We continue to see steady improvement in our hospice business in the third quarter with strong 19% year-over-year organic revenue growth, driven by increases in admissions, average daily census, patient days and revenue per patient day. Hospice care accounted for 19% of our revenue for the third quarter. Going forward, the 2026 Medicare hospice reimbursement rate update was effective October 1, which will increase our rates by approximately 3.1% based on our current geographic mix. Our home health services represent our smallest segment, accounting for 4.9% of third quarter revenue. We continue to look for ways to support and expand the service line, including via acquisitions, as it is part of our strategy to offer all 3 levels of home-based care in select markets. In addition to the consistent organic growth we have achieved in 2025, we have benefited from our recently acquired operations. The Gentiva acquisition completed in December 2024, added approximately $280 million in annualized revenues and significantly expanded our market coverage. In August this year, we acquired Helping Hands Home Care Service, a provider of personal care, home health and hospice services in Western Pennsylvania with annualized revenue of approximately $16.7 million. And yesterday, as Dirk noted, we announced the acquisition of the personal care assets of Del Cielo Home Care Services located in South Texas, adding approximately $12.7 million in annualized revenue and further expanding our market presence in Texas. We continue to source and evaluate additional similar acquisitions as well as opportunities to add new personal care markets where we can enter at scale, as we believe having geographic coverage and density provides us with a competitive advantage. With our size and expanding scale and the support of a strong balance sheet, we are well positioned to continue to execute our acquisition strategy. As Dirk noted, total net service revenues for the third quarter were $362.3 million. The revenue breakdown is as follows: personal care revenues were $275.8 million or 76.1% of revenue. Hospice care revenues were $68.9 million or 19% of revenue. Home health revenues were $17.6 million or 4.9% of revenue. Other financial results for the third quarter of 2025 include the following: Our gross margin percentage was 32.2%, an increase from 31.8% for the third quarter of 2024. This was a slight decrease sequentially from 32.6% in the second quarter of 2025, primarily as a result of one extra holiday during the quarter. Looking ahead, we expect normal seasonality in the fourth quarter of 2025 with the hospice reimbursement update to benefit our gross margin percentage by approximately 40 basis points and a sequential benefit of approximately 20 basis points from lower unemployment taxes. G&A expense was 21.9% of revenue compared with 21.7% of revenue for the third quarter a year ago and lower sequentially from 22.1% in the second quarter of 2025. Adjusted G&A expenses for the third quarter of 2025 were 19.8%, a decrease from 20% in the comparable prior year quarter and a decrease sequentially from 20% in the second quarter of 2025. The company's adjusted EBITDA increased 31.6% to $45.1 million compared with $34.3 million a year ago. Adjusted EBITDA margin was 12.5% compared with 11.8% for the third quarter of 2024. Adjusted net income per diluted share was $1.56 compared with $1.30 for the third quarter of 2024. The adjusted per share results for the third quarter of 2025 exclude the following: Acquisition expenses of $0.08, noncash stock-based compensation expense of $0.18 and restructuring and other nonrecurring costs of $0.06. The adjusted per share results for the third quarter of 2024 exclude the following: Acquisition expenses of $0.08 and noncash stock-based compensation expense of $0.12. Our tax rate for the third quarter of 2025 was 24.7%, in the range we anticipated. For calendar 2025, we expect our tax rate to remain in the mid-20% range. DSOs were 35 days at the end of the third quarter of 2025 compared with 37.7 days at the end of the second quarter of 2025. We have continued to experience consistent cash collections from the majority of our payers. Our DSOs for the Illinois Department of Aging for the third quarter were 32.5 days compared with 38.8 days at the end of the second quarter 2025. Our net cash flow from operations was $51.3 million for the third quarter of 2025 and $92.7 million year-to-date. As of September 30, 2025, the company had cash of $101.9 million with capacity and availability under our revolving credit facility of $650 million and $487.7 million, respectively. Total bank debt was $154.3 million at the end of the quarter, a reduction of $18.7 million from the end of the second quarter and net of the acquisition of Helping Hands on August 1. We continue to have a capital structure that supports our ability to invest in our business and pursue strategic growth initiatives, including acquisitions. As mentioned, we will continue to selectively pursue acquisitions that complement our organic growth and align with our strategy. At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio through ongoing debt reduction. This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions. Operator: [Operator Instructions] The first question comes from Matthew Gillmor with KeyBanc. Matthew Gillmor: I wanted to ask about the same-store volume growth on the personal care side. Dirk had mentioned the improvement in the penetration of hours. And I think within that, you've talked about the benefit you're seeing from the caregiver app rollout in Illinois. Can you give us a sense for sort of how much more opportunity there is within Illinois? And then I believe you're rolling that out to New Mexico. And any update in terms of how that's gone and the penetration or the opportunity that would be with New Mexico? Brian Poff: Matt, this is Brian. I'll talk a little bit about just the penetration and Heather can talk a little bit about the schedule for the rollout in additional markets. But I think Illinois, a pretty mature market for us. We have seen some uptick there in our fill rate. I think in our view, going to New Mexico and Texas next. Their fill rate traditionally has been a little bit lower. So I think in our view, a little bit more of an opportunity, a little more headroom there to see some improvement. We saw some total improvement consolidated this quarter from last quarter. I'll let Heather talk a little bit about the rollout coming in New Mexico and Texas on the caregiver app. Heather Dixon: Sure. Matt, it's Heather here. That rollout is going very well. We're seeing the caregivers really driving some utilization in a nice way in Illinois, where we have rolled it out. As Brian mentioned, next, we'll go to New Mexico, and then we'll follow in Texas, where we think we have a little more headroom to see some improvements. That app is really giving caregivers the ability to use the app to gain information that they will find useful to themselves personally, such as their pay expectations, et cetera, but also to just be more efficient. As an example, they can see what the capacity is for their clients. They can actually reschedule a visit directly in the app without visiting or even calling the office. So we're seeing that really drive some of the utilization in a positive way. If I go back to how you started your question, the growth that we're seeing on a same-store basis in revenue and PCS, that was partially due to the rate increases that we talked about in the script, but also just notably an uptick in the billable hours, which we also mentioned in the script. That's coming in at a very nice rate, and that's partially the focus on hiring and also the fill rate consistency. But we're seeing, of that 6.6% same-store revenue growth, over 1/3 of that is actually coming from the hours, the billable hours increases. Matthew Gillmor: That's great. And then Brian, I was just going to follow up on the cash flow. It was particularly strong in the quarter, and it seems like the Illinois Department of Aging DSOs continue to decline. Is that just normal fluctuation? Or is there any effort on their part to pay in a more timely way? Brian Poff: No. I think traditionally, you're always going to see a little up and down just based on timing, nothing specific with them. I think what we like to see this quarter, Q1 and Q2 probably had a little bit of a headwind from working cap in both of those quarters. We saw that revert in Q3. I think where we sit today, year-to-date, we have, I think, net a little over $5 million benefit from working cap changes. So pretty consistent, but it's all just timing related, nothing specific. Operator: The next question comes from Ben Hendrix with RBC Capital. Benjamin Hendrix: Welcome, Heather. Just wanted to follow up on that prior line of questioning in terms of the organic momentum you're seeing. How are you thinking about, especially in light of the strong Texas rate increase and what you're seeing in Illinois, the hiring trend into 2026? Is this strong volume growth that we saw kind of how we should think about a jumping off point for organic growth in 2026? Brian Poff: Yes, Ben, this is Brian. I can jump in. I think what we're seeing really on the hiring front, Dirk mentioned, 113 hires per business day, the highest mark we've seen all year. So I think we've gotten some good momentum on that side. The labor market continues to be pretty consistent. I think to your point exactly, when you get almost 10% rate increase in Texas, margins are going to be pretty consistent. So the caregivers are going to get some increases there. Well we've seen that in the past in other markets where caregivers are -- with the ability to pay more that traditionally has benefited hiring on the other side of that. So I would anticipate seeing something similar in Texas, which is a big market for us. I think it kind of plays all back into our overall thesis. If the rates are there where we can hire more caregivers, that's always going to help us on the organic volume side. So I think we feel like we're in a good spot here toward the end of '25, headed into '26, have some good momentum on that side. We've been talking about it for a bit. We really are targeting trying to keep above that kind of 2% year-over-year volume growth. We've kind of been at it or just below it early this year, seeing 2.4% this quarter was really nice, and we hope to keep that momentum going into '26. Benjamin Hendrix: Great. And just a follow-up also on your commentary about the complementary home health and hospice assets in specific markets. Obviously, a lot of uncertainty in home health, but solid rate update in hospice. How is that kind of changing your appetite right now? What would you expect in the near term in terms of how you're going to allocate capital to those markets where you're looking for that 3 legs of the stool? R. Allison: Yes. We are always interested in home health in overlap markets where we can put them together with personal care and hospice. I think you see what we're seeing in New Mexico and Tennessee is validation of the strategy, which we believe where home health plays for this company. As we look to increase our home health segment, we will be careful. Obviously, the rate discussion that's out there now has kind of lowered the temperature for anybody to be able to do anything of size in home health. So we'll continue to monitor that. But again, remember, home health for us is truly an add-on to our personal care and hospice business. And so strategically, just like we've done in this past year, if we find companies that have home health in a market where we have these other 2 services, we're not opposed to going ahead and pull the trigger. Operator: The next question comes from Brian Tanquilut with Jefferies. Brian Tanquilut: Congrats, again, on the quarter. Maybe, Brian, as I think about 2026 -- I know we're obviously not giving guidance, but as I think about your ability to drive margins, I think we can build the building blocks to EBITDA on revenue. But how are you thinking about the margin opportunity as we think about next year? Brian Poff: Yes, I think the main thing to keep in mind as we continue to grow top line and we're continuing to see that kind of consistent growth, particularly in PCS and hospice, we should get some additional leverage on G&A. I think that's been our model all along. We're not going to grow those cost bases at the same rate. So thinking about just bottom line margin year-over-year, we would expect to see some benefit from that in '26, everything else being the same. I think, obviously, what we do in the mix and M&A can play into that as well. If we're a little more active on the clinical side, there's a little higher margin profile. But business as it is, I think it's more leverage on G&A costs with top line growth. Brian Tanquilut: Got it. And then setting aside the fact that we're still waiting for this home health rule, we'll see when it is. But how are we thinking or how are you guys thinking about the home nursing business within your book? I know there are some moving pieces there. So just curious what efforts are being put into place to drive inflection there? Brian Poff: Yes. I'd say, we talked about a little bit, I think, in the last couple of calls, Brian, where we have really kind of 3 key markets in our home health business, New Mexico, Illinois, Tennessee, all through acquisition. We've done a lot of things over the last, I'd say, 9 months or so to really kind of get processes standardized, really trying to get the profitability level straight. I think still on the growth side, we have not kind of seen that take off, I think, particularly in Tennessee. We've got some new leadership in there to really try to kind of get that thing moving in the right direction. So outside of the rate, we'd like to see that business start to perform a little bit better. We're looking for, probably at a higher level, some leadership to come in and help with that as well. Heather can jump in on that here in a sec. But I think a focus of ours, but really to Dirk's point, a real benefit for us there, not necessarily the operations of that business per se, but the benefit that it provides indirectly into hospice. It's something you don't see on a segment level in the results of home health, but they're definitely benefiting in the hospice area. But I'll let Heather talk a little bit about that as well. Heather Dixon: Yes, I'll pick up on that. We're working on several initiatives within that business, and we're seeing admission volumes stabilize on a same-store basis. But what we're seeing is a decline, sorry, in recertifications, which is attributable to what Brian is referencing. So I'll talk about that for a minute. That's the bridging program that we've put in place to make sure that patients are receiving care in the right setting and the right level of care. And that's been in place for a while in New Mexico, and then we rolled it out, as Brian mentioned, within the last 12 months in Tennessee, and we're seeing it really start to take off there. And what we're seeing is an uptick in our admissions from a hospice perspective in those markets from these referrals. And in fact, as we mentioned earlier, in New Mexico and Tennessee, over 25% of our hospice admissions come from the home health segment and from this program. So we see this as a real benefit in having the 3 levels of service in the markets that we serve and particularly between home health and hospice, where home health is just really a complementary line of service to the other businesses. Operator: The next question comes from Joanna Gajuk with Bank of America. Joanna Gajuk: So maybe first, couple of, I guess, numbers and clarifications. On your comments about fourth quarter gross margins, right, sounds like it implies maybe high 32% or so for gross margin. And then if we assume G&A, call it, below 21%, I guess it implies adjusted EBITDA above 13% or so in Q4. Is that the right way to think about numbers? Brian Poff: Yes, Joanna, I think that's fair. I think if you look at the seasonality of our business and our company, Q4 is always the high watermark for margins for us, and I would expect that to be the case. We've been solidly in the 12s all year. But Q4, based on what we see right now, expectation of being 13% over for that quarter, I think, is definitely reasonable. Joanna Gajuk: And I guess you answered the other question around the margins for next year. So if you grow high single digits or low double digits revenue, right, it's going to be G&A leverage. So growing from, call it, 12.5% or so for this year, adjusted EBITDA, that should be kind of our thinking about next year, right, growing from that level? Brian Poff: Yes. I think that's fair. I think back to my earlier comment, I think top line growth is always going to get us some additional leverage on G&A. So everything else being equal. Obviously, everything can change at any time as we all know, but everything else being equal, that should be the case. Joanna Gajuk: Okay. And my question on the topic of rate updates from your key states, [ that you did great in ] Texas and Illinois. And on your last call, you alluded to the idea that there's an expectation that New Mexico, Pennsylvania might have some rate increase. It doesn't seem like Pennsylvania is in a position to increase rates, right? So is there a risk to a rate cut in that state in particular? And any other states that you're on the lookout for? And maybe give us a little bit update on New Mexico. Brian Poff: Yes. I think New Mexico, when they get into their budget cycle for next fiscal year, which is still early, we're not in that range yet, I think we're hopeful that with their consideration of a rate increase this year, that will be something that they'll consider next year. And obviously, we'll be working with the industry on advocacy for that in the next cycle. I think on Pennsylvania specifically, yes, I think they had considered a rate increase this past year. I think with everything going on there, I think our most recent intelligence from what's going on in their budget or inability to get a budget would probably put us in a position of thinking we'll probably be flat again. I don't think we're anticipating a rate cut, but probably not as optimistic as we were about a rate increase in Pennsylvania in this next budget. Joanna Gajuk: And any other states that we should be looking out for in terms of any major increases or, I guess, potential for cuts? Brian Poff: No, nothing that we're aware of at this point. I think usually, a lot of those states when they get into session, it's going to be probably more early '26, early the spring time, but nothing that we are aware of that would be worth mentioning at this point, no. Operator: The next question comes from A.J. Rice with UBS. Albert Rice: Welcome aboard, Heather. Maybe just to think broadly about the acquisition and deal pipeline. I know that's an important part, obviously, of your ongoing inorganic growth strategy. Can you just update us on what you're seeing competitively across the main buckets, how pricing is evolving? And what does the pipeline look like, whether it's pretty deep or a lot of things are just on hold right now? Brian Poff: Yes, A.J., I think I'd characterize it that we haven't seen probably a lot of shift from where we have been probably over the last, I'd say, 1.5 years or so. Most of the things that we're looking at or are in our pipeline today are probably on the smaller side, similar to Del Cielo we just closed, Helping Hands that we closed last quarter, in markets that we're in, providing some density, low multiples. PCS on the small end are still going to be -- could be as low as 4x and 5x. Even larger size could be maybe 7x, maybe 8x. That really hasn't moved much. I think on the clinical side, there's been a couple of large -- very large hospice organizations that traded this year for very high multiples. It seemed like there maybe was a little bit of moderation coming in, but still probably mid-teen type expectations, so still a little pricey on that end. We would always be interested in hospice, but probably at a little lower price point. And then home health, as Dirk kind of mentioned earlier, there is some benefit to us and how that feeds into or works with personal care and hospice. So if there's opportunities on the home health side, it's going to be probably on the smaller side for us in markets that we're in kind of overlapping. Those are things we'd be interested in, but those tend to still be a little on the inexpensive side. So if they're smaller, it could be upper single digits, maybe it presses closer to 10-plus times if it's more sizable. But obviously, we'll always work into our performance on any home health deal, what might be going on with rates. We're very cognizant of that as well. I think what we're hearing from folks externally thinking about '26, there could be some things that might be on the larger side that might be available. Some of those might be interesting to us. So early conversations, nothing really to report, but we're hopeful maybe there's a little more opportunity for us to do some larger chunkier things next year. Albert Rice: Okay. And I know you've been asked a couple of times about home health. But if, say, we get the rate noticed and it gives clarity as to sort of the trajectory, is that enough, do you think to maybe step up the pace in home health a bit? Or do we need some time for everything to settle out, assuming we get some kind of a rate action, either the 6.4% is proposed or maybe they happen or something like that. Does it take some time for the market to sort itself out? Or do you think people will react pretty quickly and you might be able to step up the activity in home health there? R. Allison: Well, I think getting this year's rate finalized will certainly take one of the issues that's on the table as far as doing much in the home health industry. The problem you're going to have, A.J., is that unless they come out with a fix for the potential clawback, which is, what, 400 basis points of this year's potential rate reduction, if they do away with that, are they going to send a signal that, that is passed and won't come back up again? As long as that overhang is still out there on any potential clawback, I think it's going to continue to keep the acquisition in the home health market a little moderated in the future. Operator: The next question comes from Jared Haase with William Blair. Jared Haase: I wanted to ask another one on your comments about the value of having overlapping operations in New Mexico and Tennessee and the impact that has on referrals between home health and hospice. So I'm curious, when you look at the data, do you actually see a meaningful difference? When you have the overlap there, do you actually see a meaningful difference in either patient satisfaction, quality of care, anything to that effect when you kind of have that density of service offerings in a particular market? Heather Dixon: Jared, this is Heather. We do -- we see a couple of benefits that are coming from that referral ability from home health to hospice. The first, it's better for the patient and for the family to be in the right setting of care and to be receiving the right level of care. So we see that benefit that comes through. We also see continuity of care from those 2 different settings of care from home health to hospice. So what we're seeing from the patients and from their families, of course, once they're in hospice has been positively influencing some of the decisions that we're making as we see those hospice admissions that are really supporting -- or being supported by home health. Jared Haase: Got it. That's helpful. And then I just wanted to follow up as well on the comments around clinical labor. And it sounds like that's been stable for at least a few quarters now. I think you mentioned outside of a few challenging urban markets, though. Just wanted to understand that a little bit better. So what specifically is sort of challenging in some of those markets? Is that largely just a function of kind of the broader reimbursement environment makes it harder to compete on wages in certain areas or something else we should be thinking about? Heather Dixon: No, I think it's really largely just related to some of the larger urban markets. And more specifically on the skilled side, we're seeing better opportunities for hiring than what we have seen in the past. But as pockets are arising out there or continue to be managed through, it's very limited to those skilled hires, I would say, and then the urban market. Jared Haase: Okay. Got it. I guess maybe just a point of clarification then. If we did get some sort of meaningful relief on the reimbursement rate in the home health space, do you feel like the labor market is such that you would be able to kind of attract the folks that you need to return to more consistent organic growth there? Heather Dixon: Yes. Operator: The next question comes from Raj Kumar with Stephens. Raj Kumar: Maybe just kind of focusing on hospice. I know the company has kind of talked about making key investments in the team over the past few quarters. And maybe just kind of want to break down what they've been able to identify, clearly strong results organically this year. And have they been able to reconcile all what they've identified in 2025? Or should we expect a kind of multiyear opportunity in terms of being able to display kind of above targeted same-store revenue growth for that segment? Heather Dixon: Well, maybe I'll start with some of the initiatives that we have that are driving the results, and then Brian can talk about sort of how we think that will develop from a future perspective. But you're right, we're seeing very nice volume growth in that hospice segment. And I think there are a few things that I would point to. The first is just a focus on better execution. That includes a focus on our onboarding and training efforts across the board, but specifically related to the utilization of community liaisons. We've mentioned that we've made some leadership changes there, and we've invested in a sales function that is focused on structured sales efforts and developing local market strategies for business development, including a better utilization of those community liaisons. We've mentioned we're seeing success from that bridge program that we put in place to drive the right referrals from home health into hospice, and we've talked about that, that that's really been something positive that we're seeing. And so we do see a lot of positive momentum in that hospice business that we've seen through the quarter. We've seen that building and that we would expect to continue. Brian Poff: Yes. And Raj, I think, obviously, 19% organic growth is probably not something we would expect to have into perpetuity. But I think we've said for a long time, everything else being equal, we would expect our hospice business to have an opportunity to grow in the kind of mid to at least upper single-digit range. So I think all the changes that we've made, I think the comps that we're seeing over the last year is probably driving some of the percentage increase. But as we get settled into a nice trend, I think that upper single-digit range is probably still fair. So our business, we're going to get the benefit of a little over 3% on rate. So if you think about what that leaves for ADC growth, I think we feel pretty comfortable that we could continue in that range. Raj Kumar: Got it. And then maybe just on home health, kind of fee-for-service mix trended kind of lower sequentially and year-over-year. I know there's been progression on the margin front with that business as you kind of case to optimize the whole book. But trying to get a better picture of kind of how margins did trend in this quarter given the mix shift dynamics. And there was kind of higher MA mix. So maybe trying to gauge also if there's any incremental case rate or episodic reimbursement wins on the MA side in the quarter. Brian Poff: Yes. I think we continue to make a little headway on just getting better rates and working with MA plans and moving to more episodic. That's really our focus, not necessarily Medicare fee-for-service versus MA, but really episodic versus non-episodic. And I think we've made some progress there. I think in this quarter's numbers, you're seeing a little bit of impact. It's small, but Helping Hands was largely MA's a little bit of home health business up there. And I think in Tennessee, we've got contract changes that we've gotten done down there that have helped kind of shift a little bit of that business in that Tennessee market. But nothing, I think, on a high level that I would flag out as being material overall. Operator: The next question comes from Constantine Davides with Citizens. Constantine Davides: Just a quick one on Del Cielo. Their website says they also offer other levels of service. So I just wanted to confirm that the only thing you're getting is just the pure personal care business. Brian Poff: That is correct. We only purchased the personal care assets of that business. Constantine Davides: Great. And then just a follow-up on this 25% figure, New Mexico and Tennessee in terms of impacting growth in hospice. You've obviously got a PC footprint that's multiples bigger than what you have in home health. And I was just wondering if you could articulate some of the benefits of being in personal care as it pertains to maybe the growth algorithm in both home health and hospice. R. Allison: Yes. Thanks. That's a great question. It's part of our overall strategy that we've been following for a number of years now. We believe that everything starts with personal care. That is something that we have stated before and we will continue to state. The problem with getting a bridge program today as strong as we see from home health to hospice from personal care up to other levels of care is the EMR in which we operate today. So if you look at today, we've got Homecare Homebase in the home health and the hospice. So everything can be done from an electronic standpoint where we can use systems to kind of look at our patient base and recommend levels of care and changes that may need to happen in the future. The problem we have today with personal care is it's on a different system. So everything from a bridge process is much more manual. And so that is why 3 or so years ago, we started working with Homecare Homebase to develop a strong personal care system that we could put in place and then use going forward to have one EMR, so that we could start a bridge program all the way through our levels of care. We are early in that transition. We are still working with Homecare Homebase. There are still some things we need to finalize. I think today, we have 5 small states that are using that today, and we're learning from that. But the whole plan going forward is to get this on one system, so that then you will start to see the same sort -- in our minds, the same sort of bridge results that we currently get between home health and hospice, you can then start with personal care. So that, again, kind of encapsulates our entire strategy that we've been applying for the last 4 or 5 years. Operator: The next question comes from Christian Borgmeyer with TD Cowen. [Operator Instructions]. Christian Borgmeyer: I had a question about the hospice side. Revenue per patient day was really strong in the quarter, and you also cited an improvement in the Medicare cap cushion. I was curious if this was a tailwind to revenue per PD in the quarter? If there may be a similar dynamic in 4Q? And then just curious what sort of clinical dynamic drives this Medicare cap liability. Brian Poff: Yes. I think -- this is Brian. On the Medicare cap side, Dirk mentioned we had no liability this quarter. We actually took a little bit of a charge in Q2. So I think sequentially, you saw a benefit of that flow through the revenue per patient day. I think the other thing that impacted this quarter, I think just on a year-over-year basis, we did see some positive effect from the good old implicit price concession or revenue adjustment or whatever you want to call it. But we had some positive experience in collecting some older aged AR, and I think that benefited a little bit in this quarter, but nothing that was, I think, overly material. I think just going forward, just talking about cap, I think we feel like we're in a pretty good position. I think we've had a lot of focus in a couple of locations where we had that issue creeping in. We have done a lot there to make progress on our referral mix, and balancing that out is a highlight for us. So I think if you look at us historically, we've always had probably 1 or 2 locations every year that might slip a little bit into cap. It's nothing new for us. It's something that we manage kind of day-to-day, but I think we feel pretty good where we are coming out of Q3 into Q4 that we're in a good spot. Operator: The next question comes from Andrew Mok with Barclays. Mingchuan Song: This is Jeffrey Song on for Andrew. Medicaid payers have been under a lot of pressure recently. Can you help us understand the nature of the dialogue between payers and providers in the home health space in recent months? R. Allison: Yes. If I understand your question and what you're trying to get to, I do think the OBRA out there has put some pressure on states with their Medicaid programs. They're having to look at how do we take the dollars we're continuing to receive from the Feds and apply that effectively to our Medicaid program. And I think that's where that puts Addus squarely in an important seat in that discussion, because if you think of our service, when people are qualified for first care services, they also would be qualified for nursing home services if we cannot keep them in their home with the amount of hours that the states are giving us. So we have demonstrated to a number of states and a number of our managed care partners through value-based care contracts that by following certain protocols, keeping them in the house, we're able to reduce various aspects of other costs related to those patients that would be covered by Medicaid, whether that's emergency room visits, whether that's readmits to the hospital, or quite frankly, SNF, where people would end up in 24-hour SNF care, which is much more expensive to the state. So it's our job as an industry, it's our job as Addus to continue to work with the states to show them the value proposition of if they are looking where to put their dollars for the Medicaid program to be the most effective to make sure that they put it into the personal care business, which is going to save them money overall. Operator: This concludes our question-and-answer session. I would like to turn the conference over to Dirk Allison for any closing remarks. R. Allison: Thank you, operator. I want to thank each of you for taking the time to join us on our earnings call today, and I hope you all have a great week. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the ADTRAN Holdings Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Peter Schuman, Vice President, Investor Relations. Please go ahead. Peter Schuman: Thank you, Carly. Welcome, and thank you for joining us today, and welcome to all those joining by webcast. During the conference call, ADTRAN representatives will make forward-looking statements that reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including those detailed in our earnings release, our annual report on Form 10-K as amended and other filings with the SEC. These risks and uncertainties could cause actual results to differ materially from those in our forward-looking statements, which may be made during the call. We undertake no obligation to update any statements to reflect events that occur after this call. During today's call, we will refer to certain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP measures and certain additional information are included in our investor presentation and our earnings release. We have not provided reconciliations of our fourth quarter 2025 outlook with regard to non-GAAP operating margin because we cannot predict and quantify without unreasonable effort, all of the adjustments that may occur during the period. The investor presentation has been updated and is available for download on the ADTRAN Investor Relations website. Turning to the agenda. Tom Stanton, ADTRAN Holdings' CEO and Chairman of the Board, will provide key highlights of the third quarter of 2025. Tim Santo, our Senior Vice President and CFO, will review the quarterly financial performance in detail and provide our fourth quarter 2025 outlook, and then we will take any questions you may have. I'd like to now turn the call over to Tom Stanton. Thomas Stanton: Thank you, Peter. Good morning, everyone. ADTRAN delivered solid third quarter results with revenue near the upper end of our guidance and higher operating margins. All 3 business categories achieved double-digit year-over-year growth, reflecting disciplined execution, new customer wins and healthy demand for fiber networking solutions. Operating profit exceeded the midpoint of our outlook, underscoring the solid execution and our focus on leveraging financial performance as a driver of longer-term value creation. The quarter was led by strong results in Optical Networking and Subscriber Solutions, while Access & Aggregation reflected anticipated buying patterns of 2 large European customers. We expect those customers to come back online either early -- late in the fourth quarter or early next year. We remain confident on the overall market for the remainder of this year, however. During the quarter, we closed on a $201 million financing transaction that lowered our borrowing cost and increased financial flexibility, important steps that strengthen our capital structure and position us to execute confidently on longer-term strategic objectives. Turning to the quarterly results. ADTRAN reported $279.4 million, reflecting strong year-over-year growth across all 3 revenue categories. This marks the fifth consecutive quarter of sequential growth and fourth consecutive quarter of year-over-year improvement, proof points that our portfolio strategy and market positioning are driving sustainable momentum. This consistency underscores the health of our business, continued improvement in market conditions and the progress we are making in strengthening our foundation for the longer-term growth. From our customers' perspective, engagement across our portfolio continues to strengthen as we broaden our technology reach. We're making it easier to choose ADTRAN, not just because of what we build, but because of how seamlessly our solutions work together. Our integrated portfolio means fewer handoffs, faster time to value and one accountable partner across optical, access, subscriber and software. Our technology is the enabler, but the outcome is what matters; simpler operations, greater efficiency and a trusted relationship that continues to open new opportunities for collaboration. Our Optical Networking solutions grew 47% year-over-year and 15% sequentially, driven by strong momentum in Europe, including deployments with a new large service provider. We added 15 new optical customers in the quarter, reflecting continued share gains and the expanding reach of our portfolio. Demand remains robust and geographically diverse, supporting a wide range -- array of applications. These include national networks throughout Europe, secure connectivity for major enterprises and government clients worldwide with high-capacity interconnects for large-scale content providers. Access & Aggregation revenue grew 12% year-over-year, supported by ongoing fiber access investments among regional operators in the U.S. and Europe. While revenues from our small and medium service providers in the U.S. were substantially up, this increase was offset by the seasonal buying pattern of 2 major European customers. We added 14 new customers for our fiber access and Ethernet aggregation platforms, demonstrating continued traction across both new and existing markets. In Subscriber Solutions, revenue grew 12% year-over-year and 21% sequentially, driven by demand for both residential and wholesale applications. We added 18 new customers during the quarter as service providers continued expanding fiber reach and upgrading Wi-Fi capabilities. This quarter, we introduced Mosaic One Clarity, a new application built on our carrier-grade Agentic AI platform that enables predictive maintenance, guided issue resolution and proactive network optimization. Early results from customer pilots are promising, demonstrating a reduction of up to 75% in network-related trouble tickets. This is a strong validation of our AI-driven approach to network intelligence and a clear example of how innovation within Mosaic One is helping operators improve performance and efficiency. Structural shifts across our industry from core to edge computing and the advent of intelligent networks are reshaping connectivity worldwide. AI isn't just transforming data centers; it's redefining the entire network. The rise of distributed computing and edge processing is driving new requirements for bandwidth, latency and reliability, fueling demand for high-capacity optical solutions, next-generation access platforms and intelligent software to automate operations. ADTRAN is uniquely positioned at the intersection with our differentiated portfolio and our Mosaic One operating platform. As investment accelerates in AI and cloud computing, upgrades will follow across the network through metro transport, access and aggregation, and ultimately, the subscriber edge. Our Optical Networking, Access & Aggregation, Subscriber Solutions and Mosaic One software are built for that cascade, delivering higher throughput, lower latency and smarter, more efficient operations at scale. In summary, Q3 was another quarter of solid execution and strategic progress, marking a clear step forward in both performance and positioning. We delivered top line momentum and profitability improvements while enhancing our ability to invest and operate with greater financial flexibility, all of which reflects the disciplined way our teams are executing across the business. More importantly, we are setting the foundation for sustained value creation. The actions we've taken to enhance efficiency, strengthen our balance sheet and sharpen our focus are enabling us to operate from a position of greater agility and confidence. As Tim will discuss in more detail during the financial review, our scale efficiencies are creating meaningful operating leverage across the business. With disciplined cost control and strengthened balance sheet, we see line of sight to continued margin expansion and earnings growth as we move through 2026, all while maintaining the same financial discipline that has guided our progress. With that, I will turn the call over to Tim to review the financial results in more detail. Tim? Timothy Santo: Thank you, Tom, and thank you all for joining us this morning. We delivered solid results in the third quarter, reflecting strong discipline and consistent execution across the business. As Tom shared, we achieved broad-based revenue growth, higher margins and improved operational efficiency as benefits from increased scale began to take hold. Demand was strong in optical networking and subscriber solutions, supported by healthy customer activity and continued broadband investment globally. Over the past quarter, we've reinforced the operational fundamentals of the business and enhanced our financial controls and processes to support growth. These actions strengthen reliability and transparency of our published results and position us to deploy capital effectively, aligning operational execution with long-term value creation. As Tom shared, the third quarter also marked a significant step in strengthening our capital structure. The $201 million transaction that we completed has lowered borrowing costs, improved liquidity and substantially reduced risk. While it also unlocks significant availability under our revolving credit facility, it does not change the strategic priorities we've outlined to monetize our non-core assets. As many of you know, we recently engaged new partners to represent the sale of our Huntsville campus. Together, we have relaunched a targeted marketing process and are actively speaking with interested parties. We will remain disciplined on terms and timing, and we'll provide updates as appropriate. Simply put, we are moving forward the process with focus and intent. Maintaining a healthy balance sheet remains a top priority. We've made tangible progress this year, and our balance sheet today is more resilient, flexible and better aligned to support long-term growth. Turning to the financial results for the third quarter of 2025. Revenue was $279.4 million, up 23% year-over-year and 5% sequentially, finishing at the high end of our guidance. Growth was broad-based, led by Optical Networking, which increased 47% year-over-year. Geographically, non-U.S. revenue accounted for 57% of total revenue, while the U.S. represented 43%. One customer contributed more than 10% of total revenue during the third quarter. Non-GAAP gross margin improved to 42.1%, up both sequentially and year-over-year, driven by scale efficiencies, product mix and component cost reductions. We remain focused on sustaining gross margin in the 42% to 43% range over the long term. Non-GAAP operating profit rose to $15.1 million or 5.4% of revenue, exceeding the midpoint of our outlook. On a sequential basis, operating profit increased by $7.1 million or 89% compared to $14.6 million from approximately 0 in the prior year. Operating income during the same period has increased to 5.4% in Q3 2025 from 3% in Q2 2025 and 0.2% in Q3 2024. Currency had a minimal impact on our earnings this quarter. While volatility persists across both revenue and expenses, our natural hedging framework continues to mitigate risk. Building on the stronger forecasting, reporting and treasury processes established this year, we are now expanding our FX strategies to further protect our balance sheet and working capital. Non-GAAP tax expense in Q3 2025 was $3.5 million or an effective rate of 38.3%. Non-GAAP EPS was $0.05 compared to breakeven in Q2 2025 and compared to a loss of $0.07, 1 year ago. We continue to strengthen our financial position with working capital improving by $13.2 million. Accounts receivable increased by $13.9 million, resulting from increased sales with DSO remaining relatively flat at 59 days. Inventory declined by $16.3 million sequentially, reducing days inventory outstanding by 11 days to 124. Accounts payable totaled $188.9 million with days payable outstanding remaining flat at 70 days. We remain focused on maintaining a healthy balance sheet with our objective of achieving a net positive cash position. Operating cash flow was $12.2 million, and year-to-date, we've generated $38 million in free cash flow. We ended Q3 2025 with $101.2 million in cash, cash equivalents and restricted cash and importantly, a stronger liquidity position. In summary, Q3 reflects disciplined execution, profitability improvement and continued financial progress. We entered the fourth quarter with confidence, despite typical seasonal factors, fewer shipping days, holiday-related customer acceptances and budget timing. While those dynamics remain, we expect solid demand and our execution to offset the usual headwinds. We expect revenue between $275 million and $285 million and anticipate a non-GAAP operating margin of 3.5% to 7.5%. We expect OpEx to remain relatively flat compared to Q3. We look forward to a strong finish to the year and remain focused on driving sustainable growth and maximizing long-term stockholder value. I now turn the call back to Tom for some concluding remarks. Thomas Stanton: Thanks, Tim. I think we'll open up to some questions first. Carly, at this point, we can open up the question queue for any questions people may have. Operator: [Operator Instructions] Your first question comes from Michael Genovese with Rosenblatt Securities. Michael Genovese: I guess my first question is, looking at the Access & Aggregation and the comments on the European customers there as well as the information put out by ADTRAN Networks in Europe talking about, I think, a little bit of a timing change. So my question is, is there -- was there like a pushout of some things? I mean I know the first half of the year tends to be seasonally stronger than the second half in that Access & Aggregation European business. But versus prior expectations, was there some kind of push out in the timing of some of those shipments? Thomas Stanton: There has been -- there's been, let's say, I don't -- push out alludes to the fact that there may be some risk in that. I don't think there's any risk, but there has been some changing in some of the timing. We have 2 big customers that tend to be front-end loaded. In fact, they're 2 of our biggest customers in the year. And then one of the customers has a calendar that is offset from typical -- their financial calendar is different. So that means budget cycles are different. But yes, there's always some puts and takes. So the answer is yes. Michael Genovese: Okay. And I'm sorry, I just -- in terms of what you said, I think you gave us an update on the real estate, but I was a little bit -- just I couldn't follow exactly what you said about. So could you talk about that again? Thomas Stanton: Sure. Basically, what Tim mentioned was, we have put the both buildings back on to the market. We are actually receiving -- we've got multiple offers coming in, right, Tim? Let me let you cover that. Go ahead. Timothy Santo: We've -- in this past quarter, where we left off, we are under an exclusivity agreement, and we pulled the buildings down while we were working through that. As we disclosed last quarter, they're back on the market and very actively being marketed. Both the parts of the campus, we have interests from multiple parties and are having regular conversations. Michael Genovese: Okay. And then finally, I'm just going to -- kind of a bigger picture question, which is, traditionally, telecom has not been a super-fast growth market, right? It's the telecom in general is a single-digit growth market. So, if ADTRAN is going to grow higher than that on the top line and be more of like a high single or double-digit growth company, is it because there's fundamental acceleration in what you're doing in fiber and access or you're gaining share? Or is there some repositioning to higher growth markets like more data center exposure? Like what -- just how do we think about 2026 and sort of what the drivers of the business are from a high level? Thomas Stanton: Yes. So I kind of agree with everything you're saying. I mean you typically see the telecom market in the single digits, kind of mid-to-high single digits and it kind of varies year-to-year from there. Our premise has been, there is that typical growth. We do believe markets in general are that -- effectively that the focus right now on data center -- speeds and data center capacity is starting to affect the overall market, although I don't think that's really in numbers today. But the premise is, there's a significant market share disruption that's happening in Europe right now, and we are the #1 winner in that market share grab that's going on in Europe. I mean the largest player in Europe is being displaced. Michael Genovese: Last follow-up on that. Is there anything incrementally in Germany happening where -- I believe that Germany had already decided to kind of cap Huawei, but I'm not sure if they ripped and replaced yet. Could that become something incremental actual rip and replacing of Huawei? Thomas Stanton: Yes, they could. I think over time, rip and replace is going to have to happen everywhere just because you have to maintain the network and you can't be getting new drops of code all the time. There are -- as you know, there's been a lot of talk over the last few weeks about trying to accelerate that process in Germany. I don't think there's been any material rip and replace at this point in time. I think what they've been trying to do is effectively cap utilization on an ongoing basis. Operator: Your next question comes from Ryan Koontz with Needham & Company. Ryan Koontz: I want to ask about Optical. It looks like the best quarter you've had there in a couple of years. Tom, any color you can give us in terms of trends in terms of product mix, geo mix within the Optical domain would be helpful because Optical is obviously gaining a lot of momentum with regard to cloud and AI spend really starting to ramp up. Thomas Stanton: Yes. I would agree with you on what the outcome of the quarter was, and I would tell you that the momentum there is strong. It's both in the U.S. and in Europe. The quarter was definitely helped though by us picking up a larger Tier 1 in Europe, and we started initial shipments into that carrier. But we've kind of seen a dethaw kind of across the market, most notably in Europe though. So, we're expecting a good year next year as well. Ryan Koontz: Great. And as Mike mentioned about the Huawei displacement opportunities, I mean, how would you broadly characterize those today with regards to deals you've won as well as prospective deals you hope to like win in the next 12 months, relative to revenue opportunity? Thomas Stanton: Yes. So, it has been a significant positive influence even going through the downturn with what we've won. But if you look at the number of carriers that have actually converted, like there's some discussion here on Germany, they've been slow. And that momentum continues to build quarter-over-quarter. It definitely is impacting our numbers now, and that impact will grow over the next 2 to 3 years. So, it's definitely a positive mover. I -- let me add a little because I think there are different dynamics in the access versus optical space. I think there's a good chance that optical will probably -- we will see an increase in momentum earlier on in the optical space. Access has been a constant just move, but there's millions of customers that are involved versus -- and because of that widespread infrastructure versus kind of optical moves on a project-by-project basis. Ryan Koontz: Got it. Great. And maybe one on margins, if I could sneak it in around -- are you guys happy with where you're at here at 42% non-GAAP? And do you think this is where you got it pegged or is there further upside we can aim for? Thomas Stanton: No, our longer-term goal is 43%, and I think we're within line of sight to that. I think we'll be bumping up against that next year. Operator: Your next question comes from Christian Schwab with Craig-Hallum. Christian Schwab: Great. Some other players in the space have started mentioning that they've got their first BEAD orders. Would you anticipate an improved BEAD spending environment possibly impact you in calendar '26? Thomas Stanton: Yes. That's an easy bar, but yes. I mean it's starting to -- it's been dead now for a while, but it's definitely going to -- there's a whole lot more activity going on there. So the answer is yes. Christian Schwab: Is that something that you guys would anticipate seeing orders in the first half of calendar '26? Or is that yet to be determined? Thomas Stanton: I think we'll see orders in the first half of '26. Christian Schwab: Great. And then, you guys talked about operating margin expansion in 2026. I know you've outlined the goal of getting to double digits eventually. But what should we think about the potential for operating margin expansion in calendar '26? Thomas Stanton: We expect to have expansion in '26. I mean, I think the key to us -- so gross margins have been fairly consistent and have been, I would say, over time, upwardly moving. The whole key to us is the operating expense line. That, of course, is impacted by FX, but the operating expense line on a kind of constant currency basis, were -- if you look at year-over-year, were at high 90s, which equates to kind of where we are right now. So we've been holding it firm. I think the real question is, how long can you hold it firm? Our belief at this point in time is that we have enough R&D firepower and the right product set to not have to substantially increase the R&D spend. We will be -- we'll continue to -- we have sales expense that is variable depending on the revenue to some extent. But structurally-wise, we don't see big movements right now required to get us to that kind of $300-ish north of $300 million level, which kind of gets us to our target. So I would expect expansion through next year. But Tim, let me let you answer it. Any comments on that? Timothy Santo: I think as we continue the expansion, you'll see $300 million in second half of next year or late -- or early 2027. And I think on a constant currency basis, you get to the double-digits once you get somewhere around $315 million in revenue. Operator: Your next question comes from George Notter with Wolfe Research. George Notter: I guess I'm just curious about the minority interest in the business with the old ADVA shareholders. Any new perspectives there? Would you -- did you redeem any shares in the quarter? Any new thoughts in terms of how you deal with that obligation going forward would be great. Thomas Stanton: Well, we're happy if they redeem at this point. So, we would like to see some. I think there was one redemption in the quarter, will, Tim? Timothy Santo: It's in the subsequent events. It happened early this quarter. But yes, we continue to see nominal activity and expect there to be some level of run rate. Thomas Stanton: Yes. But nothing worth sharing. And like I said, it's -- well, that stock is trading up right now, if you take a look at over the last 6 months. But redemptions are a good thing at this point. George Notter: Got it. Would you look to do anything proactive? I mean, obviously, you did the financing this quarter. Would you look to get more proactive with those shareholders? Is that something that's in the cards at this point or does it hinge on selling the buildings in Huntsville? Like how do you think about that? Thomas Stanton: Without a doubt, selling that building does give us substantially more headroom. My sense is, we'd be getting more actively on that base towards the tail end of next year. We're probably still a little -- a few quarters away from that. Having said that, redemptions are a good thing. Operator: Your next question comes from Tim Savageaux with Northland Capital Markets. Timothy Savageaux: A non-core asset question to start with, and that centers on the old ADVA kind of sync and timing business. I assume you capture that in Optical, although I really don't know. That's one question. And I wonder if you can give us a sense of the dynamics around the business, kind of overall size, growth rate, profitability? Anything you can share along those lines? And I have a follow-up. Thomas Stanton: Yes, it is in the Access & Agg business. We really don't break that out separately, but it's in the Access & Agg category. It is growing. As you know, we're doing kind of a relook at that business and segmenting that business to be able to -- that is a different business. It is a different selling rhythm, different sales type of, I'll say, people, but it's really different contacts within the different customer bases. So we are in the midst right now of, let's say, readjusting how that business operates. Timothy Savageaux: Okay. And can you hear me? Thomas Stanton: Yes. Yes, go ahead. Timothy Savageaux: Okay. Sorry. The second question was going to be on any impact from memory prices, especially on the subscriber side of the business and what you're seeing there? Thomas Stanton: There has been some -- well, that's been over some period of time, but nothing that's -- I would say the gross margin in that business, we've been able to keep -- let me think about the proper answer. The gross margin of that business, we've been able to keep at a fairly constant level over the last few quarters and think we'll be able to do that on a going-forward basis. A lot of that is just churn on different -- that business churns, we have new generations of subscriber product. We have more new generation of subscriber product than any other product in our portfolio. Timothy Savageaux: Got it. Maybe one more for me. You mentioned starting to ramp with one of the Tier 1 European wins, I guess, on the Optical side. And I think that win included Access as well. So, do you expect that to start ramping soon? And anything else to call out in terms of upcoming Tier 1 ramps here in the next quarter or 2? Thomas Stanton: Yes. I think that one will -- it will take longer. The optical thing was incredibly quick. And there was a lot of work that went in front of that in order to make that happen so quick. I think all the access portion will take longer, but we'd expect to see movement of that next year. And in general, everything is moving forward, not at the same -- at the pace that we would like, but everything in Europe is moving forward. We haven't lost any pieces. The other ones that we've talked about in the past with very specific -- there is some rip and replace going on in different parts of Europe. That is moving forward. So I think all of that would just be kind of a positive tailwind next year. Operator: There are no further questions at this time. I'll now turn the call back over to Tom Stanton for closing remarks. Thomas Stanton: Okay. Thanks very much for joining us on our conference call. And I really would like to extend my appreciation to our teams around the world. Thank you for everything that you do. I also want to thank our stockholders and our customers and partners for the confidence and the collaboration that you've shown us over the last year. So thanks very much, everyone. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello and welcome to the Uber third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star one on your telephone keypad. I would now like to turn the conference over to Balaji Krishnamurthy, Vice President, Strategic Finance, Investor Relations. You may begin. Balaji Krishnamurthy: Thank you, Sarah. Thank you, everyone, for joining us today, and welcome to Uber's third quarter 2025 earnings presentation. On the call today, we have Uber CEO Dara Khosrowshahi and CFO Prashanth Mahendra-Rajah. During today's call, we will present both GAAP and non-GAAP financial measures, and additional disclosures regarding these non-GAAP measures, including a reconciliation of GAAP to non-GAAP measures, are included in the press release, supplemental slides, and our filings with the SEC, each of which is posted to investor. Certain statements in this presentation and on this call are forward-looking statements. You should not place undue reliance on forward-looking statements. Actual results may vary, may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today, except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today, as well as risks and uncertainties described in our most recent form 10-K and in other filings made with the SEC. We published our quarterly earnings press release, prepared remarks, and supplemental slides to our Investor Relations website earlier today, and we ask you to review those documents if you have not already. We will open the call to questions following brief opening remarks from Dara. With that, let me hand it over to Dara. Dara Khosrowshahi: Thanks. Q3 was an outstanding quarter for Uber, driven by a powerful combination of innovation and execution. Trips grew 22%, marking the fastest growth since 2023. Both lines of business accelerated, with mobility trips growing 21%, significantly exceeding our expectations. This top-line strength was fueled by record audience and engagement, up 17% and 4%, respectively. Gross bookings grew 21%, while average pricing remained relatively flat. This translated into record adjusted EBITDA and free cash flow, reinforcing our ability to deliver affordability for consumers while generating strong operating leverage. We are expecting more of the same strong performance in Q4, with another quarter of high teens gross bookings growth and low to mid-30s EBITDA growth. In fact, we hit a new record over Halloween weekend, this most recent Halloween, with more than 130 million trips across mobility and delivery and more than $2 billion in gross bookings. While we are proud of what we built, we are even more focused on what comes next. As I often remind the team, great technology companies deliver today while building for tomorrow. To that end, we have defined six strategic areas of focus to guide our next phase. First, from trip experience to lifetime experience, we are deepening engagement across our platform, with cross-platform consumers spending three times more and retaining 35% better than single product users. Second is building a hybrid future, seamlessly integrating human drivers and autonomous vehicles into a single marketplace, giving us unmatched flexibility and efficiency. Third, investing in local commerce, expanding rapidly into grocery and retail, now at approximately $12 billion gross bookings run rate and growing significantly faster than restaurant delivery. Fourth is multiple gigs, broadening earning opportunities for our 9.4 million drivers and couriers, including new digital tasks powered by Uber AI solutions. Fifth is becoming a growth engine for merchants, helping our over 1.2 million merchant partners drive significant incremental sales through ads, offers, and new demand channels like Uber Direct, as well as new partnerships. And then finally, generative AI, embedding intelligence across Uber to enhance productivity, optimize our operations, and deliver more personalized consumer experiences. You will see us invest in these areas with our product, our people, and our capital in the years ahead. They are designed to deepen customer relationships, our technology advantage, and to extend the profitability flywheel that we built. The strong execution, a unified global platform, and unmatched scale. We are building the next generation of Uber, one that is positioned to create lasting value for many, many years ahead. With that, Operator, why do not we start questions? Operator: Thank you. Your first question comes from the line of Doug Anmuth, JP Morgan. Your line is open. Douglas Till Anmuth: Thanks for taking the questions. Can you just talk about the path to increase the 20% of map in markets where you have mobility and delivery? They use Uber One, and you talk about those drivers of cross-platform usage. And then could you expand on the recently announced Nvidia partnership? Both of you have invested in several AV tech providers. You have also talked about deploying 100,000 vehicles. Can you talk about the timeline and then who will own the fleets in that scenario? Thanks. Dara Khosrowshahi: Sure, absolutely. So in terms of cross-platform and the penetration there, you know, as we talked about, about 20% of consumers where we operate both mobility and delivery, because we do not operate on mobility delivery in every single country that we operate in, only 20% of consumers are active across both businesses. And for example, 30% of our mobility riders have never tried any Uber Eats offering, and 75% have never tried grocery and retail. And typically where we see a higher penetration of that 20% is in markets where mobility and delivery are particularly strong in terms of their penetration. Australia would be an example of that. And so just mathematically, the cross-platform crossover is higher. What we have now done, what we are doing now is to set specific programs to drive cross-platform behavior. So you will see kind of top tabs and rides and Uber Eats app to make it easier to transact across the various businesses. We are creating personalized experiences to upsell based on context. Let us say Rise Eats. If you are going to work, we will offer you a Starbucks on the way to work. That is great incremental business for Starbucks, and it is kind of a delightful experience for you as well. And then, of course, membership is a huge factor in deepening our own relationship with consumers. But then also introducing cross-platform as well. So all of those are various ways to drive cross-platform. The average cross-platform consumer spending three times more than kind of model line consumers. So it is just a mathematical and unique advantage that we have. And I think we are very, very early in terms of the innings, in terms of driving cross-platform activity. It is happening naturally and again, a lot of innovation going on from the teams to make sure that when we target cross-platform usage, we are doing it with the right context and not getting in the way of your just ordering pizza on a Friday night. In terms of Nvidia, we are very, very excited about the partnership. There, you know, Nvidia is creating with Hyperion, like a reference architecture for L4 ready autonomous that they are going to make available to any OEM out there. And if you kind of step back and you think about the strategy, a future, you know, ten years from now where every single new car sold is not only L3 ready, if it is a personal car, but it is also L4 ready if you want to contribute that car to a ridesharing platform like ours, or fleets might buy those cars as well. That is a very bright future for the world because it will make the world safer. In terms of these autonomous vehicles being super safe, not getting distracted in terms of driving. But it is also very good for the ecosystem in that we will have a ready kind of supply of cars on our platform as well. And we are very early, but I think that we are quite confident in demonstrating that cars, L4 cars that are on our platform can drive higher revenue per car per day than cars that are not on our platform. So we think that the Nvidia strategy and our strategy is very much aligned. We announced the relationship also with Stellantis, with an initial 5,000 vehicles that are going to be powered by Nvidia as well. But we expect that to scale significantly more going forward. We will use our, you know, again, Nvidia is building the software as well. So it is a hardware platform. But Nvidia is also investing in building out L4 software stack that will be then essentially distributable on any car using the Hyperion platform, which is a great reference architecture. And then in terms of who is going to own the fleets, you know, we will we can lean in with our balance sheet early on to kind of establish the economics of these fleets, but eventually we think that you are going to have just like you have got these rights owning hotels that are yield vehicles. I think that you will see yield vehicles show up for fleets. In terms of whether they are owned by private equity or public fleets out there. So we can lean in with our balance sheet. But we think that all of these assets are going to be financialized over a period of time. So very excited about the partnership. Obviously, if there is one ally you want in the world in terms of AI or autonomous, it is Nvidia and super excited to innovate with them. Operator: The next question comes from Eric Sheridan with Goldman Sachs. Your line is open. Eric James Sheridan: Thanks so much for taking the questions. On the delivery side of the business, as you continue to widen out the array of what you are offering users, can you talk a little bit about how much of that is a stimulant to new user growth for Uber Eats or a driver of increased frequency across the broader platform? Just to better understand where the output of the yield is showing up in the business. And then on the AV side, maybe building on Doug's question where you have rolled out AVs today, what have you learned so far with respect to the impact of more supply on the road and how it helps either stimulate demand or impact on the pricing side? Thanks so much. Prashanth Mahendra-Rajah: Yeah. Hi, Eric, it is Prashanth. I will take the first part of that on delivery and then let Dara address the AV side. We are really thrilled with how the delivery business has accelerated for the third quarter. It is the fastest growth we have seen in four years. Four points of acceleration. And it is really you are seeing that growth pretty broad across multiple markets. And it is coming from investments that we are making in a number of areas. On improving the product on the grocery and retail side, specifically. We are very excited on how grocery and retail is leading to an introduction of folks into the online food delivery as well. And we are seeing great growth. And I think we have some data in our supplemental charts that show some of the statistics around that, which is grocery, retail being a source of creating consumers for the online food delivery, grocery and retail. It is a great TAM for us. I think in the prepared remarks, we may have mentioned that we are now at a $12 billion run rate, which is growing at a meaningfully faster rate than our online food delivery. And we will continue to lean into that grocery retail business, which is now variable contribution positive. So it is helping us carry its own weight with high growth. And really is working quite complementary with delivery. And then as Dara just answered in Doug's question, it is a cross-platform strategy that we are working on to help folks move across all three of our LOBs. Dara Khosrowshahi: And then, Eric, in terms of how AVs are affecting the overall business, listen, it is very, very early. The biggest scale operations that we have got are with Waymo in Austin and Atlanta. And what we are seeing is that those markets are growing faster than other US markets. And this is in a Q3 where the US actually accelerated nicely Q3 over Q2. So the overall US market is strong, but we are finding that, for example, growth in Phoenix, Austin, Atlanta was more than twice the rest of the US. So that is certainly a good signal. What that has also led to is that driver earnings in those markets are super, super healthy as well. So in Austin, for example, where we have the most AVs on the ground, driver earnings per hour actually outpaced the rest of the US. So, you know, whether or not the growth in those markets is correlation or causal, it is too soon to tell. But the market certainly looks healthy. Our partnership with Waymo continues to be excellent from an operational standpoint. Waymo utilization is still very, very high. And what we are seeing is an overall market that is healthy as well, which is really good signal as we transition to this hybrid network of AVs and human drivers. All right. Next question. Operator: Okay. Next question comes from Brian Nowak with Morgan Stanley. Your line is open. Brian Thomas Nowak: Thanks for taking my questions. I have one on mobility and one on delivery. The first one on mobility. The US business seems to be doing very well. Again, just curious for any further color on progress you are making in the urban versus suburban strategy or the sparse strategy? I think you talked about call it 6 or 9 months ago, sort of drivers of that growth and that nice, that trip growth you are seeing in the US, urban versus suburban. And then on food delivery. Any color you can give us about the European food delivery business, one of your competitors is going to be entering a couple of those markets, potentially a little more aggressively to come. How do you sort of think about the key investment areas into 26 you are focused on? In the European food delivery business? Thanks. Prashanth Mahendra-Rajah: Okay, thanks. Thanks, Brian. I am going to handle the first question on mobility and then Dara will talk about competitors in the food delivery space. So the sparse geography strategy, which we had talked about this originally, if you recall, this originally was an output of the work that we had led on focusing on how to increase our delivery business. And in that analysis, and as we began to look at how we can make better progress on delivery, we identified that there was more opportunity for us to continue to push on sparse geographies and the mobility area and the benefit that we are seeing there really is it is first, it is a very large footprint. So as we look across the globe here and the similar for the US, our sparse geographies are actually growing at about one and a half times the rate of our denser markets. And the penetration opportunity in these sparser markets continues to be quite high. Our rough take is that we are maybe 20% into what the opportunity is on the sparse market. So still lots of upside there. And again, that is global numbers. But you sort of seeing similar demographics for the US, which I think is where your question was. So in focusing on the sparse geographies, we are really focused on three areas. It is on expanding the availability of the product, increasing the reliability of the product, and then ensuring that we have the right product fit. For example, the weight and save product has been an excellent match for the sparse geographies because typically when you are in a more suburban environment, you are in a situation where you do not mind waiting a little bit for your ride, which gives us the ability to find the right match and to compensate for the lower density of cars which may be in that market. So all of that is continuing to feed the flywheel. And we feel very excited about how sparse geographies are going to continue to provide growth for our US market for many, many quarters to come. I will hand here now to Dara to talk about the delivery competition environment. Dara Khosrowshahi: Yeah, absolutely. So we are very happy about our position in Europe. We have got the leading position in Europe. We have become the number one player in the UK. We have been the number one player in France for some period of time. We are gaining category position very solidly in both Spain and Germany. I was visiting there last week to visit with the teams and understand a bit more about the market. So the momentum in Europe and the profitability in Europe is excellent. And listen, food is a huge category. It is no surprise this is a $2 trillion TAM in food and $10 trillion TAM in grocery. So competition is going to be a fact. We have built a position in Europe organically. And some of our competitors have had to buy their way into European position. And that is always more difficult because it comes with a bunch of integration, mess, etc., that we do not have to deal with. And I think from our standpoint, we are going to do more of the same, which is it is all about expanding merchant selection and improving service, improving reliability in terms of delivering the food to you exactly as expected at the right time. We are going to use the power of the platform to drive cross-sell and membership as well. And then we are going to continue to deepen our partnership with the ecosystem. You have seen announcements with OpenTable, Instacart, Ifood, as well in Brazil, not in Europe, obviously, but in Brazil. And I think that the last thing that I will say is, you know, we have competed with a number of these players outside of the US. We compete with DoorDash in many markets. You know, Australia, Japan, Canada. And we have been gaining category position in those markets for some period of time. So competition against these players is nothing new. And certainly in the US, in Europe, and the rest of the world, we have been a category gainer for some period of time while improving profitability. And I expect that to continue. Great. All right. Let us take another question. Operator: The next question comes from Justin Post with Bank of America. Your line is open. Justin Post: Great. Thanks for taking my question. I just would love to hear you talk about the margin flow through in the quarter. If you made any extra investments and then second, how you are thinking about the investments you are going to need over the next 12, 18 months to really scale your business. And could that impact mobility margins? Thank you. Prashanth Mahendra-Rajah: Justin, I will take the first one. And I will let Dara sort of comment on that second one there. So maybe let us take a step back to reflect on the third quarter. Our EBITDA was up 33% year over year. And as a result, we hit an all-time high for margins at 4.5% of GBS, which is up roughly 40 bips year over year. The outlook for Q4 is pretty consistent. Another rinse and repeat, and we are tracking exactly where we want to be against the three-year framework we gave you in February of 24. And that is mid to high teens gross bookings growth and a high 30 to 40% EBITDA CAGR. We really are proud of how we have been able to drive profitable growth at scale here. Both mobility and delivery are accelerating. And that is accelerating off of a pretty enormous base. So it is tough to really defy the law of large numbers. And with that growth, we are converting that into strong profitability. And generating a ton of cash, almost $9 billion on a trailing 12-month, which we are using to reduce share count. So we are very deliberately, as we have said for several quarters now, we are very deliberately moderating the pace of our margin expansion. Over the last couple of years, we demonstrated that this enterprise and this business model can be profitable. We have taken our, for example, we have taken our delivery business from when I joined in late 23, from like a low 2% EBITDA margin to now, almost four. And that has been through to demonstrate that this is a great business. These are both great businesses. With that, we are now asking investors to measure us on total profitability. Understand that we are committed to annual profit expansion year over year, profit expansion for as far into the future as we can see. But we will sort of run the balance between the two product lines and on a sequential basis to make investments. And that is because we, as we have said many times, we have so many exciting opportunities to invest in. I will not go through a big laundry list here, but, you know, Dara has already mentioned the exciting things we see on cross-platform. The investments we are making in affordability and low-cost product offerings is partly what is responsible for the acceleration in mobility that we are talking about. We, in some earlier questions, we talked about grocery and retail, which are being a great source of adding new consumers. So I could go on and on, but that is the model. And we are excited about the future. And I would just continue to remind investors to focus on our overall profit, dollar expansion, and know that we are committed to grow that on an annual basis for as far into the future as we can see. Let me now relate that among the many exciting investment opportunities to hand off to Dara to talk about investment opportunities in AV. Dara Khosrowshahi: Justin, so just putting some perspective in terms of AV, AV is not profitable today. And any new product that we introduce into the marketplace starts off in a position where we are losing money and we are unprofitable. And the pattern is the same every single time. Introduce a new product. Invest in building out supply of that product. Once we invest in building out that supply of that product, we build up liquidity in the ecosystem. And as we build up liquidity, we build more consumer demand as liquidity and reliability improves, consumer demand improves, as does willingness to pay to improve like that. We have done it ten times, 15 times over and over again. And if you look at our strategy on the mobility business, it is a bit of a barbell strategy. So we have got kind of Uber X, which is kind of the baseline business. And then we have some premium products like Uber for Business that has premium margins like Black and Reserve, that also come with premium margins as well. And we use those premium margins to invest into some of the categories that we are trying to build. Our growth bets. For example. So this was taxi. It was two-wheelers. Three-wheelers, auto rickshaws in India, it is Uber X share. For example, all of those products have been unprofitable when we launch. And as we build out liquidity, kind of the profitability of those products improves. And frankly, you know, we can turn those products profitable if we want it tomorrow. But it is about the balance of investing and profitability and growth. The same is true of AV here, which is as we are building out our supply base, we will lose money in AV. I expect that AV will not be profitable for a few years going forward. And as we build liquidity, we can take margins up. Right now, it looks exactly like a number of our early products. And kind of we can balance the overall margins of our mobility business with this barbell strategy of premium products, feeding some of our investment products and feeding some of the new growth bets as it relates to AV. We will also use our balance sheet. We will kind of invest in AV ecosystem. Various players. We will. We have established a global kind of fleet network to make sure that they can claim the cars, recharge the cars, etc. And we are also investing in AV data collection and partnership with Nvidia so that we are collecting kind of rideshare specific data that we can provide to our partners as well. So this is something we have done multiple times and we expect to run the play again in AV, in terms of the barbell strategy that we have got. Great. Operator: Thank you. Next question comes from Ron Josey with Citi. Your line is open. Ron Josey: Thank you for taking the question. Maybe sticking with the investment theme. But to your point on lifetime investments, you know, I think in the letter you talked about suggested some short-term investments for loyalty gains. Can you help us understand a little bit more on these loyalty gains on the Uber One benefits? Clearly, we have talked about cross-platform and then back on US trip growth, which accelerated affordability. The barbell approach totally get it. Talk to us about insurance rates. And then the benefits from newer driver or newer riders like seniors and teens. Thank you. Dara Khosrowshahi: Yeah, absolutely. So we are very, very happy about our progress in Uber One. I think the last time that we talked to you, we talked about 36 million members growing at healthy rates. That continues. So penetration of Uber Ones in terms of gross bookings, it is about two-thirds of gross bookings for our delivery business and continues to increase. It is gross bookings penetration in mobility as well. And the benefits are there. Frankly, they are just the best benefits in the industry. You know, you get 6% cash back on rides. No delivery fee, up to 10% off of orders, plus exclusive selection and upgrade to priority delivery. And then kind of surprise and delight, other moments as well that we give to our members. The other good news for us is that when we look at membership cohorts and membership retention, even though the number of members is growing very, very fast. The cohorts actually, in terms of retention, continue to improve, especially as we move a higher percentage of the users from monthly passes to annual passes, as well. And then at the same time, we continue to roll out the program geographically. We are now in 42 countries versus 28 a year ago. Now, I would tell you that early on in the initial months, when someone becomes a member, typically that is profit negative for us because the discounts that we offer the member exceed the increment in terms of how much they use the product. And or how well we retain them. Both of those go up as the members mature, you know, six plus months. Then the members actually become profitable as well. So in the first six months, actually moving someone over to membership, especially moving someone who is already a high-frequency user is a net negative. We still make money on those members, but it is a net negative in terms of margins. And then it becomes a net positive as the power of the platform comes in, cross-platform comes in, and retention kicks in as well. So it is just an example of kind of a near-term investment that we make to drive long-term engagement and long-term growth. And the math behind those investments in terms of the lifetime value versus the cost of a member acquisition continues to improve as a result. We are also kind of investing in more partnerships to align our membership program with other membership programs. Obviously, we have a best-in-breed program with Amex. The Consumer Platinum spend, but you are also seeing like exclusive premium table reservations via OpenTable, discounted or sometimes free Clear Plus memberships as well. So the power of the membership is actually getting stronger as we align with others in the industry as well. Prashanth Mahendra-Rajah: Ron, I will take the second part of that question on insurance and 2025 really has been a very good year for us in terms of the progress that we have made. And maybe before I get into the elements, just a shout out to the cross-functional team across Uber us who really has helped us in a number of different areas, make great progress in 25. So we have always talked about sort of three elements to our insurance strategy. And over the course of this year, all three have really contributed to what I think will be beneficial for us in 26. And as we go forward on the legislation side, we have had a number of great wins in a variety of different areas. Georgia, Nevada, and then most recently, I think there has been a bit of press on the wins in California, which will help specifically reduce the uninsured and underinsured motorist coverage limits that are applicable to us from $1 million down to $60,000 on an individual basis. And $300,000 per accident. That is very beneficial for us in California, and it adds to the momentum that we have seen in a number of other states. On the tech side, we have talked about the driving insights dashboard, and this is a product that the tech team has developed that allows our drivers to get some intelligence and some performance feedback on what their driving behavior is doing. It helps alert them to, you know, jackrabbit starts and hard braking, sharp turns and so forth. And by giving them this feedback, we are actually seeing drivers on their own sort of improve their driving behavior. And it is actually we have seen after we have introduced that visibility to drivers, we have seen more miles driven by those in the highest scoring bucket, which is an indicator that folks are adopting, adjusting their behavior to be safer drivers. And then the sort of the cherry on top of that is we have now introduced advantage mode into select cities and will continue to roll that out and advantage mode actually provides some rewards to those drivers who are improving their driving score. And then lastly, on the commercial side, by having a captive and having a top-class team that is working on the commercial negotiations, we have the ability to continue to keep our partnerships really at a stable level and also, you know, where need be. Apply some tension on who holds the risk and who holds the, you know, how much profitability our partners can share from that. And that allows us to keep tension on the cost side. So the result of all these efforts is we expect that we are going to see hundreds of millions of dollars of savings. And we look to pass those savings on to customers through lower fares, really across the US for next year. Okay. Next question. Operator: The next question comes from Ross Sandler with Barclays. Your line is open. Ross Adam Sandler: Hey guys. Just wanted to ask about the new multiple gigs initiative. So what are some of the areas that you are looking into for new work, new earning potential and, you know, stepping back, how might this initiative impact things like driver retention or overall profitability? For Uber compared to just kind of operating only the two areas of earnings that were in today? Thank you. Dara Khosrowshahi: Yeah, absolutely. So, you know, just similar to the consumer where we see consumers using multiple platforms, they retain better. They use our they get embedded with our platform more. The same is true for earners, which is to the extent that they use us for delivering and shopping etc., or delivering and, and or mobility. They are embedded with the platform or retain them for longer, etcetera. What kind of one way of looking at Uber? Obviously, we are a logistics transformation platform in terms of moving people, places or getting anything to your home or, you know, getting a truck to ship your goods. Another way of looking at our platform is that we are a platform for work. And the first kind of work that we have gone after is transportation. But we can empower other kinds of work as well, which is what Uber AI solutions is all about. The work that we are doing encompasses, you know, training AI models. To rating both kind of voice bot audio responses to annotating videos from multiple sources. For various players, like security cameras and robots, for examples, or creating, you know, kind of judging query response pairs across various answers. AI answers. And this kind of work is available to both earners who are on the platform all around the world. You know, we need this work done in English and we will need it done in Spanish. We might need it done in many other languages as well. And it is another earnings opportunity for both our earners who are in place now. But also new earners who can come to the platforms. Some of the rules require, for example, in physics in order to get the gig done, so to speak. And the pay for that kind of work is obviously higher. So this is we think, you know, one is it is an opportunity to provide more work as the nature of work changes going forward. We do think that it will provide more earnings opportunities for earners and kind of which is terrific. And we think this can ultimately be another profitable line of business for us. Uber AI solutions is we are landing a ton of customers. And it is kind of nascent in its operations right now. But the potential that we see is enormous. Next question please. Operator: Okay. Next question comes from John Colantoni with Jefferies. Your line is open. John Colantoni: Great. Thanks for taking my questions. First. Can you talk about any key capabilities provided by the Toast Partnership? And how it fits into your broader framework for leveraging partnerships to help drive growth and profitability? And second, Prashanth, maybe you can talk about the rationale for shifting some of the non-GAAP metrics and for the move from adjusted EBITDA to adjusted operating income. Specifically, does this have any reflection on your ramp and capital investments in the autonomous vehicle space? Thanks. Dara Khosrowshahi: Yeah, absolutely. So in terms of toast, we are very, very happy about that partnership. They are a strategic partner. And obviously toast is kind of one of the leading point of sale offerings in the industry. What you will see in terms of toast is that, you know, a restaurant that is toast enabled essentially will be automatically enabled for eats as well. So the integration between toast and eats is going to be seamless. Menu uploads will be seamless. Picture uploads will be seamless. So we are actually using the data. The restaurant data that toast is empowering. And then moving that data directly across to Uber Eats. It is going to simplify kind of setting up your operation on eats. It is going to simplify how you market on eats. And it is going to kind of save a bunch of time for those entrepreneurs who are building out our restaurant ecosystem. So I think it is just going to be a more seamless, integrated experience that gives restaurants a lot more control, a lot more flexibility, and allows them to launch on eats immediately. We are also hoping to help toast grow its international presence outside of the US. Obviously, they are very, very strong in the US. Our footprint outside of the US, as you know, is much more mature. So we think this is kind of a win-win for us. It gives us more footprint across toast ecosystem. And then for toast, it helps them grow outside of the US as well. Do you want to take a second? Prashanth Mahendra-Rajah: Yeah. Thanks. So yeah, thanks for the question John. So the rationale really is a reflection. Just as we as a company grow in size, scale and maturity. We want to provide investors with metrics that allow for better comparability across the alternative options they have on where to put their client's capital and moving to an adjusted EPS model. Really allows for that ease of compare and it reflects that we as a management team understand that there are real costs that come from depreciation, from some of the software amortization, the stock-based comp, etc., that need to be reflected in the cost of running the business as well as including really the benefits that come with reducing share count from returning the cash that enterprise is generating to shareholders by repurchasing our shares. So nothing more to it than really I think it is a journey that all companies go through as they scale. And become more meaningful in an investor's portfolio. And then personally, I think as CFO, I like having the LOB leaders held to an adjusted operating income because, you know, there are choices that they make on, for example, talent decisions and location decisions, which can impact costs such as stock-based compensation or depreciation. And those are real costs to the business. And it helps to have that also in their consideration as they think about where they want to make their investments to continue to drive top-line growth. But being mindful of our commitments to continue to grow profitability. So it is really just I think the appropriate evolution for the company, given where we are. All right. We will take the last question, please. Operator: The last question comes from Nikhil Devnani with Bernstein. Your line is open. Nikhil Devnani: Hi there. Thank you for taking my question. I had a couple. Please. So first I wanted to follow up on the strong results in mobility. And I am just wondering, did the upside primarily come from the moderation in insurance pressure or were there other network improvements that unlocked the growth in the quarter as well? I think the letter talks about driver supply and product uptake. So just trying to understand the relative contribution from those additional factors and how they might continue to stack in your favor into 26. And then my second question is on AVs, there are can you speak a little bit about the scale and quality of real-world data that you are able to contribute? It seems like that is a core constraint for a lot of AV companies. And you can help chip away at that problem. So I am curious to hear how you are going about tackling that. Thank you. Prashanth Mahendra-Rajah: Yeah. Thanks, Nikhil. I will take the first one. Really. And it is very specific to mobility. Growth I believe is where you were asking. So the business is doing really well. Look, the investments we have made are starting to come through at a great rate. The marketplace trends are strong. The product innovation is giving us conviction. I think what we would like investors to really focus on is this growth is trips led and that is the healthiest way to grow the business because it comes from expanding our audience and mobility. Audience hit almost 150 million users. That is an all-time high for us. Our frequency growth was also very strong. So together you are seeing the right drivers behind it, and it is coming from great growth on the core. As well as the new product portfolio. So we still feel very confident as we look to 2026 and beyond. I mean, the metric that keeps us excited is, for example, looking at our top ten markets, only 10% of the adult population uses Uber on a monthly basis. So we continue to see great opportunity to continue to penetrate the TAM. And I think Dara has made reference to our barbell strategy. And maybe just to help put that in perspective, Uber X, which is really the core engine of our growth, represents about two-thirds of our trips. So when you look at the wings, you see the investments we have made in product innovation on the low cost, such as the Moto product. Weight and save the shuttle that we are running in New York, shared rides. All of those are making Uber more accessible to a broader population. And helping us onboard new users, which is behind some of that audience growth. And then the investments that we are making in premium, which include the comfort, the black, I think we have made mention that we are working to launch an Uber Elite product in the next quarter or two. All of those help us to balance that overall profitability, to allow us to continue to drive the margin expansion. So overall, we feel great about the growth. And then sort of more specifically, if we think about what happened in the third quarter, I would tell you that it was up on the trip side. We had good growth internationally, Latam and APAC, and we also had a great European summer travel that really helped out on trips. And then just in terms of helping you bridge from the high trip growth of 21% to the 19% of GB growth, as I mentioned, that growth internationally, that puts a little bit of pressure down because obviously trips outside the US and Canada are at a lower price point. So that puts a little bit of pressure as well. So I would not really characterize what we saw in Q3 as one-off, we are now entering our busiest quarter. Dara already made opening comments on what a spectacular weekend we had for Halloween. So, you know, we feel good that 2026 is going to be another great year for Uber. And we will continue to be a business that has the ability to generate high mid to high teens growth. Convert that into great profitability, convert that into great cash and then use that to reduce share count. And that is the model we want people to get behind. Great. Dara Khosrowshahi: And then in terms of AVs and collection of real-world data, we are collecting real-world data as we speak. The advantage that we have is we already run a rideshare network, and it is essentially putting a vehicle in place that is appropriate for collection of this real-world data. And as you can expect, the rideshare use case is particular in terms of pickups and drop-offs or the commonality of pickups and drop-offs. You know, stadiums, airports, etc. We have obviously, we are working very closely with our partners and the feedback that we are getting from them in terms of the value of the data and training their models is very, very positive. And then the Nvidia announcement for us is a marker to really scale the operations. Here. We are looking into building out a more robust sensor stack. For example, to get higher definition data quality across both camera and lidar. For some of our partners. And we are not really restricted by scale because it is either a vehicle or it is a sensor suite that we can put on top of these vehicles. We have got, for example, you know, we will probably work with some of our fleet partners as well as some IC drivers as well. So this is something that we can scale up essentially as much as we desire, in partnership with Nvidia and our other AV partners. As well. And again. We think that between the Hyperion hardware platform, Nvidia working on L4 themselves, the multiple partnerships that we have, both in terms of mobility and delivery on AV and now our ability to collect data. And then the SIM capabilities for many of these partners are much stronger in terms of collecting one piece of data. And then running thousands of scenarios from that core piece of data. We think that is a terrific combination to bring AV to market as quickly as possible. And obviously on the Uber platform. So very excited about the possibilities here. All right. Thank you very much. Operator: Thank you for your questions. And thanks everyone for joining us. And to the Uber teams. Great quarter. In terms of growth, both top line and bottom line. And hopefully more to come. Thanks everyone. Talk to you soon. This concludes today's conference call. Thank you for joining. You may now disconnect.
William Lundin: Welcome to IPC's Third Quarter Results Update Presentation. I'm William Lundin, the President and CEO; and alongside with me today is Christophe Nerguararian, our CFO; as well as Rebecca Gordon, our SVP of Corporate Planning and Investor Relations. I'll begin with the quarterly highlights and provide an operational update, then Christophe will expand on the financial details for the quarter. Following the presentation, we'll take questions via the web online or through conference call. It was another strong quarter for IPC with average production rates of 45,900 barrels of oil equivalent per day for the quarter, which was above guidance for the quarter specifically, and our full year production guidance of 43,000 to 45,000 barrels of oil equivalent per day is maintained. Operating costs were slightly below guidance at $17.90, marginally lower unit per production figure than expected, partially due to the production outperformance achieved in the quarter. Full year operating costs are maintained at USD 18 to USD 19 a barrel, likely to end the year around the lower end of this range. We're very pleased today to announce the transformational Blackrod Phase 1 development project is expected to be delivered a quarter ahead of the original scheduled guidance with first steam expected by year-end and first oil in Q3 2026. So great progress on the project has been made to date, which I'll go into more detail later in the presentation. Super proud of the team's efforts to be positioned for an earlier start-up compared to that of our original sanction guidance in early 2023. As a result, we've accelerated some activity from 2026 into 2025, mainly being drilling the final well pad at the Blackrod asset. So IPC full year CapEx is therefore revised to USD 340 million for 2025 compared to the original CMD guidance of USD 320 million. In the quarter, $82 million was spent with about $56 million of that allocated to the Blackrod Phase 1 development. So Dated Brent averaged around $69 a barrel in the quarter. Our operating cash flow was USD 66 million, and our full year operating cash flow is forecast to be between $245 million to $255 million between $55 to $65 Brent for the remainder of the year. Free cash flow for the third quarter after all CapEx was minus USD 23 million or positive USD 36 million pre-Blackrod expenditure. Full year free cash flow forecast inclusive of our final major growth spend year at Blackrod is forecast between minus USD 160 million and minus USD 170 million between USD 55 and USD 65 Brent for the remainder of the year. We successfully refinanced our Nordic bonds subsequent to Q3, took place in October, and that has a coupon rate now of 7.5% maturing in October 2030. Net debt at the end of September stands at USD 435 million with gross cash available to the business of USD 45 million plus additional headroom exists under our RCF in Canada. So for the oil hedges in 2025, we have a mix of swaps and zero cost collars for flat price and differential hedges for around 50% of our exposure for the remainder of 2025. We also have taken advantage of the tight WTI to WCS differential and added around 5,000 barrels per day and a differential hedge for 2026 at $12.50 per barrel. No material incidents recorded during the quarter. We also completed our normal course issuer bid program, the 2024-2025 program in Q3, marking in excess of 6% reduction in our shares outstanding over the course of that buyback program. We have the intention to renew the next NCIB program in December. Production for the quarter, again, was just shy of 46,000 barrels of oil equivalent per day for Q3, and we're averaging around 44,600 BOEs per day year-to-date. So implying we're very well positioned to deliver within our original CMD production guidance of 43,000 to 45,000 barrels of oil equivalent per day. IPC production mix is weighted to 2/3 oil and 1/3 natural gas. Year-to-date operating cash flow is USD 196 million and $4 and $11 per barrel differentials for the Brent to WTI and WTI to WCS, respectively, for the first 9 months of 2025. $66 million out of that $196 million was generated in Q3. There's a slightly tighter differential on the WTI to WCS dip for that quarter. Full year OCF guidance is expected to be between USD 245 million to USD 255 million between $55 and $65 per barrel Brent for the remainder of the year. Really pleased with the base business cash flow generation given we're expected to land in the middle of our original CMD, OCF guidance, as can be seen on the slide, which was based on a $75 per barrel Brent price and the year-to-date settled oil price plus the strip for the remainder of the year is well below that $75 per barrel Brent. Capital expenditure, inclusive of decommissioning spend is forecast at USD 340 million for 2025. So again, slightly increased compared to our CMD guidance, largely due to the acceleration of the drilling activity in 2025 from 2026 for the last well pad at Blackrod given the earlier start-up expectation. And the majority of our non-Blackrod related capital investments have taken place already, mainly relating to the sustaining activities at Onion Lake Thermal and Malaysia. Free cash flow year-to-date, excluding Blackrod CapEx is just shy of USD 80 million, inclusive of Blackrod CapEx, it's minus USD 125 million. With the updated pricing outlook for the remainder of 2025 between $55 and $65 per barrel Brent, we're expecting $80 million to $90 million in free cash flow, excluding the Blackrod CapEx and minus USD 160 million to minus USD 170 million in free cash flow, including the Blackrod CapEx. So this full year outlook has been updated to include the bond refinancing cost, which was opportunistically executed in October this year, and Christophe will touch on that in his section, as well as the additional costs associated with the Blackrod given the acceleration of the activity. At the end of Q3, we completed our seventh buyback program since the company was formed. We do intend to renew the next NCIB in early December. So a total of 77 million shares have been repurchased through all of these programs at an average price of SEK 79 per share or CAD 11 per share, which is well below our current share price level. There's less shares outstanding compared to that when the company was formed and the size of the portfolio has materially grown with current comparatives to 2017 in production being 4.5x higher. We've seen a 17x increase in our 2P reserves, added in excess of 23 years to our 2P reserves life index and added greater than 1 billion barrels of contingent resources and enhanced our NAV by USD 2.5 billion. So the per share metrics are a key focus for the company and driver for maximizing shareholder value. IPC's 2P NAV as at year-end 2024 is in excess of USD 3 billion, representing a fair share price of SEK 287 per share or CAD 37 per share. No value is assigned to our large contingent resource base in this net asset value calculation. Current share price levels suggest we're trading at an approximate 40% discount to our 2P net asset value. So the Blackrod Phase 1 development, this is on budget and progressing ahead of schedule. The original sanction guidance in 2023 suggested a growth capital expenditure for the Phase 1 development of USD 850 million for the total installed cost of the central processing facility and the well stock needed to fill the plant and first oil was guided for late 2026. With the significant progress achieved to date, we now expect first oil in Q3 2026, around a quarter ahead of the original sanctioned time line. So the Phase 1 cumulative capital that's been incurred from 2023 to the end of Q3 2025 is USD 785 million or approximately 92% of the total growth CapEx. So all the surface kit is in place at the central processing facility. Construction and progressive commissioning is ongoing, supported by a lot of manpower at site. Some key milestones have been achieved and derisking the path to startup. Notably, we have commercial gas usage in place now and islanded power generation has been successfully commissioned. So with the detailed sequencing of events planned out and a closer line of sight to start-up, we feel confident pulling the schedule forward, as mentioned. And with that, we have brought forward the drilling of the final well pad into 2025 from 2026. It's a very exciting time at Blackrod for the company as a whole. I'm especially proud of the strong safety record achieved to date with no material incidents since development activities started in 2023. So key items to highlight here on the schedule really is emphasized here with the first team and first oil activity moving to the left, given the great progress that's been made on the project. Moving on to our producing assets. It was a fantastic quarter at Onion Lake Thermal with incremental production benefits coming in from our short-cycle sustaining investments, 4 infills and final well pair tied in from L Pad. So in September, as you can see in the production plot, we saw nearly 14,000 barrels of oil equivalent per day at the asset, which is one of the best monthly production figures achieved at the asset to date. The Suffield area assets is very steady, predictable low decline production from the Suffield area assets and solid low-cost optimization work on the oil side and solid inventory of drill-ready candidates are actionable discretion of the company. So the other assets, this is Canada, as you can see on the map on the right, is yielding around [ 4,000 ] barrels of oil equivalent per day. So seeing great response from our Phase 2 polymer flood at the Mooney asset. In Malaysia, we successfully completed a 2-week turnaround at the end of September and early October. Our investment program in Malaysia was also successfully executed, which can be seen on the production chart. We saw solid production boost come in July and in August, which will come back following the start-up from the shutdown. And France continues to provide stable low decline production. Now over to Christophe for the financial highlights. Christophe Nerguararian: Thank you very much, Will, and good morning to everyone. So again, very pleased to be reporting a solid quarter with very strong operational performance with a production this quarter just shy of 46,000 barrels of oil equivalent per day. And so the average year-to-date production is 44,600 barrels of oil equivalent per day. So we feel really comfortable about our ability to deliver within that 43,000, 45,000 guidance range for the full year. Coupled with operating costs, which on dollar per barrel of oil equivalent remained this quarter below USD 18, partially driven by low gas and electricity prices. So with relatively low costs, it's driven a very strong financial performance as well with operating cash flows and EBITDA this quarter of USD 66 million and USD 62 million, respectively. With $81 million -- $82 million of CapEx this quarter and USD 280 million year-to-date, it's -- this quarter we generated a negative free cash flow of $23 million, $36 million positive before Blackrod CapEx. And our net debt now stands at USD 435 million. As you can see, realized prices were reasonably stable when you compare the second and the third quarter. On average, Brent was at $69 per barrel during this quarter, WTI $65 and WCS was very tight, so that's the good news. I would say, now we have the proof is in the pudding, and we've been able to see over the last few quarters how tight the WTI/WCS differential has been, and that's really a reflection of the expansion of the TransMountain pipeline, which came on stream more than a year ago. Now we can finally benefit in Western Canada from excess egress capacity, which is -- which really bodes well for our production from our base assets today. But also when we bring Blackrod on stream and ramp it up, we should continue to benefit from reasonably strong WCS prices in the future. We're continuing to enjoy a premium of Dated Brent. In Malaysia we're selling our oil on parity with Brent in France and on party with WCS in Canada. You have the examples here of Suffield and Onion Lake. Gas prices, it's not entirely clear yet, but while Q3 was a very weak quarter when we realized that below CAD 1 per Mcf during that quarter. We might be seeing some light at the end of the tunnel. Clearly, 2026 forward curve is showing some good sign with even the summer months in between CAD 2.5 and CAD 3 per Mcf next year, next summer. So it's very encouraging. We hope that the storage are going to continue to reduce. And we're expecting as well the LNG Canada project on the West Coast of Canada to continue to ramp up in Q1. So those elements together should help alleviate the weakness we've seen in the third quarter and which also partially explains why our OpEx per barrel were reasonably low again this quarter. You can see here that on a cumulative basis for the first 9 months, our operating cash flow was just shy of USD 200 million and EBITDA around USD 185 million for the first 3 quarters. And you can see that this third quarter was in terms of contribution to the year-to-date performance was in between the first and the second quarter, driven by very high production at Onion Lake Thermal. In terms of looking ahead at our operating cost per barrel, we still anticipate higher operating cost per barrel driven by some specific project and maintenance or some workovers in the normal course of business in France or Canada. But overall, year-to-date, our operating cost per barrel remained below $18 per barrel. And so we feel very good about our ability to deliver within the guidance range of $18 to $19, which we provided for the whole year and which we keep unchanged. The netbacks have been around $16 per barrel when you look at the gross cash revenues minus production costs or whether you're looking at operating cash flow or EBITDA per barrel of oil equivalent for the first 9 months were at $16 and $15 per barrel, respectively, which is slightly better than our base case guidance netback from our Capital Markets Day. Reconciling the opening to the closing net debt of the last 9 months. You can see here that this is the last year where we are spending so much CapEx because obviously, with 92% of the budget spent on Blackrod, we're getting much closer to first steam and then first oil in Q3 next year. So you can see here with $196 million of operating cash flow during those first 9 months that fully covered the CapEx of the Blackrod Phase 1 CapEx. But then with the CapEx from the rest of the assets, some cash G&A at $12 million, so less than $1 per barrel. Over $30 million of cash financial items and $100 million of share buyback, the closing net debt was $435 million at the end of September. Our net financial items are very stable. You can see a very small increase in net interest expense quarter-on-quarter, driven by the limited drawdown under our revolving credit facility. Otherwise, the costs are very stable. The exception is this FX loss, which is a non-cash item, really driven by some accounting reassessment revaluation of intra-group loans. It doesn't bear any weight on the cash flows of the business. The G&A remain in cash terms around USD 4 million per quarter or less than $1 per barrel. The financial results now. So in the -- during the first 9 months, our business generated close to USD 510 million of revenues, generating a cash margin of around USD 200 million, gross profit of close to USD 100 million and net profit for the whole first 9 months of $34 million. When you look at our balance sheet, it's very obvious what's happening, and it's an interesting way to look at the way we've been funding the investment in Blackrod. You can see our oil and gas assets increasing by close to USD 250 million, which is the net effect between the CapEx invested and some depletion. And you can see our cash, which has decreased from $247 million down to $45 million over that same period. Looking at our capital structure, Will touched upon it. We were lucky or very smart. We marketed the refinancing of our bonds at the end of September, which was one of the -- really one of the best weeks to go to market. The oil price was still in between $65 and $70. More importantly, the credit spreads were as low as they've ever been over the last 5 years. So as you know, the coupon is a result of the U.S. 5-year swap rate and the credit spread. And bringing those 2 elements together, even if the credit spread was much tighter than at our inaugural bonds, the overall coupon was slightly higher. And so the previous coupon was at 7.25% and now the current coupon is 7.5%. The good thing is that the maturity was extended as a consequence to October 2030. And we've introduced a new feature. We've introduced a $25 million semi-annual amortization starting in April 2028 once we have reached essentially the plateau production at Blackrod. The rest of the capital structure has not changed. And on this last slide of my presentation part, you can see a recap of all of our hedging positions. We're continuing to make money to generate money under our oil WTI swaps or oil WTI collars between $65 and $75, losing money on our WTI/WCS differential swaps at minus $14.2. But we've seen, as we mentioned, the tightness in that differential, which led us a couple of weeks ago to hedge 5,000 barrels a day of our 2026 exposure at minus $12.5, which is one of the best levels we've ever seen in the market for the year ahead. We continued to have 2,000 barrels a day of Brent hedged at close to $76 per barrel. We've recently layered in just shy of 10,000 -- 10 million standard cubic feet a day of hedges. I mentioned that we can really see the forward curve for gas prices improving going into next year. And so we hedged at CAD 2.8 per Mcf, the summer months, the summer strip from April to October, which is typically based on the seasonality, the lower gas prices months. In terms of FX, we've hedged in the past our FX exposure for most or 80% of our exposure to the Blackrod Canadian spending. CapEx, we have nothing in -- as for 2026 yet. We may layer in some FX protection swaps next year given the reasonable weakness in Canadian dollar, but that will be the decision will be made between now and year-end. So again, as a recap, a very strong operational performance, which has driven a very strong financial performance in this third quarter, good performance in the first 9 months, where we're going to deliver essentially within the guidance range we provided at our Capital Markets Day in all our material key performances. Thank you for that. And I will let Will conclude this presentation. Thank you very much. William Lundin: Thank you, Christophe. And so with the final slide and the summary slide, investment year-to-date through the first 9 months of the year in 2025 has been USD 281 million, USD 194 million of that has gone towards the Blackrod Phase 1 development. Production, again, for Q3, was very strong at 45,900 barrels of oil equivalent per day. Annual production guidance maintained at 43,000 to 45,000 BOEs PD. Very stable operating cost base of $17.90 for Q3 and maintaining the full year guidance of USD 18 to USD 19 per BOE. Good prices and healthy production, good cost discipline translated into strong cash flow generation for the quarter with $66 million in operating cash flow generated and $36 million in free cash flow for the quarter, excluding Blackrod CapEx there. Balance sheet, again, net debt, we have $435 million as at the end of Q3 and gross cash of $45 million. No material incidents took place in the quarter. And we completed our share repurchase program in the quarter as well. So with that, that concludes the presentation overview and happy to turn it over to the operator for questions. Operator: [Operator Instructions] We'll now take our first question from Teodor Nilsen of SB1 Markets. Teodor Nilsen: Congrats on good Blackrod progress. First question then is on the Blackrod production profile. Can you just give us a reminder of what kind of ramp-up profile you expect there now, assuming first oil in Q3 next year? Second question that is on your leverage. When do you expect the net debt to EBITDA to peak? I assume that will be around or maybe slightly later than first oil at Blackrod. And my third and final question, that is on the LNG Canada project. Could you just discuss the potential price impact on your realized gas prices of that project and time line for the project? William Lundin: I'll take the Blackrod question, and then I'll hand it over to Christophe for the net debt-to-EBITDA and LNG Canada, second and third parts of your question. So as it relates to the Blackrod schedule advancement, what we had originally guided for Blackrod was first oil in late 2026 and 30,000 barrels of oil per day to be achieved in 2028 with the great progress that's been made and the scheduled advancement of around a quarter, and we expect that profile to move a little bit to the left as a result of that. And so more details around the exact profile will be refreshed coming into our CMD presentation in 2026. Christophe Nerguararian: Yes. Thank you very much. On the leverage, you're absolutely right, Teodor. You should expect the leverage to progressively and then a bit faster reduce once we reach the first oil on Blackrod. As for gas prices, I mean, the reality is that the weather forecast is quite cold right now in Alberta, so that's clearly helped. Over the last few days increased the spot AECO price and the whole forward curve moves with it. So that's -- this is more the tactical review, if you wish, where AECO gas price is right now and the impact on the forward curve. Well, the forward curve tends to move altogether with the spot price. But now on the fundamentals, we understand that the ramp-up of the LNG Canada project is progressively increasing the local gas demand and is going to continue to help, hopefully, increase gas prices. Certainly, this is what the market anticipates when you look at the gas forward curve, which is in excess of CAD 3 for the whole year next year. Operator: And we'll now move on to our next question from Rob Mann of RBC Capital. Robert Mann: I'm just curious if you could dig into some of the factors that have allowed you to pull forward the schedule of Blackrod. I imagine it's a combination of things, but just curious if you can provide any further details there. William Lundin: Yes. Thanks Rob. And so further to the explanations provided in the development section in the Blackrod part of the presentation, exceptional progress is made to date here. And with certain milestones achieved such as acceptance of first gas into the plant and commercial gas, firing up our power generation. We have 2 turbines that provide 15 megawatts of power each, so a total of 30. Those have been successfully commissioned and with the overall progressive commissioning and turnover strategy and some of the other milestones that have been achieved, it's given us further confidence to be able to pull forward that schedule. We have water inventoried in tanks now as well. And so everything is being lined out to have a higher degree of certainty around that first steam and then corresponding first oil date. So we feel good at this point in time with not being too far away to provide that update to the market overall. Robert Mann: Yes, that's great. Maybe just shifting gears to one other question, if I could. You've added some hedges on in 2026. So maybe just curious how you're thinking about that program moving forward, just given the commodity price outlook here and as you move toward completion of Blackrod? William Lundin: Yes, that's correct. So we've added some differential hedges in place as well as some gas hedges for the summer period at this point in time. We will monitor forward curves on the flat price as well as further differentials and gas prices and it's potential for us to add on more hedges, provided they're at prices that we deem attractive overall. We do have a significant amount of our CapEx rolling off as a result of Blackrod getting to its final stages before starting up here. And as well with getting the refinancing done, which would have matured in early 2027 previously, that also is a significant factor that's been executed and taken care of by the company. So for next year, I mean, the strip that's pretty flat in the curve as we look at flat price right now as maybe a tiny bit of contango. Still feel prices are relatively low as it relates to Brent and WTI looking forward into 2026. But if there were to be a bit of a spike or a bump, we may look opportunistically to lock in some hedges. Operator: And we'll now take our next question from Christoffer Bachke of Clarksons Securities. Christoffer Bachke: Christoffer from Clarksons is here. First of all, congrats on a strong quarter. So only one question today, and that relates to Blackrod. So given that the Blackrod Phase 1 is now progressing ahead of schedule and also now close to the first steam, could you please elaborate on what specific efficiencies or lessons learned that have driven that outperformance? And also whether any of those gains could translate into cost or timing benefits for potential future Blackrod phases? William Lundin: Given we're still in the midst of the project execution, I mean, it all comes down to the overall planning that the team has put forth before sanctioning this project and putting allowances in place on schedule and cost is always a prudent thing to do. So we set ourselves up for success on the onslaught of sanctioning this project. And with the steady execution that's taken place across all key disciplines, whether it be mechanical, electrical and the construction, on operational hires, and the drilling front, everything has been going very, very well. That's put us into this position to update the overall schedule advancement for Blackrod. As it relates to the overall budget, we are maintaining that overall budget of USD 850 million to first oil at this point in time. And I think once we get this asset fully fired up and producing at plateau production rates, there's undoubtedly going to be positive lessons learned from undergoing this development where, of course, we have 100% working interest and have been the controlling developer in this process. So definitely something that we will add into our toolbox that will be beneficial for unlocking future phase expansions of the asset. Operator: [Operator Instructions] And we'll now move on to our next question from Mark Wilson of Jefferies. Mark Wilson: Excellent progress. You've clearly got a hell of a team up there at Blackrod. We've seen it in-person and on the ground and now you've accelerated that start-up. Now Will, you said you'd update on the ramp-up at the CMD. I'd like to ask about that and then the bigger picture because you've just mentioned on the last question, unlocking future phase expansions. And with Blackrod Phase 1 having a ramp-up potentially towards 2028 and combining that with the improved WTI/WCS situation that you've spoken about with TransCanada, you're in a completely new situation in terms of your outlook. I just want to know how much you want to derisk the production from Phase 1 before you may start thinking about committing to Phase 2? William Lundin: Thanks, Mark. Appreciate the color and the commentary that you provided. That's right, we had a great field visit earlier in Q2 with yourself and many others included there. So no, hats off to the team at site. They've done a tremendous job pushing this project forward. So very pleased with where we're at overall. It is a great situation when you look at the WTI to WCS outlook right now as well with it being very tight and there being excess takeaway capacity relative to the supply for the future years ahead, which matches the ramp-up profile quite nicely with respect to Blackrod, which should also hopefully translate into higher flat prices as well at that point in time to give us good cash flow generation. So I think as we look forward, we remain opportunistic in our capital allocation approach at all times. And so it's going to be a balance of always targeting to maximize shareholder value. So looking at stakeholder returns, organic growth, M&A, it's going to be a balance of all 3 of those. We have to monitor our liquidity position, balance sheet and take into account all the learnings as well from Blackrod. We are very confident, of course, in terms of what to expect for that production ramp-up, given that we have direct analogs at the asset with well -- pilot well pairs that have been successfully producing for many years, specifically -- well pair 3. So it's a bit difficult to give an exact time line in terms of when we would look to do a sanction of the future phase expansion at Blackrod. It's really going to be dependent on oil prices, liquidity, leverage position, and of course, taking into account some of the learnings from Blackrod over the course of the start-up. But what we've said previously is we'd expect sometime, likely end of the decade provided oil prices were healthy. And so this is something that sits within our contingent resources. And until we really go forward and mature that into reserves, it will be something that will keep us upside in the back pocket. Operator: And we'll now take our next question from Jonas Shum of Clarksons. Jonas Shum: Congratulations on the progress on Blackrod. So given that you have kind of progressed very well, can you elaborate a bit on kind of what are the key remaining milestones, and the risks for that. You mentioned that the weather forecast for Alberta was indicating relatively cold weather. Could that have any ramifications on kind of the progress during the winter time here? William Lundin: Yes. Thanks Jon. So as we look forward going into the start-up for Blackrod, weather is for sure a variable that exists for start-up overall, and we have seen some snow take place a little bit earlier than expected. And so things like heat trace are very important at site, which the team is all over and heat trace is largely installed in the key areas and the rest of it will be implemented as well in due course here. As we look to the overall start-up, as I'd mentioned, we have some water inventoried in some tanks. And so it's really getting the downstream equipment of that ready to be fired up with respect to the associated pumps in the boiler feed water system leading up into the steam generation and then going downhole. So -- of which we expect that to be completed and fired up by year-end to give us first steam by year-end and then correspondingly first oil in Q3 of 2026. Operator: We have no further questions in the queue. I'll now hand it over to the company. Rebecca Gordon: Okay. Thank you, operator. So we did have a lot of questions on the sequencing of Phase 1 and Phase 2, which I think you've already covered there, Will. But we also had some questions on potential growth programs in Malaysia and France. Can you give a bit of detail on that? William Lundin: Yes. So as I mentioned in the presentation in the international asset section, we're really pleased with the production boost that we've seen at the Malaysian asset as a result of that step-out drilling campaign and the workover that's been achieved. That this asset, we do hold a couple of wells in our contingent resources, but we don't have any further development wells held within our 2P reserves at Malaysia. In France, there are a number of robust investment opportunities and specifically within a field called Fontaine-au-Bron that looks very attractive and is ultimately ready to be sanctioned at the discretion of the group, which will be largely dictated by oil prices. Rebecca Gordon: Great. And also a couple of questions on Canadian natural gas prices, which I think you've covered, Christophe. But perhaps you could give a bit of color on a question, which is, will Blackrod eventually make you a gas net consumer? If so, when is this point going to be reached? Christophe Nerguararian: Yes, that's correct. Obviously, as we are ramping up the oil production, we're going to ramp up our gas usage as well. And we're expecting at this stage that towards the end of the decade, so 2029 to 2030, we will turn into being -- everything being equal, we will turn into being a net gas consumer. That is the projection at this stage. Rebecca Gordon: Yes. And I think, Will, you've covered off really our sort of capital allocation priorities in the future. There were a couple of questions there about whether we would look to buy back shares in the future, whether it was Blackrod Phase 2. There was actually another question on M&A. So it would be interesting to hear your perspective on the recent M&A activity in the sector, thinking specifically of the big interest in the market for the long-lived assets of MEG. Any thoughts would be appreciated. William Lundin: Yes, it's been very interesting item to monitor in the market with respect to the MEG and Cenovus deal that is likely to close quite soon here, I believe. That type of -- how do you say, the takeover bid that took place or the hostile actions that have taken place on MEG were something that not, I think, a lot of the industry was expecting, quite savvily done in general by the Strathcona company. Obviously, very high-quality asset at Christina Lake and the Tier 1 oil sands deposit that they have within the MEG portfolio that we expected to close and go over to Cenovus very soon here. And so I think overall M&A landscape, I think I'd expect to see further consolidation to take place through time. And we're a company that's executed quite a few acquisitions in our recent history. And so something like growing through M&A is, again, within our DNA, and we're going to be opportunistically looking to assets or companies to grow through and combine with, provided they fit the right criteria for the company. Rebecca Gordon: Okay. Fantastic. I think that most of these other questions have actually been answered through the course of the operator questions. So we'll leave it there. We're out of time. So thanks to everyone. Will, you want to close? Christophe Nerguararian: Thank you. William Lundin: Thanks very much, Rebecca. Appreciate it. And thanks, everyone, for tuning in. And look forward to the next update, which will be our year-end results and Capital Markets Day presentation in early February 2026. Thank you.
Operator: Ladies and gentlemen, welcome to the Coloplast financial statement for the full year 2024/2025 and Annual Report 2024-2025 Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Rasmussen, Interim CEO. Please go ahead. Lars Rasmussen: Thank you, and good morning, and welcome to our full year 24/25 conference call. I'm Lars Rasmussen, Interim CEO of Coloplast, and I'm joined by Anders Lonning-Skovgaard, our CFO; and by our Investor Relations team. We will start with a short presentation by Anders and myself and then open up for questions. Please turn to Slide #3. We delivered 7% organic growth and a reported EBIT before -- EBIT margin before special items of 28% for this financial year. That is in line with our revised guidance, but below the 8% to 9% organic growth expectations that we set forth at the beginning of the year. The adjusted return on invested capital after tax and before special items, was 15% on par with last year. Chronic Care, including Voice and Respiratory Care and excluding China, delivered a solid year while we faced performance challenges in Interventional Urology and Advanced Wound Dressings. Both businesses were impacted by product recalls with significant negative impact on performance. We also saw increased volatility in the biologics market, driven by the postponement of the final LCD policy, which led to a slowdown in the momentum for Kerecis in the second half of the year. In many ways, '24-'25 did not become the year we had anticipated. It became a significantly more turbulent year and one that forced us to take decisive actions. In the year, we restructured our business in China. Performance during Strive25 was muted. And while we remain committed to serving the Chinese market, we have streamlined our organization to align with the new market reality and ensure a sustainable focused presence. Secondly, we initiated several profitability initiatives in Wound Care, among others, the divestment of our skin care business in December 2024. These initiatives are aimed at simplifying our business operations and improving profitability. Thirdly, we took important steps toward optimizing our cost base in interventional urology. Both to protect our profitability in the light of recent performance challenges, but also to ensure that we have the capacity to invest in new growth initiatives, including in tibial, our implantable tibial nerve stimulator expected to launch in '26, '27, assuming we obtain FDA approval. At the group level, we have also made significant changes which I'm confident will be vital for a strong strategy execution towards 2030. By structuring our business into 2 distinct units, chronic and acute care, we will, to an even larger extent, be able to honor the differences in market dynamics, customer needs, patient pathways and business models. And with a new and strengthened executive leadership team, we now have a balanced mix of commercial and technical expertise and a strong team to lead Coloplast into the next strategy period. Please turn to Slide #4. Looking ahead, I believe the investments we have made in Strive25, combined with the structural changes that we made this year, provides Coloplast with a strong foundation and key building blocks for the future value creation. Our addressable market for Chronic Care and Acute Care has a combined value of more than DKK 120 billion, and we have the strongest product portfolio that we have ever had. There's ample opportunity to go for, and we are well positioned to capture it. With our new strategy, Impact4, we'll utilize our solid foundation while setting a new direction for the company with a strong focus on customers and value creation. The Impact4 focuses on 4 priorities: growth through innovative offerings, unlock next level efficiency gains, embrace technology, including AI, to elevate our user experience and scale, and finally, cultivate a winning and sustainable company. And these promises are supported by clear financial targets. The first is to deliver an organic revenue CAGR of 7% to 8% through '29/'30. Then to grow EBIT in line with or above revenue growth and finally, to achieve a return on invested capital above 20% by '29, '30. By putting customers at the center, we aim to deliver best-in-class products, services and support, reinforcing our ambition to double our impact and reach 4 million people long term. In the strategic period, we will also maintain a strong focus on sustainability, and we have set clear targets to reduce our environmental impact through emissions reductions and less material used in our products and packaging. Finally, we aim to positively impact society by improving reimbursement, ensuring access for users and health care professionals to the best products and services as well as investing in initiatives that benefits people and communities. Now let's shift gears for a moment and look at today's results in more detail. Please turn to Slide #5. In Ostomy Care, organic growth was 6% for the full year, and growth in Danish kroner was 4%. Organic growth in Q4 was 7% and growth in Danish kroner was 1%. Our SenSura Mio portfolio continues to be the main driver -- growth driver followed by Brava range of supporting products. Our SenSura and Assura/Alterna portfolios continue to contribute to growth in emerging markets. From a geographical perspective, growth in the quarter was broad-based across regions with good growth in Europe, a high baseline in the U.S. due to the resolution of the supply disruptions in Q4 last year, and strong growth in emerging markets driven by increased tender activity. Sales in China declined, reflecting weaker consumer sentiment and competitive pressures. In Continence Care, organic growth was 8% for the full year and growth in Danish kroner was 5%. In Q4, organic growth was 9% and growth in Danish kroner was 3%. Luja, our new intermittent catheter with Micro-hole Zone Technology was the main growth contributor in the quarter, especially the female version driven by solid contribution from Europe and the U.S. From a geographical perspective, all regions contributed to growth. Growth in Europe was driven by France, the U.K. and Italy. In emerging markets, growth was led by LatAm. Voice and Respiratory Care posted 9% organic growth for the full year with growth in Danish kroner of 8%. In Q4, organic growth was 9% and growth in Danish kroner was 7%. The good performance in Voice and Respiratory Care continues to be driven by broad-based contribution from both laryngectomy and tracheostomy, with high single-digit growth in laryngectomy and double-digit growth in tracheostomy. In Wound and Tissue repair, organic growth was 8% for the full year and growth in Danish kroner was minus 3%, which reflects 8 percentage points negative impact from the skin care divestment. Organic growth in Q4 was 5% and growth in Danish kroner was minus 11%, which includes 11% negative impact from the skin care divestment. The advanced wound dressings business in isolation declined 6% in the quarter as China detracted significantly from growth due to the product return initiatives in Q3. From a product perspective, Biatain Superabsorber and Biatain Fiber continued to perform well. Revenue from Kerecis amounted to around DKK 1.3 billion in the full year, of which DKK 339 million was in Q4. The organic growth in the quarter was 20% and an improvement compared to Q3 as expected. The inpatient setting continued to deliver solid growth and was the main growth contributor. The outpatient setting saw an improved momentum in Q4. This was in line with our expectations that the impact from our LCD postponement and the resulting market shift to higher-priced products would be most pronounced in Q3. In Interventional Urology, organic growth was 2% for the full year, and growth in Danish kroner was flat. In Q4, organic growth was 2% and reported growth in Danish kroner was minus 2%. Growth in the quarter was driven by good momentum in the Men's Health business. Our flagship product within Men's Health, the Titan Penile implant continued to perform well, with the patient funnel positively impacted by our patient support program targeted at prospective patients. The women's health business also contributed to growth in the quarter. Within kidney and bladder health, the thulium fiber laser drive continued to deliver a solid growth contribution, but the segment overall detracted from growth due to the impact from the product recall. We have begun to see early signs of recovery across key accounts, but expect some negative impact to persist into Q1. With this, I'll now hand over to Anders, who will take you through the financials and outlook in more detail. Please turn to Slide #6. Anders Lonning-Skovgaard: Thank you, Lars, and good morning, everyone. Reported revenue for the full year increased by DKK 844 million or 3% compared to last year. Organic growth contributed DKK 1.8 billion or around 7% to reported revenue. Divested businesses, mostly related to the skin care divestment in December '24, reduced reported revenue by DKK 352 million or around 1%. Foreign exchange rates had a negative impact of DKK 587 million on reported revenue or around 2%, mainly related to the depreciation of the U.S. dollar and a basket of emerging markets currencies against the Danish kroner. Please turn to Slide #7. Gross profit for the full year amounted to DKK 18.9 billion, corresponding to a gross margin of 68%, on par with last year. The gross margin was positively impacted by a favorable development in the input cost, pricing increases and country and product mix, partly offset by ramp-up costs at our manufacturing sites in Costa Rica and Portugal. The gross margin also included a small negative impact from currencies of around 20 basis points. Operating expenses for the full year amounted to around DKK 11.3 billion, a 3% increase from last year. The distribution to sales ratio for the full year was 33%, on par with last year. The increase in distribution cost was driven by continued commercial investments in Kerecis and higher sales activities across business areas. The admin to sales ratio for the full year was 5% on par with last year. The R&D to sales ratio for the full year was 3% on sales, also on par with last year. The special items expenses were extraordinary high in '24-'25 and amounted to DKK 469 million. The special items were related to profitability improvement initiatives including the skincare divestment, management restructuring and the integration of Atos Medical. Overall, this resulted in operating profit before special items of DKK 7.7 billion in the full year and a 5% increase compared to last year. The EBIT margin before special items for the year was 28% compared to 27% last year. The EBIT margin included negative impact of around 110 basis points from the inclusion of Kerecis, including PPA amortization costs, in line with the expectations as well as around 30 basis points benefit from the divestment of the skin care business. Currencies had a small negative impact on the reported EBIT margin of around 30 basis points related to the depreciation of the U.S. dollar and the basket of emerging market currencies against the Danish kroner. In constant currencies, EBIT before special items grew 6% in full year '24-'25. Financial items in the full year were a net expense of DKK 1.044 billion compared to a net expense of DKK 925 million last year. The increase in net expenses was mostly due to a noncash effect from currency exchange rate adjustments, which includes losses on balance sheet items driven by the depreciation of the U.S. dollar against the Danish kroner. The ordinary tax expense for the full year was DKK 1.4 billion with an ordinary tax rate of 22% on par with last year. The total tax expense for the full year was DKK 2.5 billion, impacted by the transfer of Kerecis intellectual property from Iceland to Denmark. As a result of the extraordinary tax expense, the effective tax rate amounted to 41%. As a result, net profit before special items for the full year was DKK 4 billion compared to DKK 5 billion last year. Diluted earnings per share before special items decreased by 21% to DKK 17.76. Adjusted for the extraordinary tax expenses related to Kerecis IP transfer, the net profit before special items was DKK 5.1 billion, DKK 123 million increase compared to last year. Adjusted diluted earnings per share before special items increased by 2% to DKK 22.84. Please turn to Slide #8. Operating cash flow for the full year was an inflow of DKK 6.6 billion compared to an inflow of DKK 2.8 billion last year. The positive development in cash flows was mostly driven by lower income tax paid as '24-'25 included DKK 2.5 billion extraordinary impact from the transfer of Atos Medical intellectual property. Changes in working capital and adjustment of noncash operating items also had a positive impact on the cash flows from operating activities. Cash flow from investing activities was an outflow of DKK 1.25 billion compared to an outflow of DKK 1.336 billion and included a positive impact from the divestment of Skin Care business of DKK 192 million. CapEx for the full year amounted to around 5% of sales on par with last year and includes around DKK 450 million related to the new manufacturing site in Portugal, expected to be operational in '25-'26. As a result, the free cash flow for the full year was an inflow of DKK 5.4 billion compared to an inflow of DKK 1.4 billion last year. The adjusted free cash flow for the full year was DKK 5.2 billion compared with DKK 3.9 billion last year or a 32% increase. The trailing 12-month cash conversion was 82%, while the adjusted free cash flow to sales was 19% compared to 15% last year. Net working capital amounted to around 26% of sales compared to 25% last year, impacted by increased inventories and decreased trade payables. Now let's look at the guidance for '25-'26 financial year. Please turn to Slide #9. For the '25-'26 financial year, we expect organic revenue growth of around 7%, and around 7% EBIT growth in constant currencies before space items. We also expect a return on invested capital of around 16%, up around 1 percentage point from 15% adjusted last year. The organic revenue growth guidance of around 7% assumes continued good momentum in Chronic Care, including Voice and Respiratory Care and an improvement in momentum in both Wound and Tissue Repair and Interventional Urology. In Chronic Care, we expect good contribution from our recent product innovation. In Continence Care, we expect Luja to continue driving the momentum in intermittent catheters. In Ostomy Care, we expect the recent line extensions such as SenSura Mio Black bags and the new 2-piece Sensura Mio offering to continue their good launch trajectory and support growth. In wound tissue repair, we expect an improved momentum driven by Kerecis, which is expected to deliver growth of around 25%, partly offset by the negative impact from the product return in advanced wound dressings in China from Q1 to Q3. On Kerecis, performance is subject to a higher degree of volatility due to the expected changes to the skin substitutes coverage and payments in the outpatient setting as of January 1, '26. In Interventional Urology, we expect growth to improve to around mid-single digit in '25-'26, up from low single digit last year. We expect continued strong momentum in our Men's Health business driven by the Titan Penile implant and stable performance in our Women's Health business. In kidney and bladder health, we expect to see a recovery as the impact from the product recall will lapse in December '25, after which we are up against an easier baseline. Reported revenue growth in Danish kroner is expected at 4% to 5% and assumed 2 to 3 percentage points negative impact from currencies, especially the U.S. dollar and to a smaller extent, the British pound and the Chinese yuan as well as 2-month negative impact from the Skin Care divestment. The EBIT growth in constant currencies of around 7% assumes stable inflation levels and continued ramp-up in Costa Rica and Portugal. The EBIT growth also assumes that Kerecis will deliver an EBIT margin uplift to around 20%, driven by scalability in non-sales functions and sales force efficiency improvements, enabled by a good top line momentum and a high gross profit margin of around 90%. Furthermore, the EBIT growth guidance includes the initiation of Impact4 investments, including global technology investments and AI, investments towards the new bowel care opportunity in the U.S. and investments related to -- in tibia. In terms of phasing, we expect the organic revenue growth to be second half weighted with a soft start in Q1, where we will have the impact from the product recall in both advanced wound dressings and interventional urology. Furthermore, we expect a soft start in ostomy care due to a high baseline in the U.S. and order phasing in emerging markets. For '25-'26, we expect around DKK 50 million in special items, from acquisition-related integration costs. The integration of Atos Medical is progressing according to plan, and will be finalized during the year. The net financial expenses for '25-'26 are expected at around minus DKK 500 million, down from around DKK 1 billion in '24, '25, mostly driven by a more favorable outlook on net exchange rate adjustments based on spot rates as of October 31, and to a smaller extent, lower net interest expenses due to lower net interest-bearing debt and lower interest rates. The effective tax rate for '25/'26 is expected to be around 22%. Net profit is expected to significantly increase year-over-year as '24-'25 has been impacted by extraordinary high special items, high financial items due to negative exchange rate adjustment and the extraordinary tax expense related to the transfer of Kerecis intellectual property. The CapEx to sales ratio is expected at around 5% and includes investment to complete the new manufacturing site in Portugal, investments in new machines for existing and new products and IT and sustainability investments. On net working capital, we expect the net working capital to sales ratio in '25-'26 of around 25%, down from 26% in '24-'25. Our guidance is based on the knowledge we have today and assumes immaterial impact from tariffs as we expect our products to remain exempted and no impact from health care reforms in the year. On October 31, '25, the centers for Medicare and Medicaid services in the U.S. issued a final rule on the Medicare physician fee schedule for calendar year '26 with a fixed payment of $127 per square centimeter for all products in the physician's private office in the outpatient setting. We consider both this rule as well as the final LCD policy as positive for the market and Kerecis in the long term, and will be closely monitored or -- and we will closely monitor market developments in relation to these initiatives. With this, I will hand it over to Lars for final remarks. Please turn to Slide #10. Lars Rasmussen: Thank you, Anders. Coloplast is now entering an exciting phase as we begin to unfold the potential of our new Impact4 strategy. And I look forward to continue leading this work until a new CEO takes office. As we move into Impact4, we do so from a position of strength with a strong product offering, a clear structure, a strengthened leadership team and an ambitious strategy towards 2030. I'd like to thank our customers, my colleagues and our investors for your trust and support in 2024, '25. Your engagement and partnership have been instrumental in advancing our mission, making a positive impact for patients, health care systems and society. Coloplast is well positioned to set the standard of care at scale, create lasting value for all stakeholders and continue making life easier for people with intimate health care needs. Thank you very much. And operator, we are now ready to take questions. Operator: [Operator Instructions] Our first question comes from Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: I'm going to try and sneak in 3, please. Firstly, can you talk about the China Ostomy business and the increased competition in the community channel and whether consumer sentiment is getting worse given the decline here and how you're thinking about business development in '26? Secondly, if you can expand on the drivers for the Kerecis margin ramp this year, and the phasing of that improvement, given some of the volatility you've observed around reimbursement changes. And then finally, Lars, when we met recently, you talked about slower volume uptake in the U.K. for Halo. How is this trending? And to what extent are you shelving potential launches elsewhere? And in hindsight, what went wrong? Lars Rasmussen: That was a good opening, Hassan. So the China the China situation first. So it's more or less a flat growth that we are seeing. We actually see that we are quite competitive in the market. So we -- in that specific part of the market, we don't see that we're losing traction. But we have a consumer sentiment, which is super important because it's out of pocket in the Chinese market, in the community market. We have a consumer sentiment, which is negative, and that basically reflects on how much consumers are willing to spend. We don't have an increased number of competitors. We still have a lot of competitors in the market, but the total market share is still super low. So we feel that our competitiveness is intact but that the market sentiment basically is the reason why we don't grow in China. On the Kerecis margin, yes, we expect to have a significantly better margin this year than we had in the year that we are coming out of. And it is basically due to scale. So now we -- now we start to be a little bit more of a mature business. It's not that we are not investing. But we do have more sales per head in the organization. We don't need to scale to the same extent all over the place when we are growing, and that is basically what is sitting in the increased margin for Kerecis. And yes, there is volatility as we go into this year. And as you all know, Friday night, we received news on the LCD and the physician fee schedule changes. And I expect that we'll also talk to that a little bit later, but that means that there is some turbulence as we go into the year. But we -- I would like to say from the get-go, we consider the changes to be positive for us. But of course, it also means that we will have a bit of volatility as we go into the year. And then for Halo, what went wrong? Super good question. We are addressing the most pronounced problem that any Ostomy patient has to understand how much of the adhesive that are still intact at this given point in time and how much of it have given up, and we can show that via the mobile phone. We haven't found a way to sell this where we get the uptake that we expect to have. We give it still a chance to do that in what we consider to be the most advanced market in the world for Ostomy Care in Great Britain. And we are not going to go anywhere else until we have found a way to solve that in that market. Operator: The next question comes from Jack Reynolds-Clark from RBC Capital Markets. Jack Reynolds-Clark: My first one was on the Atos integration. You mentioned that you're expecting that to be completed next year. I guess what's left to do on that? And when do you expect the benefits to start kind of going through meaningfully there? Then the next question was on tracheostomy. I think for the last couple of quarters, growth here has been a bit lower than it has been in the past. Is this a function of a low -- of a higher base? Or is there something else kind of going on here? How should we think about this going forward? Anders Lonning-Skovgaard: Jack, let me take the first one. So we are finalizing the integration of Atos into our IT infrastructure and into our processes, our shared services and all of that here during this financial year. And what we are -- it's basically some of the bigger markets that are left. So it's the U.S., the U.K. that we are currently focusing on and then the integration will be finished, and we will also reap the synergies of around the DKK 100 million that we have communicated when we acquired Atos some years ago. In terms of tracheostomy, yes, we have seen a little bit of a slowdown recently. It's also because we are up against a high baseline. So last year or the year before, we had a quite significant sales uptake due to forward integration. And when that is said, the tracheostomy business is developing very well, also compared to the acquisition case we did some years ago. And we actually expect that our tracheostomy will support our growth within Atos quite significantly towards 2030. We are currently sitting with a market share of around 10%, and we actually feel we have an okay product platform and this will be one of the key focus areas towards the 2030 and also an area we will invest further in. So the tracheostomy business is an area that we are very optimistic about going forward. Operator: The next question comes from Martin Parkhoi from SEB. Please go ahead. Martin Parkhoi: Yes, Martin Parkhoi, SEB. Two, I don't know, 2 questions, I guess. Just on your guidance, I just want to get your confident level because you're starting the year saying it will be back-end loaded, and that gave me some kind of this view for the last couple of years. How are your confident level this year of this actually will materialize? Do you think you have been more prudent this year than you have been in previous year? Are there a buffer or potential hiccups, which you have faced the last couple of years? And then second question is just on the ASP development. What kind of ASP development have you assumed in your guidance for this year? And maybe you can talk a little bit to that across your business areas? Anders Lonning-Skovgaard: Yes, Martin, let me take your 2 questions. On the guidance side, as we have communicated today, we expect organic growth to be around 7% for the year. We are, as I also said, seeing some headwinds here in Q1 due to the product recalls that we had last year. So the urology recall will -- we will lap that in December. And the recalls we have in China on the dressings part will still impact us in Q1 but also Q2, Q3. But overall, we are very confident that we are able to deliver on our organic growth guidance also back -- on back of a very challenging year. Last year, where we also had some challenges that we did not expect back to the product recalls. But also back to, as Lars said earlier, our Chinese momentum did not play out as we anticipated. And so that's how we see it. And I would also highlight that the Continence business, the Atos business is strong, and we also expect those to continue as well as the Kerecis business throughout the year. So then your second question around that was ASP. We are expecting a small positive on ASP development. We are not expecting any bigger health care reforms. So we are expecting small positive impact from ASP, especially within urology. We are also expecting some on the chronic side, and that is, again, primarily in emerging markets, and then we get the yearly inflation adjustment in the U.K. So those are some of the main reasons for us being positive on the ASP. Operator: The next question comes from Martin Brenoe from Nordea. Martin Brenoe: I'll build a bit on the other margins question here. We learned at the CMD that you held earlier in the year that you have quite normally 2 or 3 recalls during a year. And I just wonder how much you have baked into potential recalls in this year and how you have -- if you have a financial buffer for that potential outcome? And then secondly, on Kerecis, would be interesting to hear how you expect to reaccelerate 500 basis points? A few words on what is going to drive it in terms of product launches, new geographies, anything like that? Lars Rasmussen: So when you produce products in the numbers of billions, then of course, there can be from time to time, recalls. What we saw from urology, primarily is something which we see very, very rarely. And I would like to take this opportunity to remind everybody that the product returns that we have seen in China has nothing to do with products that doesn't work or complaint rates or anything like that. So that was -- the reason for that was actually reasons that we have never seen before and that we could not have done anything internally to avoid, I would say. So therefore, we do not have a buffer for very large recalls and it is something that we don't see. What we have seen of real events over the last couple of years has been the distribution center event that led to difficulties in delivering and then what we saw in IU. And they were completely unexpected and to a very large extent, internally driven. So we could have avoided them. And that's what we have tightened the system to make sure that we don't get into that situation. Having said that, you can't run a business and never have issues, but that we do have significant or not significant, but realistic buffers for. On Kerecis, the -- your question is how we are going to get the uptick on the EBIT margin? Martin Brenoe: No. Sorry, on organic growth. Lars Rasmussen: Okay. So as I started by saying, we actually consider this to be the changes to the physician fee schedule to be positive for us. And we also see that we have strong momentum. We are not in a situation where we have fully utilized the -- our sales muscle, so to speak. So we are, of course, still hiring sales reps to go to the market. But we see it as we get more access with what is happening now because there will be fewer companies to serve the same customer group as we had before, and that is definitely going to help us. We just need to see it, play fully out before we start to become too positive, but we think that with where we are now, we can have an uptick because the turmoil that we saw in Q3 is not going to come back. Operator: The next question comes from Aisyah Noor from Morgan Stanley. Aisyah Noor: My first one is on the competitive bidding program in the U.S. for chronic care products. You mentioned in the press release that any changes would take effect in 2028 at the earliest. But your peers are flagging that this could even be a bit later, so 2029. Just curious what your internal assessments involve towards this time line and whether you have any renewed thoughts on the potential magnitude of the sales impact for you? My second question is just a quick one on the wound recall impact in China. Could you help us quantify the negative impact that you're calling out in Q1, 2 and 3 for 2026? Anders Lonning-Skovgaard: Yes. Let me take the competitive bidding question. So as you all are aware, this is something that is currently going on, and we expect some kind of an outcome as we understand it during this quarter. We, however, believe that if there will be an impact, and that is still highly uncertain, that it will not impact us until '28 at the earliest. So that's the information we are currently sitting with. In terms of the wound recall in China, as we have said a number of times now, we expect that to have an impact in Q1, Q2, Q3 and my estimate per quarter is something around DKK 25 million based on the knowledge we have. It's DKK 25 million per quarter. Operator: The next question comes from Anchal Verma from JPMorgan. Anchal Verma: The first question is just around gross margin. How should we think of gross margin development over FY '26? Can you provide your assumptions around COGS inflation, Hungary wage inflation and the other moving parts? And then the second one was just around if you could provide us an update on how the search for new CEO is going? Or is the expectation still for having announced a replacement by spring next year? Anders Lonning-Skovgaard: Yes. Thanks for your question. Let me take the first one. So our gross margin, my high-level assumptions are that we are looking into a year with a pretty stable inflation levels. That also means that our raw material prices, utility costs, freight, et cetera, are pretty flattish compared to last year. But we will also have some headwinds still from high salary inflation in Hungary. We are still seeing a very intense labor market and then we are investing in ramping up our facilities still some ramp-up in Costa Rica. But next year, we will really start to ramp up in Portugal. We are expecting Portugal to be in operation in Q4 of '25-'26. So those are the main moving parts on our gross margin into '26. Lars Rasmussen: And on the CEO search, so in a sense, what I have said before, the search is going on. It's like a funnel, right? You start broad and then you -- then the field is narrowing down and that's, of course, where we are now. We haven't signed any contracts at this point in time, but we have a number of qualified candidates. And once we have a signature, you will be the first to know. And then, of course, it depends then on what kind of garden leave or other terms does that person have and that will then put a date on when a person can start. And until then, it will be the team that you are meeting today that will be running the company together with the rest of the leaders in Coloplast. Anchal Verma: That makes sense. And maybe just a quick follow-up on margins, please. Are you able to provide or quantify the FX headwind to margins for FY '26, the EBIT margin? Anders Lonning-Skovgaard: Yes. So what we are saying is that on the top line, we will -- we are expecting a reported growth in the level of 4% to 5%. And that is also again driven by the U.S. dollar to a large extent. On the EBIT growth, we will see some headwind also coming from the U.S. dollar, also some on the British pound and the Hungarian HUF . Operator: The next question comes from Veronika Dubajova from Citi. Veronika Dubajova: I'll keep it to 2, please. One, obviously, looking at the revenue growth and the EBIT growth guidance, and I appreciate, Anders, you don't want to talk about gross margin guidance, but it does seem to me that there is a fairly large amount of investments going into the business, obviously, year-on-year, especially stripping out Kerecis, which is delivering a nice little tailwind to profitability. I was just hoping you could talk about what are some of the areas of the business where you are investing meaningfully with this high single-digit kind of OpEx growth guidance, that would be super helpful. And then I just want to circle back on the China competition answer because it wasn't clear to me, Lars, from your comments at the beginning. If I look at the press release, you are calling out competition in China for the first time. It wasn't in the prior releases. So just trying to understand what really has changed? What has prompted you to put it into the release? And I guess, is that competition from local players? Or is it from other multinationals that are becoming more focused in the market? Anders Lonning-Skovgaard: Thanks a lot, Veronika. Let me take the first one in terms of the investments. So now we are entering into the first year of our Impact4 strategy. And as we also said at the Capital Markets Day, we are going to invest into new initiatives, both to drive the top line growth, but also to support our EBIT growth ambition. And what we will initiate this year is investments primarily into our U.S. chronic business. We see quite a few opportunities also with the new opportunity within bowel care. We will also initiate investments in urology to support the launch of INTIBIA. We are expecting when we get approval from the FDA that we will launch INTIBIA into '26-'27. So we will also initiate investments here. And then we will initiate quite a bit of investments into technology and AI, both to support improvement in our user experience, but definitely also to support activities to automate and optimize back-office activities, especially order management, the prescription management through AI. So those are some of the things that we will initiate basically to support our long-term growth and value creation agenda. Lars Rasmussen: And for China, yes, I think it's actually a very appropriate follow-up. Veronika, thank you for that. That gives me the opportunity to say that we have -- our community market share in Ostomy Care is very, very high in China. And we are not -- yes, well, more than 60%. So -- and as we are not seeing growth like we used to, it is primarily because we have a consumer sentiment that is not super positive. But of course, we also feel the pressure every single day that somebody would like to take away some of the market shares that we are having. We are seeing very able competitors in China. But having said that, the fact still is that we have a very, very -- even though we have many local competitors, they have a very, very small market share, very low single digit, I would say. And therefore, it is maybe just the way that we are writing it, it's not because we see an increased local competition. But of course, we feel local competition also in China. But it has not worsened. So that's not how you should read it. Operator: The next question comes from Oliver Metzger from ODDO BHF. Oliver Metzger: Yes. First question is also on Kerecis and you mentioned this market shift towards the higher-priced products. Can you just elaborate a little bit more about the dynamics and how sustainable you regard this shift? And the second question is about still also the operating cost development. So a follow-up on Veronika. So if I do the math and calculate a stable gross margin and, let's say, also a stable EBIT margin and still the amount of operating leverage you should have. It would be great if you can dive deeper into respective costs. And yes, you mentioned the ramp-up to INTIBIA, but I calculate still a quite significant operating leverage, which is according to your augmentation, eaten up. So it would be great to have a little bit more transparency regarding the cost positions and how the math works. Lars Rasmussen: So on your first one, Oliver, so the physician fee schedule changes to the payment as we are -- we are running right now with an average price of USD 110 per square centimeter. And the new fixed price is USD 127.3 per square centimeter from 1st of January 2026. That is, of course, positive on an average basis. There will also be fewer competitors we expect that has not been -- does not come out yet, but we expect before 1st of January that we will have a full list of who has coverage. And that dynamic altogether means that as the year progresses. And as the stocks that have been built, they are being consumed, that we will be in a better position to compete, than we are at this time because there are fewer competitors and what we compete with would have a higher average price. That's how we see it. That's also why we think that this, at the end of the day, is a positive change seen from our point of view. Anders Lonning-Skovgaard: And Oliver, to your second question around our cost development, I think I talked to the gross margin moving parts earlier. I also talked to where we are going to invest back to Veronika's question. And you should -- as I also said earlier, you should expect our inflation levels or the inflation levels, salary regulation, et cetera, to be pretty stable also compared last year. So we are really -- the leverage effect we have, we really invest that back into new initiatives and I explained those initiatives earlier. So it's the U.S., it's INTIBIA and then also invest into technology, AI to support long-term growth and long-term value creation. Operator: The next question comes from Julien Dormois from Jefferies. Julien Dormois: The first one relates to Continence. We should have the coding change taking effect in January of '26. So just curious what are your latest thoughts on this and how you ambition to make the most of that coding change? And whether we should see any positive impact in '26? Or is it more a mid- to long-term benefit we should observe? And the second question is trying to dissect a little more into the guidance for '26, particularly in chronic care. You have highlighted continued momentum in the business, but is it fair to assume that Continence will continue to outperform Ostomy as it has in the recent past and also considering the regulatory changes, the recent product launches and so on. So just curious whether Ostomy should remain slightly subdued compared to the Continence into the next year. Anders Lonning-Skovgaard: Thanks a lot, Julien. Let me start with the U.S. coding. Yes, it's going to have effect here from January. But we also are aware that there will be quite a lot of operational activities going on in moving the coding from the previous way -- or the previous reimbursement codes and now to specific hydrophilic codes. So there will be quite a big operational activities in our U.S. business to get that fully implemented. And it is still, for us, too early to call out the impact. But over time, we expect this to be positive. In terms to your second question around guidance on the chronic side, as you have seen also last year, we have a good momentum within the Continence, driven by our intermittent catheters driven by the Luja launch, but we're also seeing good momentum within our bowel care business. And we see that momentum also continue into '25-'26 and remember, the Ostomy franchise, as Lars also has mentioned a number of times now are also impacted by low growth or flattish growth in China. So that is the main headwind on OC versus CC. But overall, we are expecting that the chronic business will continue with good momentum also into '25-'26. Operator: The next question comes from Sam England from Berenberg. Samuel England: So the first one is just a follow-up on the investment and margins piece. Can you talk a bit about how the Impact4 investment evolves over the plan period? To understand how margins might trend from here? Is it pretty much front-end weighted? Or are there areas like AI and more sort of multiyear investments throughout the plan period? And then in Voice and Respiratory Care. Just wondering if you're expecting any more positive momentum on reimbursement during 2026 following the improved reimbursement that you saw in France for HMEs earlier this year? And then are you expecting any other new markets in Voice and Respiratory Care to open reimbursement in '26 like we saw with Poland this year? Anders Lonning-Skovgaard: Yes. So thanks, Sam. To your first question around investments during the Impact4 period. The ones we have talked about today, that is, yes, front loading some of the activities to support the growth and also value creation over the period. So we are -- yes, as I said a couple of times now, front-loading activities within the U.S. INTIBIA and technology AI to reap the benefits later in the strategic period. On Voice & Respiratory Care, we expect the momentum we have seen in recent years to continue. We have seen some reimbursement openings in some of our smaller emerging markets, but also in France, but you should not expect any bigger ones, at least not short term. Operator: The next question comes from Graham Doyle from UBS. Graham Doyle: Just one for Anders and one for Lars. Anders, just in terms of the Q4, it looked like there was a fairly sizable step-up in other operating income, which seems to be related to a transition services agreement. And it was kind of like 2%, 3% of EBIT. How sustainable is that? And when should we expect that to sort of run off? And then just a point on reimbursement, for Lars here. When you look at the skin subs, is there not a danger if the ceiling reimbursement, i.e., what a doctor receives is capped at $127. Why would there not be a race to the bottom to products for like $20, $30, $40, where you make this spread? So just to understand how you think doctors balance patient outcomes with, I suppose, financial incentives would be helpful. Anders Lonning-Skovgaard: So thanks a lot, Graham. Let me take the first one. Yes, we have a step-up in other operating income throughout the year. And this is really related to our TSA or our services to the buyer of our skin business in the U.S. But actually, the cost to do these services are sitting in the individual cost items. So when I net it up in our P&L, it's actually a neutral effect. You should expect the other operating income also to continue into '25-'26, and we expect to be done with the services towards the end of the year. But for the total EBIT, it's a neutral impact. Lars Rasmussen: So on the Kerecis, I think you know at least as much as I do about the dynamics, the financial dynamics of the skin care market in the U.S. The way I see this change is that for most vendors, they will get into a space where they have a significantly lower pay per square centimeter than they had before. And we come into a space where we have more. The vendors that are left in that space now -- they can only be there when they have good quality clinical data. And the clinical data that you have to obtain to be in that market, you can only get those when you have a certain investment in the -- in the quality of those data. And I think that it's hard to see with the kind of investments that you have to do to both create these products, but also to document them that it's going to be a substantial race to the bottom. On the contrary, I think that it's going to be a market that for some of the vendors will be hard to compete in. We just happen to be set up in a way where we have extremely strong clinical data. We also have a very competitive setup when it comes to the cost on this. So we are, of course, prepared to compete but we -- we just don't think that we are in a space where what you described there is there's a logic that, that will just be the right or the first thing that happens. But we might be proven wrong on this, of course. But I really think that what happens, the steps that have been taken here that gives a choice for the society to offer very, very strong products at a reasonable price. And those who would like to compete on that is in that space, that's how I see it. Graham Doyle: No, I completely hear you. Just -- it was just something I thought about as we looked at how some of the higher priced products are trending today. Lars Rasmussen: Thanks. Okay. Should -- I think that we'll have to end with the next question because we are over time, but could we take one more? Operator: The next question comes from Carsten Lonborg Madsen from Danske Bank. Carsten Madsen: I was just hoping that you could talk a little bit about the scenarios for the LCD because that is, of course, a sort of continuous rumors about it not being implemented and maybe being canceled. So what will actually happen with your organic revenue growth guidance for next financial year and if it should be in a situation where the LCD is not being implemented? Anders Lonning-Skovgaard: Carsten, let me take that one. Our assumption around Kerecis for the coming year is a growth of around 25%. And remember, around 70% of our business, that's the hospital business. And the hospital business, we have a very strong growth quarter-over-quarter. And it's really the outpatient setting when we discuss the LCD and the price levels where we have some volatility. But we are -- we expect to deliver growth of around 25% for our Kerecis business, '25-'26. Carsten Madsen: And then maybe a quick follow-up to this one in terms of the venous leg ulcers. I cannot completely remember your plans for submitting data and maybe potentially getting on to that list as well. Could you help me remember it? Anders Lonning-Skovgaard: Yes. So we are in the process of doing clinical studies, and we expect those to finish sometime next year. So that's the current assumption. Lars Rasmussen: Okay. So actually -- I changed my mind, that happens sometimes in life. So yes, but if you're still online, you can ask your questions because you're the last one who is left. So that would be like almost personally if we leave you out here. Operator: The next question comes from Jesper Ingildsen from DNB Carnegie. Jesper Ingildsen: Just maybe on the bowel care opportunity that you mentioned in regards to your increased investments into next financial year, could you just elaborate a bit on that opportunity? And what kind of contribution you expect to get from that? And then lastly, on Halo and the special items that you have specified. To my understanding, you don't do capitalization of your R&D. I'm just trying to understand what's specifically driving that? And to some extent, how big that cost is? Anders Lonning-Skovgaard: Jesper, let me take your questions. When we had the CMD back in September and described our Impact4 ambition also for the U.S., we also talked to an opportunity we are seeing in the U.S. for our bowel care business. So the good news are that we are now getting reimbursement for bowel care in the U.S. And that's why we are now initiating investments into this specific area. And that's what we have been planning for doing this year. In terms of your second question, the -- related to the Halo, yes, we have evaluated the value of Halo also as a consequence of the current sales in the U.K. and our plans not to launch in other markets. And therefore, we have included a quite significant amount in our special items. And it's related to the IT investments we have done, so to develop the solution and to develop the app and therefore, we have reassessed the -- basically the depreciation for the Halo solution, and that's what we have included in special items. Lars Rasmussen: Thank you very much, guys, and looking forward to seeing many of you over the next period. Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: As it is time to start, we will now begin the Conference Call for the Presentation of the Financial Results for the Fiscal Year 2025 Second Quarter. Thank you very much for your participation. Today, Mr. Sasaki, Representative Director and Senior Managing Executive Officer, will give a briefing on the financial results for fiscal year 2025 second quarter. Later, he will be joined by Mr. Yamauchi, Executive Officer and General Manager of Accounting Department to take questions. We will conclude the call at 4:50. Mr. Sasaki, over to you. Keigo Sasaki: Thank you. I'm Sasaki from Sumitomo Chemical. Thank you very much for attending our conference call today despite your busy schedule. I'd like to thank the investors and analysts for your daily understanding and support to our management. Thank you very much for that. Now let me start with the presentation of the financial results for fiscal year 2025 second quarter. Please turn to Page 4. This is a summary page. Core operating income and net income attributable to owners of parent significantly improved compared to the same period of the previous year. Core operating income of Essential & Green Materials increased significantly year-over-year. There are also profits at Sumitomo Pharma with strong sales results, leading to recording of a sales milestone of ORGOVYX and partial divestiture of the Asian business. Compared to the forecast announced in August, in addition to strong sales at Sumitomo Pharma, there was improvement in foreign exchange gain or loss from a yen weaker than anticipated, as well as a reduction in the deferred tax liability, resulting in a reduction in the corporate income tax expenses, leading to increase in both core operating income and net profit. Please turn to Page 5. Consolidated financial results of the second quarter. Sales revenue was JPY 1,954 billion, down JPY 146 billion year-on-year. Core operating income was JPY 108.7 billion, up JPY 79.2 billion year-on-year. Nonrecurring items not included in core operating income was a loss in total of JPY 5 billion. In the same period of the previous year, there was an impact of recognizing our interest in Petro Rabigh' debt forgiveness gain of JPY 86.5 billion as a nonrecurring factor, leading to a profit of JPY 91.8 billion. So compared to the same period of the previous year, this has worsened by JPY 96.8 billion. As a result, operating income was a profit of JPY 103.7 billion, down JPY 17.6 billion year-over-year. Finance income was a loss of JPY 15.8 billion. Improvement of JPY 136 billion compared to previous year when a loss on debt waiver Petro Rabigh was recognized. Gain or loss on foreign currency transactions, including finance income expenses was a loss of JPY 6.5 billion, improvement of JPY 28.4 billion year-on-year. Income tax expenses was a gain of JPY 3 billion, increase of tax burden of JPY 7.2 billion year-over-year. Net income or loss attributable to noncontrolling interests was a loss of JPY 51.2 billion, worsening by JPY 65 billion year-on-year with the improvement of Sumitomo Pharma's income. As a result, net income attributable to owners of the parent for the second quarter was a profit of JPY 39.7 billion, up JPY 46.2 billion year-over-year. Exchange rate and naphtha price, which impact our performance, average rate during the term was JPY 146.02 to $1 and naphtha price was JPY 64,900 per kiloliter. Yen appreciated and feedstock price declined compared to the same period of the previous year. Next, Page 6. Total sales revenue was down JPY 146 billion year-on-year. By segment, sales revenue decreased in all segments, except Sumitomo Pharma. As for year-on-year changes of sales revenue by factor, sales price decreased by JPY 25 billion. Volume variance decreased by JPY 88.1 billion, and foreign exchange transaction variance of foreign subsidiaries sales revenue decreased by JPY 32.9 billion. Next, Page 7. Total core operating income increased by JPY 79.2 billion year-over-year. Analyzing by factor, price was plus JPY 6.5 billion, cost, plus JPY 6.5 billion. Volume variance, including changes in equity in earnings of affiliates was plus JPY 66.2 billion, all were positive factors. Next is performance by segment. First, Agro & Life Solutions. Core operating income was a profit of JPY 11.2 billion, down JPY 2.9 billion year-over-year. Price variance. Profit margin improved for overseas crop protection products. Volume variance, in addition to decrease in shipments of overseas crop protection products, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen. Next is ICT & Mobility Solutions segment. Core operating income was a profit of JPY 33.1 billion, down JPY 10.5 billion year-over-year. Price variance, selling prices of display-related materials declined. Volume variance, though there was a gain on the sale of a large LCD polarizing film business, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen and decrease in shipments of display-related materials. Advanced Medical Solutions segment. Core operating income was a loss of JPY 1.4 billion, down JPY 1.7 billion year-over-year. Shipments decreased because of difference in the timing of shipments compared to the same quarter previous year for some pharmaceutical ingredients and intermediates. Essential & Green Materials segment. Core operating income was a loss of JPY 18.6 billion, improvement of JPY 16.1 billion year-over-year. Price variance with a drop in naphtha price, which is a feedstock, profit margins improved in synthetic resins and aluminum. Volume and other variances, there was improvement in profitability in investments accounted for using the equity method at Petro Rabigh due to factors such as improved refining margins. For Sumitomo Pharma segment, core operating income was a profit of JPY 97.3 billion, up JPY 94.3 billion year-over-year. Price variance, selling prices declined in Japan with NHI drug price revisions. Cost variance. There was a decrease in selling expenses and general and administrative expenses due to progress in rationalization. Volume and other variances in addition to expanded sales of ORGOVYX, a therapeutic agent for advanced prostate cancer and GEMTESA treatment for overactive bladder, gain posted on a partial divestiture of Asian business and ORGOVYX sales milestone are included. This is all for the results per segment. Next is consolidated statement of financial position. As of the end of September 2025, the total asset stood at JPY 3,364.5 billion year-on-year, this is dropped by JPY 75.3 billion. This is mostly due to a drop in related company's shares by sales of businesses as well as a decrease in cash and equivalents by repayment of interest-bearing liabilities. Interest-bearing liabilities stood at JPY 1,191.7 billion, which has dropped by JPY 94.5 billion compared to the end of the previous term. Equity stood at JPY 1,179.6 billion, which is up by JPY 105.2 billion compared to the end of the previous term. And now let me explain the consolidated cash flow. The operating cash flow is plus JPY 57.5 billion. However, year-on-year, this is a drop by JPY 5.9 billion. The profit level improved. We saw a deterioration of working capital due to revenue increase at Sumitomo Pharma as well as corporate tax increase. And investing cash flow was minus JPY 16.7 billion year-on-year, this is a drop by JPY 91.1 billion. This term, we had a partial sales of Asian business at Sumitomo Pharma. But in the same period last year, we had a significant income by sales of [ low bound of ] shares by Sumitomo Pharma as well as the sales of Sumitomo Bakelite shares. As a result, free cash flow stood at JPY 41 billion compared to JPY 138 billion the same period of previous year. This is a deterioration by JPY 97 billion. Cash flow from financing activity was minus JPY 114.8 billion due to repayment of borrowing compared to the same period of last year. This is an increase in outflow of JPY 39.4 billion. And now I'd like to explain the outlook for fiscal year 2025 on a full year basis. First, let me explain the business environment surrounding our company. Regarding the economic situation, the global economy continues to show signs of a slowdown. Amid heightened uncertainty, the outlook remains unclear. Below, our assessment of the business environment for our key sector is indicated using weather symbols as usual. For agrochemicals at the top, crop protection, price competition is expected to persist with regional variations in slow-moving inventories in distribution. Methionine market bottomed out at the end of last fiscal year and recovered in the first half of this year, but is expected to decline in the second half. In displays, mobile-related components remained robust. For semiconductors, although there is a variation by sector, but the demand is anticipated to show a gradual recovery trend. Regarding petrochemicals and raw materials, low margins are expected to persist. And now on Page 17, you can see the summary of our financial forecast for fiscal year 2025. We have revised the previous forecast in May to incorporate the recent performance trends and the impact of the partial sales of Petro Rabigh shares. The core operating profit forecast for fiscal year 2025 is JPY 185 billion, which is an increase of approximately JPY 45 billion year-on-year and an increase of JPY 35 billion compared to the previous forecast. On the left-hand side, the actual gain on sales of business shown in gray was projected to be approximately JPY 50 billion in the May forecast. But by incorporating partial sales of shares in Petro Rabigh, it is revised to approximately JPY 80 billion. The profit from the business activities shown in blue, representing the underlying profit and loss is projected to show a significant year-on-year increase due to sales expansion at Sumitomo Pharma and reduced stake in Petro Rabigh, we revised it upward from the May forecast, targeting over JPY 100 billion. By segment, growth areas are -- these 2 segments, Agro & Life Solutions and ICT, Mobility, we expect achieving JPY 100 billion in profit from the business activities. Regarding the profit and loss associated with the partial sales of Petro Rabigh shares, the combined impact of the valuation loss associated with subscription to new class shares and the increase in loss accounted for by the equity method is expected to be minimal on the final P&L because they are offset with each other. And now the business performance forecast. We forecast the revenue of JPY 2.29 trillion, a decrease of JPY 50 billion from the previous projection. Core operating profit of JPY 185 billion. Net profit attributable to the owners of the parent of JPY 45 billion. Assumption on the FX and naphtha prices are as stated. Regarding sales revenue, Sumitomo Pharma expects a strong sales in North America, mainly for ORGOVYX. But Essential & Green Materials except the decrease in revenue due to a decline in shipments resulting from the sales suspension of Petro Rabigh products, which is our subsidiary company. Core operating profit by segment will be explained on the following slide. Net income attributable to the owners of the parent is expected to increase by JPY 5 billion from the previous forecast. And related to Petro Rabigh company's shares. Cash contribution methodology associated with Petro Rabigh was not clearly identified and the series of profit and loss impact was accounted for and the nonrecurring items. That is how it was incorporated in the forecast. But this year, this time, the methodology for cash contribution and the accounting treatment was finalized. As a result, for 6 months, the sales timing was delayed by 6 months. As a result, the losses we bear under the equity method will increase. As a result, the gains on sales of equity will increase. As a result, core profit significantly increases. And next, we incur valuation losses of the Class B shares we newly acquired. As a result, there are additions and deductions among accounting items, but the impact on net income is limited as they had been already incorporated in the previous projections. And therefore, impact is not big. Next, regarding the full year performance or the sales revenue and core operating income by reporting segment. On to Agro & Life Solutions, though shipments shifted from the first to the second half, performance has largely progressed as previously announced with the previous forecast kept unchanged. For ICT and Mobility, EV market recovery is slow and the semiconductor market recovery is slightly moderate compared to our projection with some unevenness. As a result, we have adopted a little bit conservative outlook compared to the previous announcement. Essential & Green Materials, as I explained earlier, is expected to see a significant increase in core operating profit. At Sumitomo Pharma, mainly due to strong sales in North America, therefore, is expected to see a significant increase in profit compared to the previous forecast. The other segment sees its profit drop compared to the previous forecast. This is due to the fact that at the time of the previous forecast, a certain degree of performance improvement measures were factored in. So they were incorporated into the other categories. However, in this announcement, based on the assumption that they are likely to materialize in each segment, Essential and Sumitomo Pharma numbers are calculated. And therefore, those factors are not incorporated into others. This concludes our explanation on the financial results and earnings forecast. And now we would like to entertain your questions. Thank you. Operator: [Operator Instructions] Now the first question from Morgan Stanley MUFG Securities, Mr. Watabe. Takato Watabe: In your new forecast, Petro Rabigh's sales impact, I'd like to hear more about it. In Essential, JPY 50 billion is included this time, but the increase in profit is JPY 23 billion. What is the reason for that? Not related to Petro Rabigh, there is minus JPY 40 billion for others. You explained because there were recoveries in other segments, but it seems to be too large. And nonrecurring items, it was minus JPY 45 billion, but with the gains for sale of Rabigh that was assumed, but that is negative. So what is the reduction of JPY 25 billion in nonrecurring items? With the sales related to Petro Rabigh, maybe your forecast was too bearish. Could you explain the reason? Keigo Sasaki: Yes. Thank you for your question. For Petro Rabigh, we announced the influence recently. But for the sales, it's JPY 50 billion of sales proceeds was announced. And as you know, here, there was a time gap of 6 months, and that impact is included. So 22.5% means that the equity method is continued to be applied. So there is an increase in the burden in terms of losses based on the equity method. And that is one factor. And JPY 50 billion, because there were losses from equity method, the sales cost dropped. So in net, it is lower than that. So that included -- the increase in profit was only about JPY 23 billion. Besides, there is included under finance losses for the B shares newly acquired, there is a valuation loss included. So sales of equities, when you calculate the total loss, actually, the impact is not that large. Takato Watabe: Yes, I understand. Petro Rabigh, there is a negative in terms of sales proceeds because of equity method. Keigo Sasaki: So let me add to that explanation. How was that included in the original forecast? I think that is your question. In the original forecast, core operating income -- essentially in Green and EGM, it was not included at all. That is one point. So that makes the difference. And for nonrecurring items, we were including some impact. And by adding some items, for example, valuation loss, it is very difficult to express. So the losses were included in the nonrecurring items. But that is not a nonrecurring item. That is a financial loss. So improvement of a nonrecurring item compared to the forecast is because of this background. So we are not considering the sales gains. Well, when it's not that we are not taking into consideration at all, as I will explain. And your question, you asked about other corporate expenses compared to the forecast, this has worsened about JPY 24 billion, JPY 25 billion. And that part, in the initial forecast, we included some forecast of improved performance in EGM and Sumitomo Pharma. For both, we had conservative figures and Petro Rabigh equity sales, we were not -- we couldn't talk about it. So without including those figures, these were all added together and included under other corporate expenses, but that is now being distributed into other segments. It is now included in the figures of the relevant segments. So it looks as if the total corporate figures has worsened, but that is the reason. Takato Watabe: Is it possible to have such a big negative figure for corporate, about JPY 40 billion? Is that what you mean? Keigo Sasaki: Yes. The reason why it was good so far. Sumitomo Bakelite and other items of profit and loss are included and sales proceeds that happened last year are included. And besides Sumitomo Chemical Engineering and Nihon Medi-Physics, those losses are included under others. But these 2 are already sold. So this fiscal year, there are not so many positive factors. And under others and adjustments, expenses are high. That is how you should interpret it. Medi-Physics, I think that was Life Science, but I understand. So it's not that you are assuming a larger buffer. If you ask me if you are -- we are conservative, basically, yes, our forecast is intended to be conservative, but we are not including a large buffer. Takato Watabe: So you are conservative. I understand. Operator: Now we would like to go on to the next question. Mizuho Securities, Yamada-san, please. Mikiya Yamada: I am Yamada from Mizuho Securities. I would like to double check about the core profit. Agro & Life Solutions in the first half, there was some shortfall. From the first to the second quarter, there was a seasonality. So you said that there is some visibility, but you had some shortfalls from the first half to the second half, there was a timing difference of the shipments. Was it the reason? On a full year basis, there was no change in the forecast. Therefore, my understanding must be correct, but I'd like to double check. And ICT Mobility Solutions, downward revision, the operating profit and the revenue were revised downward. EV and the semiconductor recovery or delayed that is the reason. Marginal profit margin -- marginal profit ratio against the revenue dropped by JPY 30 billion, operating profit drop was limited to JPY 3 billion. Therefore, the balance seems to be optimistic between the 2. So could you please explain this situation? Keigo Sasaki: First of all, AGL, from the first half to the second half, there was some shift. At this point, in Latin America, business is struggling. From the second to the third quarter, there is some shift that is our awareness. As much as possible, we would like to make a recovery within the third quarter. On the other hand, in North America or in India, in these regions, so because they are Northern Hemisphere there, we expect more to come. We do not have any unfavorable factors. Well, the slow-moving inventories start to recover. And based on that, so comprehensively, when it comes to AGL, we are likely to achieve the initial projection. Furthermore, JPY 145, that is the ForEx assumption for this projection. Currently, yen is a little bit weaker than that. So I believe that this will also make a further contribution. And then on to ICT, the major factors are, as correctly pointed out by you, EV and the semiconductor. Although there is some recovery, but not much recovery than we anticipated. So that is some negative impact. They are incorporated. And the profit margin is off, that is what you pointed out. Well, the revenue in itself may be we put the numbers quite roughly and sometimes we round the numbers. So it is not precise. It is better not pay too much attention to the profit. It does not mean that you made a significant change to ForEx assumption. That is why I thought something is off. However, you more precisely calculate core operating profit. That is why you ended up this result. Am I correct? Mikiya Yamada: Yes. And Agro & Life Solutions, regarding the sales status of new products, is there any delay? Or are there any new products that are sold earlier than schedule? Keigo Sasaki: Well, there is no major delay. That is our current understanding. Operator: The next question is from SMBC Nikko Securities, Mr. Miyamoto. Go Miyamoto: I'm Miyamoto from SMBC Nikko Securities. I also have a question about Agro & Life Solutions. As a business environment, you have a cloud mark. So what's the current situation? What is the situation of the inventory? There are differences from product to product. So could you explain a little more about it? And in addition, price competition continues. And in terms of price variance, there were improvements of profit margin of foreign crop protection chemicals. So it seems that -- could you explain the price trend and by rationale in different sales situation, could you talk a little more about it? Keigo Sasaki: Yes. Thank you for your question. For AGL, in the first half, in Latin America, situation was a little worse than what we had assumed. For our distribution inventory compared to the previous year, there are improvements, but still the level is high. And generic products, competition is still expected. For Rapidicil, Argentine, still, we will continue to emphasize expansion of sales. And [ differing ] in Brazil, it is the second season. So this -- we will also continue to expand sales of this large-scale insecticide. So we want to recover from the first half towards the second half. And the other regions, in the United States, it is improving quite a lot, I believe. And of course, competition with generic products exist. But as North America in general, there's improvement in the desire of our customers to accept our product. North America is a place that is just starting. So we will keep watching. And in India, India as well, there is a question of the distribution inventory, but there are improvements seen. Not only North America, but also in India, I think we can look forward to the situation in India by watching with care, we hope we will achieve our target at the beginning of the fiscal year. Go Miyamoto: About the price variance in Latin America, there's still a drop in price and is it getting higher in other regions? Keigo Sasaki: That is a general image. Go Miyamoto: And how about the situation, the places which price is getting higher? Keigo Sasaki: Price itself, rather than higher prices in the price variance, that is a tug of war with cost. So including the cost, the improvements in some places. That is the meaning here. Go Miyamoto: I understand. And on Page 29, in Latin America, there was sales and some carried forward in Japan, but the impact in North America is bigger. Keigo Sasaki: Yes, in Japan, currently, including the price of rice, prices are getting higher in Japan. The customers, the farmers have quite a strong desire to purchase their advanced sales. In Central South America, the market is larger. So still the impact remains. Operator: Now we'd like to go on to the next question. Daiwa Securities, Umebayashi-san. Hidemitsu Umebayashi: I am Umebayashi from Daiwa Securities. I would like to ask you some questions on ICT and Mobility Solutions. From the first quarter to the second quarter, the revenue is approximately JPY 8 billion. So therefore, it is a significant increase, but the profit, JPY 4 billion drop. So there was a gain on sales of the business in the first quarter. I understand that. But excluding that, so the revenue increase is significant. However, the profit was almost flat. So what is the reason for that? And especially in the industry, smartphone in North America is strong. And in the second half, you mentioned that you might be a little bit conservative. Why is it that the situation is deteriorating to this extent? Could you elaborate on that? Keigo Sasaki: Well, let me see. ICTM, in comparison with previous year, currently, yen is stronger. That is our assumption. So this is the segment most affected by the ForEx fluctuation. Another factor is the impact of tariff. So at the beginning of the year, we told you that in total, JPY 10 billion of impact will be felt from tariff. And we start to feel that impact now. Throughout the year, this is likely to be within the scope of our projection at the beginning of the year. So the reason for drop this time is, as I explained earlier, EV as well as mobility. These are the major reasons, partially compared to our initial expectation, there are some change from the semiconductor situation. Therefore, they are separately incorporated. Separator of EV feel the impact. So please understand in that way. Hidemitsu Umebayashi: Between the first quarter and the second quarter, revenue increased. However, the profit dropped. Well, the profit dropped because in the first quarter, there was gains on sales, but it did not occur in the second quarter. However, between the first quarter and the second quarter, what was the major change in the mobile business? Keigo Sasaki: What was the major change for the polarizing film between the first quarter and the second quarter? Well, there is an impact of the gains on sales, which did occur in the first quarter. So that may have an impact on profit. The display was performing quite well last year. So there was some rebound from the previous year. So there are some irregular elements incorporated here. So please do understand in that manner. Operator: The next question is from Nomura Securities, Mr. Okazaki. Shigeki Okazaki: I'm Okazaki from Nomura Securities. For core operating income, a question for confirmation. Essential Green Materials, you made upward revision. But in terms of fundamentals, compared to 6 months ago, is it right to say that there are no major changes? What is your view about Rabigh and Singapore and other places, as was included in previous question, from the first half to second half, losses -- core operating loss tends to increase. What is the item for that? This year, I understand there's not so much difference between first half and second half in terms of sales of business. Could you explain that? Keigo Sasaki: Yes. Thank you. First, for Essential, in terms of wafer mark, I explained, basically, from the beginning of the year until now, there are no changes. So Singapore, for example, for PCS, we are studying the possibilities of optimization in TPC, MMA. In particular for MMA, restructurings and also rationalizations took place. And on top of that, high profitability items, high value-added items are areas that we plan to shift to maintain the profit. So that is a policy. As for the environment, we have not changed our view. And for other areas comparing first and the second half, in the second half, for example, this is a matter of how we spend our expenses. For R&D expenses tends to be concentrated in the second half. That is a trend that we see. So that is also included. Operator: Now we are getting closer to the ending time. So now we would like to take the final question. BofA Securities, Enomoto-san, please. Takashi Enomoto: BofA Securities, I am Enomoto. I have a question on net income. Looking at the plan for the second half, there is a significant gap from the operating profit to net income. Various items are included in the operating profit. Why is it that the net income is so compressed in the second half of the year? Keigo Sasaki: Thank you very much for your question. Throughout the year, nonrecurring items, at which timing they will be recorded that also have an impact. JPY 5 billion was the only one that was generated in the first half. However, there are several structural reform-related expenditures that will be occurring, which will be around JPY 25 billion throughout the year. So the remaining portion will incur in the second half. And regarding the financial profit, it will be skewed towards the second half of the year. That is our view. This is due to ForEx. So this is the current view. It is currently at JPY 150. But based on the assumption of the yen is stronger to JPY 155, then the ForEx loss may occur. And talking about the tax, as I mentioned earlier, Sumitomo Pharma deferred tax liability reversal gain was observed in the first half. This is extraordinary items in the first half. So this will not appear in the second half. So there are several factors. And therefore, the loss will incur in the second half of the year. So that is my explanation. Takashi Enomoto: The ForEx loss, what is your projection of that for the second half? Keigo Sasaki: Not so much. But our assumption is that, the ForEx is JPY 145. Operator: This concludes the Q&A session. Lastly, Mr. Sasaki will give the final greetings. Keigo Sasaki: Thank you very much for attending today. This fiscal year is the first year of our medium-term plan. And within the medium-term plan, we have set targets. So to achieve the target, we will do our best. So we hope we can continue to have your support. Thank you very much for your participation today. Operator: This concludes today's conference call. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen, and welcome to TIM S.A. 2025 Third Quarter Results Video Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions]. Vicente Ferreira: Hello, everyone, and welcome to our earnings conference for the third quarter of 2025. I'm Vicente Ferreira, Investor Relations Officer of TIM Brasil. This video highlights our recent financial and operational performance as well as the initiatives that support our strategic plan. Following the highlights, we will have a live Q&A with our CEO, Alberto Griselli; and CFO, Andrea Viegas. Please note that management may make forward-looking statements, and this presentation may contain them. Refer to the disclaimer on the screen on our Investor Relations website. Now let's review our results. Alberto Griselli: Hello, everyone. I'm Alberto Griselli, CEO of TIM Brasil. Today, we'll explore how our commitment to innovation, customer experience and operational excellence is driving sustainable growth and value creation. Let's dive into the highlights and key achievements that are shaping our journey this year. We've achieved a 5.2% year-over-year increase in service revenues for the first 9 months of 2025, a sustainable growth pace that combined with our robust cash conversion machine is fueling solid value creation. We keep evolving our B2B to expand new revenue streams. The TIM Smart Mining solution is gaining traction with a new partnership with Vale, the mining company. Additionally, EBITDA rose 6.7% year-over-year with a 50.3% margin and net income up 42.2% year-over-year. Our disciplined approach to CapEx has kept investment efficiency and operational cash flow reached BRL 4.5 billion. Notably, we announced BRL 1.8 billion in interest on capital and repurchased BRL 369 million in shares, reinforcing our commitment to shareholder remuneration. Once more, we stood out in ESG practices. TIM reached the top 10 of the FTSE Russell Diversity and Inclusion Index, being the only Brazilian company and the only telco to appear on the list. As I pointed out, our net service revenues continues to grow at a solid pace, driven by the mobile segment. Postpaid expansion remains a key contributor, supporting overall growth. The more-for-more strategy is helping ARPU evolution and mobile service revenues increased 5.6% annually over 9 months and 5.2% in the third quarter. This quarter, we added 415,000 postpaid lines, with prepaid to postpaid migrations up by double digits. Postpaid monthly churn remains low at 0.8%, reflecting efficient customer base management. Our more-for-more approach optimizes the cost benefit equation by balancing offer attractiveness and revenue growth. Exclusive Black Friday offers, including iPhone 16E and PlayStation 5 are enhancing our value proposition, and we expect them to help maintaining a solid trend in postpaid. In prepaid, we are seeing first sign of stabilization, supported by targeted offers and improved customer experience. TIM ULTRAFIBRA is also showing operational improvements with broadband ARPU at BRL 94 in the third quarter. Stable ARPU and the client base resuming growth at 3.7% year-over-year marking 8 consecutive months of positive net adds should reduce the negative dilution for broadband to our numbers. TIM is reinforcing its leadership in network with 5G now available in 1,000 cities across Brazil. We have the broadest 4G and 5G coverage in the country. Sao Paulo's network modernization case is setting the base for next-generation connectivity. The project reached its completion with 100% of sites upgraded this November. We are now leaders in download speed in all rankings that measure throughput. We expanded our leadership in consistent quality indicator, leaving the second player even further down the scale. On top of that, we are seeing the first sign of operational improvement with churn linked to network reasons reducing by 1 quarter. All in all, our modernization efforts are successfully supporting customer base management and delivering superior network quality, and we are expanding this project to other cities. Completing our 3Bs approach, let's talk about service. Providing excellent service is at the heart of our strategy. The revamped MyTIM app is transforming the customer experience and selling journey. With over 17.7 million unique users and 33% penetration, the app is driving digital engagement and e-commerce growth. We are the first telco to integrate with Apple Pay and Google Pay, enabling secure direct recharges for prepaid customer, simplifying the journey and encouraging recurring transactions. Digital service Net Promoter Score for postpaid and prepaid are on the rise, signaling that we are on the right path to elevating the experience with our service. Our more than 60 million customers are TIM's most valuable asset. Having this thing in mind, we are always trying to improve our relationship with clients and better monetize this asset. TIM Mais is our enhanced loyalty program, offering more benefits, experiences and convenience. Since its launch at the beginning of the year, we have seen over 2 million monthly active users enjoy the program's benefits. We have distributed 120,000 movie tickets and 20,000 Uber Rides gift cards. The program NPS is over 80 points and reflects strong customer satisfaction. In parallel, we are accelerating base monetization with mobile ads. We reached over 1,000 campaigns and 270 advertisers by September. Through the combination of our own inventory with Google and Meta, we are boosting digital engagement and expanding revenue streams beyond connectivity. Mobile ads revenues closed the quarter growing in double digits versus last year. B2B is a key aspect of our strategic plan and another way to diversify our revenue base. Since we have little legacy, the evolution of connectivity through coverage as a service is the main driver for expanding our presence. B2B IT solutions now cover with 4G and NB-IoT, 23.5 million hectares, over 7,600 kilometers of highways, and we have sold almost 400,000 smart lighting spots, generating BRL 435 million in contracted revenues since first quarter '24. The mining vertical is gaining traction, and now we have another anchor customer. Vale is joining our portfolio of clients and will be able to enjoy the benefits of TIM Smart Mining solution. We offer 5G, 4G, IoT and artificial intelligence solutions to create safer, more efficient and more sustainable environment for our customers. TIM Smart Mining can be a key enabler of automation and reduce environmental impact in the mining industry. With that, I'll hand it over to Andrea Viegas, our CFO, who will walk you through the financials. Andrea Palma Marques: Hello, everyone. I'm Andrea Viegas, CFO of TIM. This quarter, we delivered another chapter of consistent and disciplined execution. We've stayed focused on what matters most: sustainable growth, productivity gains and creating value for our shareholders. Our efficiency program remains one of the basis of our strategy. Thanks to effort across all areas, we kept cost growth at just 1.8%, well below inflation. This discipline translated into a 7.2% increase in EBITDA with margin reaching 51.7%. EBITDA after lease also advanced 8.3% year-over-year with robust margin expansion, a direct result of our industrial cost optimization strategy, which we've been executing across 3 fronts: our make model, contract renegotiations and network sharing agreements. Also, CADE approved the expansion of our own sharing agreement with Vivo 2 weeks ago. These initiatives are helping us to keep lease costs stable and margin expanding even in a challenging environment. Our net income rose by a solid double digit in the quarter, reaching BRL 1.2 billion and bringing the year-to-date figure to almost BRL 3 billion. This performance enabled us to distribute BRL 1.8 billion in interest on capital and repurchased BRL 369 million in shares, reaffirming our commitment to create value for our shareholders. Building on this momentum, our operational cash flow measured as EBITDA after lease minus CapEx reached BRL 1.7 billion in the quarter, up 8.1% year-over-year, supported by a resilient financial structure. In 9 months, this metric is up by double digits, reaching BRL 4.5 billion. With a strong balance sheet, we are well positioned to sustain growth and deliver long-term value. Now back to Alberto. Alberto Griselli: Thank you, Andrea. As we close, I want to reinforce that in Brasil is on track to achieve its 2025 goals and set the stage for 2026 of continuous evolution. We are delivering on our full year guidance across service revenue, EBITDA, CapEx and shareholder remuneration. With results on the right track, we are confident we can finish the year successfully and continue delivering value through the following drivers: one, our mobile postpaid and B2B segments to keep performing strongly; two, prepaid and broadband to continue recovering; three, efficiency are keeping costs and leases under control; and lastly, the buyback program is accelerating, and we are maintaining strong momentum in shareholder returns. Thank you for your attention. Now let's move to the live Q&A session. Operator: [Operator Instructions] Our first question comes from Bernardo Guttmann from XP. Bernardo Guttmann: Congrats on the solid results again. My question is about mobile service revenues. We saw a slight deceleration this quarter. How much of that comes from competition versus the natural normalization of growth after the strong cycle we had over the last years? And if I may, I have a second one. There has been a lot of market talk around potential moves and M&As in the fiber space. How do you see this environment? Could this wave of consolidation change your strategy or timing around your fiber business? Alberto Griselli: Bernardo, thank you for the question. So let's start with the first one. So when you look at the mobile service revenues, I think that we anticipated in the previous quarter, this sort of dynamics, and it's pretty consistent with what you see in other years as well. So we have a curve whereby we are at a higher growth at the beginning of the year when we do our price adjustment, and then it tends to decelerate going forward. I think that in this quarter, looking at the revenue dynamics on our side, we have pretty favorable outcome in terms of maintaining our postpaid engine growth, double digit, whereby reducing the deceleration of prepaid. And this is a trend that we are going to expect in the coming quarters, whereby we are likely to balance a bit the growth with postpaid maintaining the growth momentum and prepaid, we are working to decelerate less year-over-year. So I would say that it's less dependent on the competitive dynamics that remain rational and more related to our own strategy and seasonal patterns. This is for the revenues, okay? And when we look at the M&A, I think that the -- we always say that he Brazilian market being hyper fragmented is a market that is not attractive at this point in time because of the pressure that we have on ARPU and churn. And therefore, we are looking to optimize our capital allocation in terms of how we allocate capital to broadband. So we got our specific strategy that is dependent on our specific situation whereby broadband for us is a limited revenue line. So the broadband is something that the market has been expected for many years. Given the number of players, it is going to be a process that will take some time. And we have our own strategy, organic and inorganic towards this space, and it is unchanged versus what we discussed in the previous calls. What has changed a bit is the results that we are having on broadband because as you see now, we have a quite better operating momentum in terms of net additions. ARPU is still under pressure. We posted still a negative revenue growth this quarter on broadband. But given the fact that on the net additions, we are on a positive territory or we have been on a positive territory for 8 months now. We are likely to see improvements on the top line as well as we move forward. That's okay, Bernardo? Bernardo Guttmann: Yes, it's very clear, Alberto. Operator: Our next question comes from Marcelo Santos from JPMorgan. Marcelo Santos: The first is, if you could just paint a bit what's the competitive environment on mobile? And the second, do you see room to increase pure postpaid prices maybe this year or maybe the next. This year maybe already over, so maybe in the next. Alberto Griselli: Okay. Yes, Marcelo. So when you look at the competitive environment, I would say that the competitive environment on mobile remains positive in our view. So of course, there are promotions here and there. But overall, I think that the price adjustment this year went through quite nicely. And we are coding in our systems as we speak, the price adjustment that we're planning to execute the back book prices for next year. The -- as for -- so the market dynamics remain favorable. Of course, you have the smaller players that are a bit more aggressive. But all in all, they're not disrupting the national market dynamics in terms of pricing. And when you look at pure postpaid, I think we have an opportunity to adjust it. Now we are on a promotional campaign because we just launched the Black Friday promotions. So it's -- from now to the end of the year, it's unlikely that we are considering an adjustment, but it's something that we are certainly assessing for the beginning of next year. Operator: Our next question comes from Leonardo Olmos from UBS. Leonardo Olmos: Can you give us more color on the lease efficiency plan, especially in terms of timing of the expected impacts coming from the partnership with IHS and rent sharing agreement and leasing contract renegotiations? Andrea Palma Marques: Leonardo, related to the -- our lease efficiency, as we mentioned, we are in a continual discussions with all the partners that we have. Specific about the agreement that we made with IHS was we wanted the [ operation ] to make sites. And we made this agreement with someone who have the acknowledgment and the people to construct sites for us. So this kind of site is for some specific customers like agrobusiness or mining. And we will fund a financial and they will build for us these sites. What we expect in the leases is -- or our goal for this year, as we mentioned before, is to have the leases growing related to the inflation, although we have an increase in the number of sites for our increasing in coverage of 5G. But our goal is to increase just the inflation tax this year. I don't know if I answer your question. Leonardo Olmos: Yes. Yes. Your mentioned about IHS and the overall goal. I was just wondering if -- I don't know, maybe you could talk a little bit about the RAN sharing and maybe if it's not so delicate about the renegotiations. Andrea Palma Marques: Yes. Sorry, you mentioned about RAN sharing. RAN share cards just allowed us to continue. We changed a little bit the series that we have before with Vivo. So we will continue our plan to make the RAN shares especially for the 3G and 4G. And we are continuing to discuss -- we are continuing to renegotiate our partners on the towers company to achieve our plan that is to not reduce the lease because we can, but growing the lease only related to inflation. We have another agreement, but we are not -- now we can't disclose it. But as soon as we achieve our new agreements, we will disclose for you. Leonardo Olmos: Okay. Okay. Sounds great. And you have been delivering quite excellent development on that front. Congratulations. Operator: Our next question comes from Vitor Tomita from Goldman Sachs. Vitor Tomita: Two main questions from my side. One is a quick follow-up on the fiber business. Just if you have an update on the organic side on what has been supporting those improving net additions, if it's the same initiatives that you had in place before, such as focusing more on higher-end customers, higher value customers [indiscernible] churn or if there is anything new that's interesting on the strategy there? The other question is a bit of a follow-up on what people are asking about the competitive environment. Very specifically, there has been some noise in markets in October due to new banks, new sell MVNO, increasing commercial outreach in some areas, promotions to some extent. Was that noticeable at all from the standpoint of our commercial teams or very -- or something in my mind or just noise? Alberto Griselli: Sorry, Vitor, I had my mic switched off. So going to the fiber business. So what happens -- what happened on the fiber business are primarily a number of things. primarily related to the quality of the acquisitions and the management of the customer life cycle. So when you go into the quality of the acquisitions, it's primarily related to optimization on our credit scoring of the customer base and local targeting and the commercial channel footprint. So there are some channels that are naturally -- that provides naturally more quality, whereby other channels provide less quality. And so we changed over time the mix of our acquisition, and we targeted better high-value segments within the footprint. So this is for the entrance of customers. On the other side, there has been a lot of improvements on the churn management side. And this is partly related to the first question because if you get more quality at the beginning, you lose less customers because of bad debt and delinquency rates. And at the same time, we improved the quality of the service as a whole. So these are the 2 main areas when we had some relevant progress that moved us into net growth. When you go to the competitive environment, you're right that over the last quarter since the launch, [indiscernible] has been increasing progressively the allowances to their customers. So they started with 3 plants with a specific allowance. And then over time, this is, I think, the third time where they're increasing their allowance, so more gigabyte per price. And to some extent, I think they reduced the price in some plants on some BTL offer to our knowledge. I would say that the -- playing the gigabyte per revenue side is something that we can respond quickly because it's our network. It's -- we are deploying 5G. We've got [ 4 ] of spare capacity. We didn't do so yet because so far, the -- what we see, it doesn't request an answer on our side. And so we keep monitoring the progress in terms of losing customers or potentially losing customers to them. So far, no need to respond. Operator: Our next question comes from Maria Clara Infantozzi from Itaú BBA. Maria Infantozzi: I would like to [indiscernible], please, how do you see the growth opportunities coming from B2B and IoT? You have been vocal about the monetization coming from the market. So just wanted to ask you about how do you see the size of the opportunity, your long-term goals and how you see the evolution of revenues in the short term? Alberto Griselli: I'm not sure that, Maria, understood correctly your question. I will try to rephrase it. And basically, if I understood correctly, is how we are going to maintain the growth in the BIoT segment? What is the question? Maria Infantozzi: Yes. Actually, I asked you to please explore more how you see the long-term growth coming from B2B as you have been vocal about the monetization opportunities. And if you could please comment how short-term and long-term goals are perceived by you, and where are the opportunities would be great. Alberto Griselli: Okay. So -- and Maria, just to be clear, it's just B2B or it's in general? Maria Infantozzi: B2B and IoT, which is... Alberto Griselli: B2B and IoT, okay. Got you. So, Maria, it's basically, the way we're -- as you know, our legacy on B2B is pretty small. So if you compare us to other players in the market, we don't have a legacy. And therefore, we put together a strategy that is specific to our DNA. So we selected some verticals and the verticals we selected, for the time being, are agribusiness. It is the first one that we launched. Infrastructure was the second one. We got utilities that it's quite promising in Brazil and mining. And we selected these verticals because we think they got a larger fit with our technological, let's say, DNA, let's put it this way. And the way we look at this is that we started organically now, and we got quite a traction on these 4 verticals on a concept that we call coverage as a service, primarily. And this has been driving in the -- as we speak, the growth in these verticals. When you look more at the medium term, we have the ambition to increase our portfolio of solutions to include security, to include cloud that we can cross upsell to our services and possibly to expand the number of verticals we are servicing. As an example, the one that we are working is manufacturing. And these competencies and capabilities, we can grow them internally, and we are working on that already. We've been working on that already. But we are also looking at ICT inorganic moves that will provide us the ability at a faster pace to win a larger share of wallet of our customers. So this is not something that -- so we moved -- it's something new within our strategy. It's been launched a few years ago. We almost reached BRL 1 billion of contracted revenues over these years. We are recognizing as a leading partner in the verticals where we operate. If you look at the clients we have there, we've been successful commercially. And now we have, in the coming years, the objective is to consolidate our positioning and expand the portfolio of services and the relationship with our customers. And therefore, if you look more on the medium term, it's going to be a mix of organic and inorganic growth. Operator: Our next question comes from Phani Kanumuri from Santander. Unknown Analyst: So I have a couple of questions here. The first one is on your operating cash flow after lease. In the first 9 months, it has a growth rate of 11.8%, but it's trending slightly lower than the 14% to 16% for this year. So what is driving that? And the second one is looking at the competitive situation now, how do you -- how confident are you on your 3-year plan in terms of revenue guidance and results? Alberto Griselli: Let me take the first one, and I will pass the second one to Andrea. I will repeat it just to be sure that we understand it correctly. So the first one in terms of competitive environment, we -- as I mentioned, I think, to Bernardo in the first question, we -- the overall -- at least on mobile and not on broadband, but on mobile, the competitive environment remains rational. And therefore, we are in the position basically to keep growing the top line according to the guidance that we shared with you last year. Of course, as every year, in February next year, we're going to upgrade it. And therefore, when you look at the overall mobile environment, I would say that it didn't change versus the picture that we presented when we shared our guidance in February. And therefore, everything is confirmed. Of course, there are nuances whereby we see postpaid in mobile driving the growth. and a potentially improving situation in the prepaid environment. When you look -- and the second question, if I understood correctly, is the operating free cash flow dynamics, 11.8% versus our guidance of 14%, 16%. Was that the question, Phani? Unknown Analyst: That's the question, Alberto. Alberto Griselli: Yes, that's the question. Basically, if you look at our dynamics, we are confirming our guidance. And we believe that when you look at how revenue growth, EBITDA expansion, EBITDA after lease expansion and CapEx will combine in the next quarter. This will put our operating free cash flow expansion within the range of our guidance. Now since we are at the end of the year, basically, you can easily do the calculation and see what this will imply in our numbers, but I'll leave this to you, but we are confirming our guidance for the full year. Operator: Next question comes from David Lopes from New Street Research. David-Mickael Lopes: Just a couple of follow-ups. On the price increase you did in Q3, I was wondering if you could give a bit more color like maybe the magnitude and what's the percentage of the base affected? And now that prepaid trends are easing, I was wondering if next year, do you have a possibility to do a price increase next year on prepaid? Or is it still too early? And the second question is on B2B. I was wondering if you could give any maybe color on margins you're getting from B2B? Is it dilutive to your margins or not? Alberto Griselli: Okay. David, I got the last 2 questions. I will address. I lost the first one. So on the second one, this is a prepaid price increase. Just an overall comment. Basically, the -- when you look at the more-for-more strategy, this is the way we implement it. So generally, it's a price adjustment that always comes with some extra benefits for our customer base. And on prepaid, given the construct of the offer, it's a bit trickier to change the price -- as today, we're basically marketing BRL 1 per day. So it's deeply linked in the offer construct as a sort of easy to deconstruct. I would say that we are exploring as a way to monetize our customer base, the prepaid to control migration. And that's a way that we found very effective to monetize our customer base. We'll keep doing it. And the other thing we are looking at is the way we balance the benefits between prepaid and control to make sure that the migration makes sense as we increase prices. And so therefore, not entering into a lot of details into how we're going to do this, we can explore this in the one-to-one section, where we got some plans there as well. When you look at the marginality of B2B, so the marginality of B2B, generally speaking, when you look, we got 50-plus EBITDA margin, the B2B offering goes below typically this number. But when you look at what really matters, which is cash flow generation, they are accretive. So they generally tends to be dilutive on the EBITDA margin, but that tends to be accretive on the bottom line. And that's it. The first question, I'm not sure I got it. There was a first question or was these 2 questions, David? David-Mickael Lopes: It was just on the -- if you could comment on the magnitude of the price increase you did and what percentage of the base? Did you do the price increase just to hybrid or some pure postpaid customers? Alberto Griselli: This year, we did -- there are 2 types of price adjustments. We classify front book and back book adjustment. On the back book adjustment, we impacted both control and pure postpaid. We did it already. And it's not 100% of the customer base because we personalize this depending on a number of things in order to minimize attrition and churn management. But we did the back book price adjustment at the beginning of the year for both control and pure postpaid. When you go to the front book price adjustment, we did those adjustments in midyear for control, and we didn't do it for pure postpaid. And I think that was the question from a colleague of yours before. And basically, what we are looking at is to make this adjustment. We are assessing. We didn't decide yet, but we think that there is space to adjust them, not now because we are in a promotional -- in a seasonal period of the year with the Black Friday and the Christmas campaign. So it's something that is probably going to happen in the first quarter of next year. Operator: [Operator Instructions] Ladies and gentlemen, without any more questions, I will return the floor back to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed. Alberto Griselli: So thank you all for joining today's video call. We are arriving at the end of the year with strong momentum. We are executing our strategy with discipline and consistency. Despite being just 2 months away from 2026, we still have a lot to accomplish in '25. This year-end will be very exciting, and we expect to deliver on the promises we made to the market. I really want to thank the entire team for their commitment and relentless drive. Thank you. And I look forward to catching up with you guys in the one-to-one session. Lastly, a final message to our sales team. We put together a special Black Friday offer for our customers. Let's go for it. Operator: We conclude the third quarter of 2025 conference call of TIM S.A. For further information and details of the company, please access our website, tim.com.br/ir. You can disconnect from now on, and thank you once again.
Operator: Good morning, ladies and gentlemen, and welcome to TIM S.A. 2025 Third Quarter Results Video Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions]. Vicente Ferreira: Hello, everyone, and welcome to our earnings conference for the third quarter of 2025. I'm Vicente Ferreira, Investor Relations Officer of TIM Brasil. This video highlights our recent financial and operational performance as well as the initiatives that support our strategic plan. Following the highlights, we will have a live Q&A with our CEO, Alberto Griselli; and CFO, Andrea Viegas. Please note that management may make forward-looking statements, and this presentation may contain them. Refer to the disclaimer on the screen on our Investor Relations website. Now let's review our results. Alberto Griselli: Hello, everyone. I'm Alberto Griselli, CEO of TIM Brasil. Today, we'll explore how our commitment to innovation, customer experience and operational excellence is driving sustainable growth and value creation. Let's dive into the highlights and key achievements that are shaping our journey this year. We've achieved a 5.2% year-over-year increase in service revenues for the first 9 months of 2025, a sustainable growth pace that combined with our robust cash conversion machine is fueling solid value creation. We keep evolving our B2B to expand new revenue streams. The TIM Smart Mining solution is gaining traction with a new partnership with Vale, the mining company. Additionally, EBITDA rose 6.7% year-over-year with a 50.3% margin and net income up 42.2% year-over-year. Our disciplined approach to CapEx has kept investment efficiency and operational cash flow reached BRL 4.5 billion. Notably, we announced BRL 1.8 billion in interest on capital and repurchased BRL 369 million in shares, reinforcing our commitment to shareholder remuneration. Once more, we stood out in ESG practices. TIM reached the top 10 of the FTSE Russell Diversity and Inclusion Index, being the only Brazilian company and the only telco to appear on the list. As I pointed out, our net service revenues continues to grow at a solid pace, driven by the mobile segment. Postpaid expansion remains a key contributor, supporting overall growth. The more-for-more strategy is helping ARPU evolution and mobile service revenues increased 5.6% annually over 9 months and 5.2% in the third quarter. This quarter, we added 415,000 postpaid lines, with prepaid to postpaid migrations up by double digits. Postpaid monthly churn remains low at 0.8%, reflecting efficient customer base management. Our more-for-more approach optimizes the cost benefit equation by balancing offer attractiveness and revenue growth. Exclusive Black Friday offers, including iPhone 16E and PlayStation 5 are enhancing our value proposition, and we expect them to help maintaining a solid trend in postpaid. In prepaid, we are seeing first sign of stabilization, supported by targeted offers and improved customer experience. TIM ULTRAFIBRA is also showing operational improvements with broadband ARPU at BRL 94 in the third quarter. Stable ARPU and the client base resuming growth at 3.7% year-over-year marking 8 consecutive months of positive net adds should reduce the negative dilution for broadband to our numbers. TIM is reinforcing its leadership in network with 5G now available in 1,000 cities across Brazil. We have the broadest 4G and 5G coverage in the country. Sao Paulo's network modernization case is setting the base for next-generation connectivity. The project reached its completion with 100% of sites upgraded this November. We are now leaders in download speed in all rankings that measure throughput. We expanded our leadership in consistent quality indicator, leaving the second player even further down the scale. On top of that, we are seeing the first sign of operational improvement with churn linked to network reasons reducing by 1 quarter. All in all, our modernization efforts are successfully supporting customer base management and delivering superior network quality, and we are expanding this project to other cities. Completing our 3Bs approach, let's talk about service. Providing excellent service is at the heart of our strategy. The revamped MyTIM app is transforming the customer experience and selling journey. With over 17.7 million unique users and 33% penetration, the app is driving digital engagement and e-commerce growth. We are the first telco to integrate with Apple Pay and Google Pay, enabling secure direct recharges for prepaid customer, simplifying the journey and encouraging recurring transactions. Digital service Net Promoter Score for postpaid and prepaid are on the rise, signaling that we are on the right path to elevating the experience with our service. Our more than 60 million customers are TIM's most valuable asset. Having this thing in mind, we are always trying to improve our relationship with clients and better monetize this asset. TIM Mais is our enhanced loyalty program, offering more benefits, experiences and convenience. Since its launch at the beginning of the year, we have seen over 2 million monthly active users enjoy the program's benefits. We have distributed 120,000 movie tickets and 20,000 Uber Rides gift cards. The program NPS is over 80 points and reflects strong customer satisfaction. In parallel, we are accelerating base monetization with mobile ads. We reached over 1,000 campaigns and 270 advertisers by September. Through the combination of our own inventory with Google and Meta, we are boosting digital engagement and expanding revenue streams beyond connectivity. Mobile ads revenues closed the quarter growing in double digits versus last year. B2B is a key aspect of our strategic plan and another way to diversify our revenue base. Since we have little legacy, the evolution of connectivity through coverage as a service is the main driver for expanding our presence. B2B IT solutions now cover with 4G and NB-IoT, 23.5 million hectares, over 7,600 kilometers of highways, and we have sold almost 400,000 smart lighting spots, generating BRL 435 million in contracted revenues since first quarter '24. The mining vertical is gaining traction, and now we have another anchor customer. Vale is joining our portfolio of clients and will be able to enjoy the benefits of TIM Smart Mining solution. We offer 5G, 4G, IoT and artificial intelligence solutions to create safer, more efficient and more sustainable environment for our customers. TIM Smart Mining can be a key enabler of automation and reduce environmental impact in the mining industry. With that, I'll hand it over to Andrea Viegas, our CFO, who will walk you through the financials. Andrea Palma Marques: Hello, everyone. I'm Andrea Viegas, CFO of TIM. This quarter, we delivered another chapter of consistent and disciplined execution. We've stayed focused on what matters most: sustainable growth, productivity gains and creating value for our shareholders. Our efficiency program remains one of the basis of our strategy. Thanks to effort across all areas, we kept cost growth at just 1.8%, well below inflation. This discipline translated into a 7.2% increase in EBITDA with margin reaching 51.7%. EBITDA after lease also advanced 8.3% year-over-year with robust margin expansion, a direct result of our industrial cost optimization strategy, which we've been executing across 3 fronts: our make model, contract renegotiations and network sharing agreements. Also, CADE approved the expansion of our own sharing agreement with Vivo 2 weeks ago. These initiatives are helping us to keep lease costs stable and margin expanding even in a challenging environment. Our net income rose by a solid double digit in the quarter, reaching BRL 1.2 billion and bringing the year-to-date figure to almost BRL 3 billion. This performance enabled us to distribute BRL 1.8 billion in interest on capital and repurchased BRL 369 million in shares, reaffirming our commitment to create value for our shareholders. Building on this momentum, our operational cash flow measured as EBITDA after lease minus CapEx reached BRL 1.7 billion in the quarter, up 8.1% year-over-year, supported by a resilient financial structure. In 9 months, this metric is up by double digits, reaching BRL 4.5 billion. With a strong balance sheet, we are well positioned to sustain growth and deliver long-term value. Now back to Alberto. Alberto Griselli: Thank you, Andrea. As we close, I want to reinforce that in Brasil is on track to achieve its 2025 goals and set the stage for 2026 of continuous evolution. We are delivering on our full year guidance across service revenue, EBITDA, CapEx and shareholder remuneration. With results on the right track, we are confident we can finish the year successfully and continue delivering value through the following drivers: one, our mobile postpaid and B2B segments to keep performing strongly; two, prepaid and broadband to continue recovering; three, efficiency are keeping costs and leases under control; and lastly, the buyback program is accelerating, and we are maintaining strong momentum in shareholder returns. Thank you for your attention. Now let's move to the live Q&A session. Operator: [Operator Instructions] Our first question comes from Bernardo Guttmann from XP. Bernardo Guttmann: Congrats on the solid results again. My question is about mobile service revenues. We saw a slight deceleration this quarter. How much of that comes from competition versus the natural normalization of growth after the strong cycle we had over the last years? And if I may, I have a second one. There has been a lot of market talk around potential moves and M&As in the fiber space. How do you see this environment? Could this wave of consolidation change your strategy or timing around your fiber business? Alberto Griselli: Bernardo, thank you for the question. So let's start with the first one. So when you look at the mobile service revenues, I think that we anticipated in the previous quarter, this sort of dynamics, and it's pretty consistent with what you see in other years as well. So we have a curve whereby we are at a higher growth at the beginning of the year when we do our price adjustment, and then it tends to decelerate going forward. I think that in this quarter, looking at the revenue dynamics on our side, we have pretty favorable outcome in terms of maintaining our postpaid engine growth, double digit, whereby reducing the deceleration of prepaid. And this is a trend that we are going to expect in the coming quarters, whereby we are likely to balance a bit the growth with postpaid maintaining the growth momentum and prepaid, we are working to decelerate less year-over-year. So I would say that it's less dependent on the competitive dynamics that remain rational and more related to our own strategy and seasonal patterns. This is for the revenues, okay? And when we look at the M&A, I think that the -- we always say that he Brazilian market being hyper fragmented is a market that is not attractive at this point in time because of the pressure that we have on ARPU and churn. And therefore, we are looking to optimize our capital allocation in terms of how we allocate capital to broadband. So we got our specific strategy that is dependent on our specific situation whereby broadband for us is a limited revenue line. So the broadband is something that the market has been expected for many years. Given the number of players, it is going to be a process that will take some time. And we have our own strategy, organic and inorganic towards this space, and it is unchanged versus what we discussed in the previous calls. What has changed a bit is the results that we are having on broadband because as you see now, we have a quite better operating momentum in terms of net additions. ARPU is still under pressure. We posted still a negative revenue growth this quarter on broadband. But given the fact that on the net additions, we are on a positive territory or we have been on a positive territory for 8 months now. We are likely to see improvements on the top line as well as we move forward. That's okay, Bernardo? Bernardo Guttmann: Yes, it's very clear, Alberto. Operator: Our next question comes from Marcelo Santos from JPMorgan. Marcelo Santos: The first is, if you could just paint a bit what's the competitive environment on mobile? And the second, do you see room to increase pure postpaid prices maybe this year or maybe the next. This year maybe already over, so maybe in the next. Alberto Griselli: Okay. Yes, Marcelo. So when you look at the competitive environment, I would say that the competitive environment on mobile remains positive in our view. So of course, there are promotions here and there. But overall, I think that the price adjustment this year went through quite nicely. And we are coding in our systems as we speak, the price adjustment that we're planning to execute the back book prices for next year. The -- as for -- so the market dynamics remain favorable. Of course, you have the smaller players that are a bit more aggressive. But all in all, they're not disrupting the national market dynamics in terms of pricing. And when you look at pure postpaid, I think we have an opportunity to adjust it. Now we are on a promotional campaign because we just launched the Black Friday promotions. So it's -- from now to the end of the year, it's unlikely that we are considering an adjustment, but it's something that we are certainly assessing for the beginning of next year. Operator: Our next question comes from Leonardo Olmos from UBS. Leonardo Olmos: Can you give us more color on the lease efficiency plan, especially in terms of timing of the expected impacts coming from the partnership with IHS and rent sharing agreement and leasing contract renegotiations? Andrea Palma Marques: Leonardo, related to the -- our lease efficiency, as we mentioned, we are in a continual discussions with all the partners that we have. Specific about the agreement that we made with IHS was we wanted the [ operation ] to make sites. And we made this agreement with someone who have the acknowledgment and the people to construct sites for us. So this kind of site is for some specific customers like agrobusiness or mining. And we will fund a financial and they will build for us these sites. What we expect in the leases is -- or our goal for this year, as we mentioned before, is to have the leases growing related to the inflation, although we have an increase in the number of sites for our increasing in coverage of 5G. But our goal is to increase just the inflation tax this year. I don't know if I answer your question. Leonardo Olmos: Yes. Yes. Your mentioned about IHS and the overall goal. I was just wondering if -- I don't know, maybe you could talk a little bit about the RAN sharing and maybe if it's not so delicate about the renegotiations. Andrea Palma Marques: Yes. Sorry, you mentioned about RAN sharing. RAN share cards just allowed us to continue. We changed a little bit the series that we have before with Vivo. So we will continue our plan to make the RAN shares especially for the 3G and 4G. And we are continuing to discuss -- we are continuing to renegotiate our partners on the towers company to achieve our plan that is to not reduce the lease because we can, but growing the lease only related to inflation. We have another agreement, but we are not -- now we can't disclose it. But as soon as we achieve our new agreements, we will disclose for you. Leonardo Olmos: Okay. Okay. Sounds great. And you have been delivering quite excellent development on that front. Congratulations. Operator: Our next question comes from Vitor Tomita from Goldman Sachs. Vitor Tomita: Two main questions from my side. One is a quick follow-up on the fiber business. Just if you have an update on the organic side on what has been supporting those improving net additions, if it's the same initiatives that you had in place before, such as focusing more on higher-end customers, higher value customers [indiscernible] churn or if there is anything new that's interesting on the strategy there? The other question is a bit of a follow-up on what people are asking about the competitive environment. Very specifically, there has been some noise in markets in October due to new banks, new sell MVNO, increasing commercial outreach in some areas, promotions to some extent. Was that noticeable at all from the standpoint of our commercial teams or very -- or something in my mind or just noise? Alberto Griselli: Sorry, Vitor, I had my mic switched off. So going to the fiber business. So what happens -- what happened on the fiber business are primarily a number of things. primarily related to the quality of the acquisitions and the management of the customer life cycle. So when you go into the quality of the acquisitions, it's primarily related to optimization on our credit scoring of the customer base and local targeting and the commercial channel footprint. So there are some channels that are naturally -- that provides naturally more quality, whereby other channels provide less quality. And so we changed over time the mix of our acquisition, and we targeted better high-value segments within the footprint. So this is for the entrance of customers. On the other side, there has been a lot of improvements on the churn management side. And this is partly related to the first question because if you get more quality at the beginning, you lose less customers because of bad debt and delinquency rates. And at the same time, we improved the quality of the service as a whole. So these are the 2 main areas when we had some relevant progress that moved us into net growth. When you go to the competitive environment, you're right that over the last quarter since the launch, [indiscernible] has been increasing progressively the allowances to their customers. So they started with 3 plants with a specific allowance. And then over time, this is, I think, the third time where they're increasing their allowance, so more gigabyte per price. And to some extent, I think they reduced the price in some plants on some BTL offer to our knowledge. I would say that the -- playing the gigabyte per revenue side is something that we can respond quickly because it's our network. It's -- we are deploying 5G. We've got [ 4 ] of spare capacity. We didn't do so yet because so far, the -- what we see, it doesn't request an answer on our side. And so we keep monitoring the progress in terms of losing customers or potentially losing customers to them. So far, no need to respond. Operator: Our next question comes from Maria Clara Infantozzi from Itaú BBA. Maria Infantozzi: I would like to [indiscernible], please, how do you see the growth opportunities coming from B2B and IoT? You have been vocal about the monetization coming from the market. So just wanted to ask you about how do you see the size of the opportunity, your long-term goals and how you see the evolution of revenues in the short term? Alberto Griselli: I'm not sure that, Maria, understood correctly your question. I will try to rephrase it. And basically, if I understood correctly, is how we are going to maintain the growth in the BIoT segment? What is the question? Maria Infantozzi: Yes. Actually, I asked you to please explore more how you see the long-term growth coming from B2B as you have been vocal about the monetization opportunities. And if you could please comment how short-term and long-term goals are perceived by you, and where are the opportunities would be great. Alberto Griselli: Okay. So -- and Maria, just to be clear, it's just B2B or it's in general? Maria Infantozzi: B2B and IoT, which is... Alberto Griselli: B2B and IoT, okay. Got you. So, Maria, it's basically, the way we're -- as you know, our legacy on B2B is pretty small. So if you compare us to other players in the market, we don't have a legacy. And therefore, we put together a strategy that is specific to our DNA. So we selected some verticals and the verticals we selected, for the time being, are agribusiness. It is the first one that we launched. Infrastructure was the second one. We got utilities that it's quite promising in Brazil and mining. And we selected these verticals because we think they got a larger fit with our technological, let's say, DNA, let's put it this way. And the way we look at this is that we started organically now, and we got quite a traction on these 4 verticals on a concept that we call coverage as a service, primarily. And this has been driving in the -- as we speak, the growth in these verticals. When you look more at the medium term, we have the ambition to increase our portfolio of solutions to include security, to include cloud that we can cross upsell to our services and possibly to expand the number of verticals we are servicing. As an example, the one that we are working is manufacturing. And these competencies and capabilities, we can grow them internally, and we are working on that already. We've been working on that already. But we are also looking at ICT inorganic moves that will provide us the ability at a faster pace to win a larger share of wallet of our customers. So this is not something that -- so we moved -- it's something new within our strategy. It's been launched a few years ago. We almost reached BRL 1 billion of contracted revenues over these years. We are recognizing as a leading partner in the verticals where we operate. If you look at the clients we have there, we've been successful commercially. And now we have, in the coming years, the objective is to consolidate our positioning and expand the portfolio of services and the relationship with our customers. And therefore, if you look more on the medium term, it's going to be a mix of organic and inorganic growth. Operator: Our next question comes from Phani Kanumuri from Santander. Unknown Analyst: So I have a couple of questions here. The first one is on your operating cash flow after lease. In the first 9 months, it has a growth rate of 11.8%, but it's trending slightly lower than the 14% to 16% for this year. So what is driving that? And the second one is looking at the competitive situation now, how do you -- how confident are you on your 3-year plan in terms of revenue guidance and results? Alberto Griselli: Let me take the first one, and I will pass the second one to Andrea. I will repeat it just to be sure that we understand it correctly. So the first one in terms of competitive environment, we -- as I mentioned, I think, to Bernardo in the first question, we -- the overall -- at least on mobile and not on broadband, but on mobile, the competitive environment remains rational. And therefore, we are in the position basically to keep growing the top line according to the guidance that we shared with you last year. Of course, as every year, in February next year, we're going to upgrade it. And therefore, when you look at the overall mobile environment, I would say that it didn't change versus the picture that we presented when we shared our guidance in February. And therefore, everything is confirmed. Of course, there are nuances whereby we see postpaid in mobile driving the growth. and a potentially improving situation in the prepaid environment. When you look -- and the second question, if I understood correctly, is the operating free cash flow dynamics, 11.8% versus our guidance of 14%, 16%. Was that the question, Phani? Unknown Analyst: That's the question, Alberto. Alberto Griselli: Yes, that's the question. Basically, if you look at our dynamics, we are confirming our guidance. And we believe that when you look at how revenue growth, EBITDA expansion, EBITDA after lease expansion and CapEx will combine in the next quarter. This will put our operating free cash flow expansion within the range of our guidance. Now since we are at the end of the year, basically, you can easily do the calculation and see what this will imply in our numbers, but I'll leave this to you, but we are confirming our guidance for the full year. Operator: Next question comes from David Lopes from New Street Research. David-Mickael Lopes: Just a couple of follow-ups. On the price increase you did in Q3, I was wondering if you could give a bit more color like maybe the magnitude and what's the percentage of the base affected? And now that prepaid trends are easing, I was wondering if next year, do you have a possibility to do a price increase next year on prepaid? Or is it still too early? And the second question is on B2B. I was wondering if you could give any maybe color on margins you're getting from B2B? Is it dilutive to your margins or not? Alberto Griselli: Okay. David, I got the last 2 questions. I will address. I lost the first one. So on the second one, this is a prepaid price increase. Just an overall comment. Basically, the -- when you look at the more-for-more strategy, this is the way we implement it. So generally, it's a price adjustment that always comes with some extra benefits for our customer base. And on prepaid, given the construct of the offer, it's a bit trickier to change the price -- as today, we're basically marketing BRL 1 per day. So it's deeply linked in the offer construct as a sort of easy to deconstruct. I would say that we are exploring as a way to monetize our customer base, the prepaid to control migration. And that's a way that we found very effective to monetize our customer base. We'll keep doing it. And the other thing we are looking at is the way we balance the benefits between prepaid and control to make sure that the migration makes sense as we increase prices. And so therefore, not entering into a lot of details into how we're going to do this, we can explore this in the one-to-one section, where we got some plans there as well. When you look at the marginality of B2B, so the marginality of B2B, generally speaking, when you look, we got 50-plus EBITDA margin, the B2B offering goes below typically this number. But when you look at what really matters, which is cash flow generation, they are accretive. So they generally tends to be dilutive on the EBITDA margin, but that tends to be accretive on the bottom line. And that's it. The first question, I'm not sure I got it. There was a first question or was these 2 questions, David? David-Mickael Lopes: It was just on the -- if you could comment on the magnitude of the price increase you did and what percentage of the base? Did you do the price increase just to hybrid or some pure postpaid customers? Alberto Griselli: This year, we did -- there are 2 types of price adjustments. We classify front book and back book adjustment. On the back book adjustment, we impacted both control and pure postpaid. We did it already. And it's not 100% of the customer base because we personalize this depending on a number of things in order to minimize attrition and churn management. But we did the back book price adjustment at the beginning of the year for both control and pure postpaid. When you go to the front book price adjustment, we did those adjustments in midyear for control, and we didn't do it for pure postpaid. And I think that was the question from a colleague of yours before. And basically, what we are looking at is to make this adjustment. We are assessing. We didn't decide yet, but we think that there is space to adjust them, not now because we are in a promotional -- in a seasonal period of the year with the Black Friday and the Christmas campaign. So it's something that is probably going to happen in the first quarter of next year. Operator: [Operator Instructions] Ladies and gentlemen, without any more questions, I will return the floor back to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed. Alberto Griselli: So thank you all for joining today's video call. We are arriving at the end of the year with strong momentum. We are executing our strategy with discipline and consistency. Despite being just 2 months away from 2026, we still have a lot to accomplish in '25. This year-end will be very exciting, and we expect to deliver on the promises we made to the market. I really want to thank the entire team for their commitment and relentless drive. Thank you. And I look forward to catching up with you guys in the one-to-one session. Lastly, a final message to our sales team. We put together a special Black Friday offer for our customers. Let's go for it. Operator: We conclude the third quarter of 2025 conference call of TIM S.A. For further information and details of the company, please access our website, tim.com.br/ir. You can disconnect from now on, and thank you once again.
Operator: Ladies and gentlemen, welcome to the HUGO BOSS Q3 2025 Results Conference Call and Live Webcast. I'm Moritz, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Stohr, Senior Vice President, Investor Relations. Please go ahead. Christian Stoehr: Thank you and good morning, ladies and gentlemen. Welcome to our third quarter 2025 results presentation. Hosting our conference call today is Yves Muller, CFO and COO of HUGO BOSS. Before we begin, please be reminded that all growth rates related to revenue will be discussed on a currency adjusted basis unless stated otherwise. To ensure a smooth and efficient Q&A session, we kindly ask you to limit your questions to 2. And with that, let's get started. Yves, the floor is yours. Yves Muller: Thank you, Christian, and a warm welcome from Metzingen, ladies and gentlemen. As outlined in our press release this morning, HUGO BOSS delivered a solid set of third quarter results despite ongoing headwinds across the global consumer landscape. While the environment remained volatile and traffic levels in many markets faced pressure, we executed with discipline and focus, prioritizing the levers within our control. In particular, we stayed committed to advancing our long-term priorities with a strong emphasis on further strengthening our brand equity through investments in brand building initiatives. This dedication coupled with our focus on operational excellence and strict cost discipline resulted in robust gross margin improvements and notable bottom line enhancements. Let's, therefore, take a closer look at our Q3 financial performance. Group sales declined 1% year-over-year mainly due to an unfavorable timing of wholesale deliveries. In reported terms, revenues were down 4% as substantial currency headwinds, particularly from the weaker U.S. dollar, weighed on the top line performance. Meanwhile, EBIT remained stable at EUR 95 million with the EBIT margin improving by 30 basis points to 9.6%. This solid margin expansion highlights the success of our structural efficiency measures across both COGS and OpEx. Beyond the numbers, Q3 was marked by several high profile initiatives that further elevated the desirability of our brands fully aligned with the priorities of our CLAIM 5 strategy. The 2 key events deserve a special mention. The BOSS Spring/Summer 2026 Fashion Show in Milan, which captured global attention and achieved even higher social media engagement than last year's event. Additionally, the second drop of the BECKHAM x BOSS collection in late September saw a successful start delivering strong social media results and promising sell-through rates. This underscores the relevance and influence of David Beckham and the unique value of our partnership. Building on these achievements, let's take a closer look at how our brands performed in Q3. Our BOSS Menswear business once more demonstrated its resilience in the third quarter with revenues remaining stable year-over-year. This performance highlights the enduring appeal of our premium positioning and the versatility of our 24/7 lifestyle approach. At the same time, we advanced our strategic efficiency measures initiated earlier this year for BOSS Womenswear and HUGO. These initiatives focused on sharpening product assortments and refining distribution strategies are now in full swing and are critical to positioning both brands for sustainable value creation in the years ahead. And while they are temporary, weigh on top line development with revenue for both BOSS Womenswear and HUGO below prior year levels in Q3, we remain confident in the underlying strength of both brands. By addressing these short-term challenges we targeted and decisive actions, we are creating a solid foundation for future growth. Let's now turn to our performance by region. In EMEA, sales declined 2% year-over-year. Revenue improvements in both Germany and France were offset by softer trends in the U.K. reflecting the muted discretionary spending across the market. Moving over to the Americas where momentum continues to improve sequentially and drove revenues up by 3%. The performance was supported by another quarter of growth in the important U.S. market while Latin America even accelerated to double-digit growth. In Asia Pacific, sales declined 4% year-over-year mainly driven by lower revenues in China. Encouragingly, however, revenues in China showed a slight sequential improvement quarter-over-quarter. To further support brand relevance locally, at the beginning of October we celebrated the release of the latest BECKHAM x BOSS collection with a pop-up launch event in Shanghai. Meanwhile, Southeast Asia Pacific achieved a modest revenue increase in Q3 supported by another solid performance in Japan. Turning to our channel performance. Our brick-and-mortar retail business showed a modest sequential improvement with sales remaining stable versus prior year period. This performance was primarily driven by stronger conversion rates and higher sales per transaction, which helped to offset muted store traffic seen across several markets. Also, our digital business continued its positive trajectory with sales up 2% to last year. Growth was supported by a solid performance on hugoboss.com alongside sustained momentum in our digital partner business, both grew by 2% in the third quarter. Meanwhile, in brick-and-mortar wholesale, sales declined 5% year-over-year primarily due to the timing of delivery, which impacted Q3 performance by approximately EUR 20 million. However, we are confident that this effect will be fully offset in the fourth quarter as our Fall/Winter collections continue to resonate well with our partners. Accordingly, we anticipate a recovery in wholesale revenues in the final quarter complementing the momentum in our retail business as we approach year-end. Turning to the gross margin, which was a clear standout in the quarter and a testament to our progress in driving structural efficiency. In Q3, our gross margin improved by a strong 100 basis points reaching 61.2%. The expansion was fueled by further efficiency gains in sourcing, lower product cost and reduced global freight rates. At the same time, we experienced slightly negative mix effects while promotion activity had a neutral impact on gross margin development. Let's now shift to our cost base. Operating expenses declined 3% year-over-year marking 5 consecutive quarters of disciplined OpEx management. These gains were achieved across key business areas including sales, marketing and administration and underscore our commitment to operational excellence. In particular, selling and marketing expenses decreased 3% supported by a 4% reduction in brick-and-mortar retail expenses. In addition, we further optimized marketing investments, which amounted to 7.1% of group sales in Q3 and 7.4% for the first 9 months. Our approach remains highly targeted, prioritizing brand initiatives that generate the greatest commercial impact while continuously strengthening brand relevance. Lastly, administration expenses declined 2% compared to the prior year period as we continue driving efficiency across our global support functions. Driven by the robust gross margin expansion and our focus on optimizing operating expenses, EBIT reached EUR 95 million in Q3, thus stable compared to the prior year period. This translated into a 30 basis point increase in the EBIT margin reaching 9.6%. Below the operating line, our financial results significantly improved year-over-year supported by favorable ForEx effects and lower interest expenses. As a result, net income after minority increased by 7% translating into earnings per share of EUR 0.85, equally up 7% compared to last year. Also when we look at the first 9 months of the year, we delivered solid profitability improvements. Our gross margin expanded by 30 basis points to 61.8% while operating expenses declined by 2% underlying the continued success of our various efficiency measures. Consequently, the EBIT margin improved by 30 basis points to 7.9% in the first 9 months while earnings per share rose by 9% year-over-year. Looking at cash flow and key balance sheet items. Trade net working capital increased 11% in currency-adjusted terms reflecting both higher inventories and lower trade payables. Importantly, when compared to the previous quarter, inventories improved slightly and were down 1% reflecting our ongoing commitment to inventory management. On a 12-month moving average basis, trade net working capital amounted to 20.2% of group sales. Capital expenditure, on the other hand, declined substantially year-over-year down 51% to EUR 44 million. The decline was driven by increased investment efficiency and a more disciplined allocation of resources. As a result, for the full year, we now expect CapEx to come in at the lower end of our guidance range with investments expected to total around EUR 200 million in 2025. Altogether, our disciplined cost control combined with enhanced CapEx efficiency drove a solid improvement in cash flow generation in the third quarter. Free cash flow increased by 63% to a level of EUR 66 million. Importantly, we further expect improvements in cash generation in the final quarter, which has historically been our strongest period for cash generation. Ladies and gentlemen, this concludes my remarks on the third quarter performance. Let's now turn to the full year outlook and how we're approaching the final quarter of 2025 from an operational perspective. As we enter Q4, we remain fully committed to executing our strategic agenda. Building on the progress of previous quarters, our approach is twofold. First, to unlock growth opportunities and strengthen brand relevance in order to support top line momentum. And second, to drive operational excellence while optimizing cost efficiency across key business functions. It is our deepest passion to inspire our consumers globally and strengthen engagement with both our brands, BOSS and HUGO, and Q4 has a lot to offer in that regard. After a busy October with a stunning BOSS Bottled event in New York City and the immersive in-store experience with Aston Martin, the countdown to BOSS Holiday Campaign has now begun. Officially launching tomorrow, the capsule represents a unique collaboration between BOSS and iconic plush toy company, Steiff. It will be visible across all key markets and will help to further fuel brand excitement heading into the peak season. Driving customer engagement remains another priority. In this context, we are building on the successful rollout of our customer loyalty program HUGO XP, which was launched in China and the U.S. during the third quarter. With now almost 30 million members worldwide, the global expansion of XP is well underway. The program enables us to deepen relationships with our most important customers, foster long-term loyalty and leverage commercially relevant moments during the upcoming holiday season and beyond. Equally as important, we will continue to leverage our global sourcing platform in the fourth quarter to secure additional efficiency gains and thus tailwinds to our margin development. In addition, the low to mid-single-digit price increases that we are currently introducing with the Spring/Summer 2026 collections are expected to provide a modest positive contribution to profitability in the final quarter. Last, but not least, we will stick to our rigorous optimization of operating expenses, particularly in sales and marketing and administration. Taken together, these actions will ensure that HUGO BOSS is well positioned to strengthen its earning profile and successfully deliver on its full year commitments. In light of our performance during the first 9 months and our determined improvement game plan, we confirm our full year outlook for both sales and EBIT. As indicated in today's release, we now anticipate both top and bottom line results to come in at the lower end of our respective guidance ranges. This reflects the ongoing volatility in the global consumer environment as well as substantial currency headwinds recorded throughout the year. To be more precise, we now expect group sales for fiscal year 2025 to come in at a level of around EUR 4.2 billion. This includes an estimated negative currency impact of around EUR 100 million for the full year, primarily reflecting the depreciation of the U.S. dollar during the course of 2025. Consistent with this, we now expect EBIT to come in at the level of around EUR 380 million, likewise reflecting anticipated currency headwinds of up to EUR 20 million. Accordingly, we now forecast EBIT margin to improve to a level of around 9% as compared to 8.4% in the prior year. Ladies and gentlemen, let me briefly summarize today's key takeaways. As we look back on the third quarter and forward towards the end, a few points stand out. First, our performance in Q3 demonstrates the resilience and strength of our business model supported by sequential improvements in brick-and-mortar retail, solid gross margin expansion and the continued effectiveness of our cost efficiency measures. These factors provide a strong foundation as we enter the final quarter of the year. Second, while Q3 wholesale revenues were impacted by the timing of deliveries, we anticipate a recovery in Q4. Alongside continued efforts to drive our global D2C business, this positions us for a renewed acceleration of group sales heading into year-end. And third, the disciplined execution of our operational priorities together with our ongoing brand investments positions us well to further progress in Q4 and achieve our full year targets. Finally, looking beyond 2025, we are set to take the next steps on our CLAIM 5 journey. On December 3, we will share an update focused on the progress achieved so far in the key strategic areas that will guide our work in the years ahead. The update will reaffirm our strategic direction and underline how we are building on the foundation established over the past 4 years. And with this, we are now very happy to take your questions. Operator: [Operator Instructions] And the first question comes from Grace Smalley from Morgan Stanley. Grace Smalley: My first one, Yves, would just be on the strategic update in December. You touched on it at the end there, but could you just give us an idea of what we should be expecting come December? Will there be kind of multiyear financial targets, 3-year targets, 5-year targets? And just broadly, any high level thoughts on how you see the strategy evolving from here? And then my second question, understood on the wholesale shift between Q3 and Q4. But as you look at wholesale order books into 2026, could you give us an update on how you're seeing those order books evolve especially in the U.S. market given the uncertainty there? Yves Muller: Yes. Thank you very much for your questions. Taking your first question regarding the strategic update. Yes, like I said during my presentation, we will talk about what we have achieved during CLAIM 5 and we will give you a kind of strategic update for the next years. Don't expect this to be for the next 5 years because I think in this kind of volatile environment, a 5-year horizon is far out. So rather expect a kind of, let's say, midterm perspective of strategic priorities that we are taking on our journey. And regarding the wholesale shift, yes, overall, our Q3 results, and I just want to make it clear, were impacted by around EUR 20 million. The positive thing is we can see already in Q4 that we see the reversal of this delivery shift. So the October results show a material improvement regarding the wholesale development in Q4 and that this delivery shift has somehow reversed, which is a positive. And overall, we have seen regarding our wholesale orders and I said this already back in August that we have seen a kind of softening of our wholesale orders. I think please bear in mind that over the last years we have seen -- over '21 and '24, we've seen a CAGR of 20% of growth in wholesale brick-and-mortar and this is actually what we overall have expected a kind of softening. And for the Fall collection, we are just selling it. It's too early to call because we're in the middle of the selling period. So no further news on these kind of order impacts. Operator: And the next question comes from Manjari Dhar from RBC. Manjari Dhar: I had 2 as well, if I may. My first question is just a quick follow-up on wholesale. I just wondered if you could give some color on how much the replenishment business is down and perhaps sort of color -- I presume most of the softness there is in the U.S., but any color on that would be helpful. And then secondly, just a question on the sourcing efficiency gains. I just wondered sort of as you look forward, how much more upside do you see for gross margin from sourcing efficiency and how much more work do you think there is to be done in improving that sourcing layout? Yves Muller: Manjari, I was just talking to Christian because I tried to recall your first question regarding wholesale and the replenishment business. So the replenishment business in Q3 was down by low to mid-single digit. It was more or less somehow also expected was a kind of slight improvement also versus our Q2 results. And regarding U.S. wholesale preorders, it's pretty similar with the overall general view that we have given. So the order intakes and the delivery, it's very much in line with the global development. So not a kind of, let's say, further comments that need to be done on the U.S. market. And regarding your second question regarding sourcing efficiency, I think sourcing efficiency was a major driver in Q3 regarding our performance on gross margin and this is actually to be continued going further. So we still see more potential in terms of vendor consolidation and optimizing our portfolio and this should be continued. And actually what we are expecting for our gross margin going into the -- or finalizing our year 2025 that we want to be actually above the 62% gross margin. Originally that was our target. And we are very confident that with the support of the sourcing efficiency and with the freight cost optimization that we will get beyond the 62% gross margin mark. Operator: And the next question comes from Jurgen Kolb from Kepler Cheuvreux. Jurgen Kolb: First of all, on number of stores. If my numbers are not incorrect, I think you closed stores in the APAC region for the first time in a long history. Is that a change of positioning in that region? First question. And then secondly, on the inventory side, which is still obviously a little bit up or, let's say, inflated. How much of this inventory level is covered by your order book and how do you see really the freshness and the current situation of the inventory side? Yves Muller: Jurgen, thank you very much for your 2 questions. Regarding the space in retail. So I think it's worth mentioning that if you compare the space Q3 2024 versus 2025, there has been actually no effect from space so it was on the same level. And those stores that might have disappeared in APAC, these are actually continued optimizations that we are taking. For example if we don't achieve those results in renegotiating the rents, we take a risk approach in closing stores. I think I said this already in August and this will -- at the end, we want to have a robust store portfolio and this applies not only to APAC, but also applies to EMEA and the United States. We have defined clear profitability levers and if we do not achieve this by renewing the rents, we might take the action to close those stores. So there's nothing specific that we want to call out besides a continuous optimization of the store portfolio. And regarding the inventory, I think it's also worth mentioning that our inventory position slightly declined versus Q2, point one. And point two is that our aged merchandise, if I compare my aged merchandise in comparison to last year, has also in percentage improved versus last year. So the merchandise is very fresh. It's driven by stock in transit and by the current collections and the aging of the inventories have not deteriorated year-over-year. Operator: And the next question comes from Andreas Riemann from ODDO BHF. Andreas Riemann: Two topics. First one, HUGO and Womenswear, both are down significantly year-to-date and it sounds like you are reducing the product range and there's also adjustment in the distribution. So can you explain that in more detail and when is this exercise going to end? This would be the first topic. And the second one, the U.S. business. So to what extent did you adjust the prices actually in North America? And would you say your price increases in the U.S. are in line with what you see in the market or did you differ? These would be my 2 topics. Yves Muller: Yes. Andreas, thank you very much for your 2 questions. Actually you already took your answers for HUGO and BOSS Womenswear. So we are streamlining our product range. This is point one for both brands, BOSS Womenswear and HUGO. So this has something to do with collection complexity. So the mindset is to get better before bigger. So this is the mindset we have for those 2 brands. And the second thing is that we look at the distribution and for example, especially for BOSS Womenswear, if our space is somehow limited, we'd rather take BOSS Womenswear out with BOSS Green into those spaces if the space is somehow limited in the distribution. This is the exercise that we have now started with Q2 and will materialize over the second half of this year. And I think further comments I would somehow refer to our strategic update on the 3rd of December to be more explicit for the way forward for both brands, BOSS and HUGO. And regarding U.S. so like I said already back in August, we have taken a kind of global price increase overall low to mid-single digit for the Spring campaign. So this will be visible now in the second half of Q4 where we drop this kind of merchandise. This will also help us in terms of top line development globally and also will help us from a profitability standpoint. But your question was related to the U.S. I think we try to do smart price increases and we are very much in line with our competition here how we increase the prices and we observed the market. But nothing that would -- really needs to be emphasized regarding the U.S. market. Andreas Riemann: Yes. But maybe a follow-up. Is the U.S. then more than low to mid or is it in line with low to mid that you did for the group? Yves Muller: It's in line with low to mid. Operator: And the next question comes from Anthony Charchafji from BNP Paribas. Anthony Charchafji: Just 2. The first one on top line and then one on profitability. So just on top line given the low range of the guide, it would imply an organic growth in Q4 rather flattish to slightly positive, which would be 1 or 2 percentage point improvement. Could you please comment on the retail part? Comps are getting quite tougher especially in December for the whole sector. Could you maybe give some color on current trading retail and how you see it evolves? And my second question is on profitability. If I take again the low end of the guidance, EUR 380 million, it seems that your Q4 is quite derisked because you have some quite a bit of impairment in the base EUR 47 million. What changed in terms of deciding, I would say, to narrow the range? Do you previously expected some impairment reversal and now not anymore or is there anything else to have in mind? Yves Muller: Anthony, thank you very much for your questions. So first regarding top line, let me try to phrase it. First of all, I think from a wholesale point of view, you have to keep in mind that this delivery shift will or, like I already said, has materialized. So this is the kind of tailwind that we are seeing. Secondly, regarding retail brick-and-mortar, you have seen now over the last quarters a kind of sequential improvement coming from minus 4% to minus 1% now to flattish in terms of retail improvement. So we expect that this improvement will prevail also going into Q4. Thirdly, I think what is worth mentioning is that with the sale of the Spring season, you will see also a kind of price increase that will somehow materialize and will help us. And fourthly, I think we are now really entering into Black Friday. You have seen also on hb.com and our digital sphere that we have seen major improvements from Q3 versus Q2. So we will somehow take this kind of improvement also into Q4 to reach our top line targets. And regarding profitability, I think you're right. We have disclosed we had our impairments last year on the level that were close to EUR 50 million. They were definitely kind of elevated if I look at the latest -- if I look at the last years of impairments that we did. So I think what you can expect from a bottom line perspective that we can see a kind of technical support coming from the impairments for the year in 2025. Operator: And the next question comes from Daria Nasledysheva from Bank of America. Daria Nasledysheva: This is Daria from Bank of America. Can I please ask what is your view on promotional backdrop as we head into Q4? Wondering on a global basis, but also in the U.S. considering the inventory positions, yours and more broadly for the industry? And my second question is could you please help us contextualize the trends that you have seen during Q3 especially on retail? What has been the cadence of the quarter? Did trends improve in September to support your expectation of improvement into Q4? Yves Muller: Thank you, Daria, for your questions. So regarding promotions, I think it's worth mentioning that overall that the promotional activity is overall intense. On the other side, you have to bear in mind that our promotional numbers were somehow neutral in Q3 and actually we expect this also for Q4 that they are more or less neutral. I mean they have been elevated now for the last 5 quarters and we expect that the promotional activity, I would say, globally because if you look at the consumer sentiment globally, I think it's a remark that applies for a lot of important markets. I think they will remain on this elevated level and our expectation is that they remain -- it's neutral. And regarding retail, I was pointing out in the last question in my answer that actually for Q4 that we further expect the kind of, let's say, sequential improvement also that were visible now for the latest quarters, I said Q1, Q2, Q3. So we've seen this kind of slight improvement over the last quarters and we expect that this continues to prevail now for the final important quarter. Operator: And the next question comes from Robert Krankowski from UBS. Robert Krankowski: Just 2 questions for me, please. So first one is just on the cost control. You made pretty good job on the cost control year-to-date. But I just want to think in terms of, let's say, persistent pressures on your top line going forward, would you consider maybe stepping up investments behind the brand to support the growth? And you talked about the acceleration in Q4 that you expect towards the end of the year and could you talk maybe a bit about the beginning of the quarter? I think the comp is relatively changing. Maybe if you could give us a bit more color on the regions; the U.S., Europe; how the quarter has started. Yves Muller: Yes. So thank you very much for your words around cost control. So I think it's worth mentioning that we are continuously working on cost control. You have seen that we started actually last year in Q3 with these kind of cost decreases and now actually the comp base is getting more difficult. But I think we have shown also in Q3 that we really have a high cost discipline and that we have come up with some structural efficiency moves also when it comes to cost now because now year-over-year, we have seen 2 years not only in 2024 and Q4, but also in 2025 in Q3, a kind of cost decrease. So we really lay emphasis on this in order to have the full alignment between our top line performance and bottom line. And definitely even if you look at marketing, we are now after 9 months at 7.4% marketing spending. We always said during CLAIM 5, we want to be in the range between 7% and 8%. So I would say even from a marketing perspective, we are well in line with what we have promised to the capital market. Of course we see positive impacts. We are now starting our Holiday Campaign. So we keep on investing into the brand. I think this is very important for us. On the other side, I want to highlight that we want to make our marketing spendings more efficient. So the idea is always to get most out of EUR 1 spend. A good example is for example the Fashion Show, which was less expensive than last year, but we got higher media value out of our Fashion Show with positive comments. I think this is what we like if we spend less and actually get more out of it, it has a higher impact. So definitely, we want to invest in our brand. There are a lot of initiatives coming up in the most commercial period of the year and at the same time we keep our costs under control. And regarding the color of current trading, let me be -- let's say, let's keep it on a global level because otherwise the discussion gets, let's say, too detailed around regions. But I can comment that we were happy how we started into the Q4 like I already said in the beginning. Christian Stoehr: Great. Thank you, Yves. Thanks, Robert, for your question and thanks to all of you for today's session. There is no further questions or hands raised in the queue. So I would like to thank you for dialing in today. This officially concludes today's conference call. Thanks for your participation. And of course we look forward to connecting with many of you over the next days and weeks. Look forward to speaking to you soon. Thanks very much. And in case of any questions, please reach out to the IR team. Yves Muller: Thank you and have a great day. Bye now. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Ladies and gentlemen, welcome to the Coloplast financial statement for the full year 2024/2025 and Annual Report 2024-2025 Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Lars Rasmussen, Interim CEO. Please go ahead. Lars Rasmussen: Thank you, and good morning, and welcome to our full year 24/25 conference call. I'm Lars Rasmussen, Interim CEO of Coloplast, and I'm joined by Anders Lonning-Skovgaard, our CFO; and by our Investor Relations team. We will start with a short presentation by Anders and myself and then open up for questions. Please turn to Slide #3. We delivered 7% organic growth and a reported EBIT before -- EBIT margin before special items of 28% for this financial year. That is in line with our revised guidance, but below the 8% to 9% organic growth expectations that we set forth at the beginning of the year. The adjusted return on invested capital after tax and before special items, was 15% on par with last year. Chronic Care, including Voice and Respiratory Care and excluding China, delivered a solid year while we faced performance challenges in Interventional Urology and Advanced Wound Dressings. Both businesses were impacted by product recalls with significant negative impact on performance. We also saw increased volatility in the biologics market, driven by the postponement of the final LCD policy, which led to a slowdown in the momentum for Kerecis in the second half of the year. In many ways, '24-'25 did not become the year we had anticipated. It became a significantly more turbulent year and one that forced us to take decisive actions. In the year, we restructured our business in China. Performance during Strive25 was muted. And while we remain committed to serving the Chinese market, we have streamlined our organization to align with the new market reality and ensure a sustainable focused presence. Secondly, we initiated several profitability initiatives in Wound Care, among others, the divestment of our skin care business in December 2024. These initiatives are aimed at simplifying our business operations and improving profitability. Thirdly, we took important steps toward optimizing our cost base in interventional urology. Both to protect our profitability in the light of recent performance challenges, but also to ensure that we have the capacity to invest in new growth initiatives, including in tibial, our implantable tibial nerve stimulator expected to launch in '26, '27, assuming we obtain FDA approval. At the group level, we have also made significant changes which I'm confident will be vital for a strong strategy execution towards 2030. By structuring our business into 2 distinct units, chronic and acute care, we will, to an even larger extent, be able to honor the differences in market dynamics, customer needs, patient pathways and business models. And with a new and strengthened executive leadership team, we now have a balanced mix of commercial and technical expertise and a strong team to lead Coloplast into the next strategy period. Please turn to Slide #4. Looking ahead, I believe the investments we have made in Strive25, combined with the structural changes that we made this year, provides Coloplast with a strong foundation and key building blocks for the future value creation. Our addressable market for Chronic Care and Acute Care has a combined value of more than DKK 120 billion, and we have the strongest product portfolio that we have ever had. There's ample opportunity to go for, and we are well positioned to capture it. With our new strategy, Impact4, we'll utilize our solid foundation while setting a new direction for the company with a strong focus on customers and value creation. The Impact4 focuses on 4 priorities: growth through innovative offerings, unlock next level efficiency gains, embrace technology, including AI, to elevate our user experience and scale, and finally, cultivate a winning and sustainable company. And these promises are supported by clear financial targets. The first is to deliver an organic revenue CAGR of 7% to 8% through '29/'30. Then to grow EBIT in line with or above revenue growth and finally, to achieve a return on invested capital above 20% by '29, '30. By putting customers at the center, we aim to deliver best-in-class products, services and support, reinforcing our ambition to double our impact and reach 4 million people long term. In the strategic period, we will also maintain a strong focus on sustainability, and we have set clear targets to reduce our environmental impact through emissions reductions and less material used in our products and packaging. Finally, we aim to positively impact society by improving reimbursement, ensuring access for users and health care professionals to the best products and services as well as investing in initiatives that benefits people and communities. Now let's shift gears for a moment and look at today's results in more detail. Please turn to Slide #5. In Ostomy Care, organic growth was 6% for the full year, and growth in Danish kroner was 4%. Organic growth in Q4 was 7% and growth in Danish kroner was 1%. Our SenSura Mio portfolio continues to be the main driver -- growth driver followed by Brava range of supporting products. Our SenSura and Assura/Alterna portfolios continue to contribute to growth in emerging markets. From a geographical perspective, growth in the quarter was broad-based across regions with good growth in Europe, a high baseline in the U.S. due to the resolution of the supply disruptions in Q4 last year, and strong growth in emerging markets driven by increased tender activity. Sales in China declined, reflecting weaker consumer sentiment and competitive pressures. In Continence Care, organic growth was 8% for the full year and growth in Danish kroner was 5%. In Q4, organic growth was 9% and growth in Danish kroner was 3%. Luja, our new intermittent catheter with Micro-hole Zone Technology was the main growth contributor in the quarter, especially the female version driven by solid contribution from Europe and the U.S. From a geographical perspective, all regions contributed to growth. Growth in Europe was driven by France, the U.K. and Italy. In emerging markets, growth was led by LatAm. Voice and Respiratory Care posted 9% organic growth for the full year with growth in Danish kroner of 8%. In Q4, organic growth was 9% and growth in Danish kroner was 7%. The good performance in Voice and Respiratory Care continues to be driven by broad-based contribution from both laryngectomy and tracheostomy, with high single-digit growth in laryngectomy and double-digit growth in tracheostomy. In Wound and Tissue repair, organic growth was 8% for the full year and growth in Danish kroner was minus 3%, which reflects 8 percentage points negative impact from the skin care divestment. Organic growth in Q4 was 5% and growth in Danish kroner was minus 11%, which includes 11% negative impact from the skin care divestment. The advanced wound dressings business in isolation declined 6% in the quarter as China detracted significantly from growth due to the product return initiatives in Q3. From a product perspective, Biatain Superabsorber and Biatain Fiber continued to perform well. Revenue from Kerecis amounted to around DKK 1.3 billion in the full year, of which DKK 339 million was in Q4. The organic growth in the quarter was 20% and an improvement compared to Q3 as expected. The inpatient setting continued to deliver solid growth and was the main growth contributor. The outpatient setting saw an improved momentum in Q4. This was in line with our expectations that the impact from our LCD postponement and the resulting market shift to higher-priced products would be most pronounced in Q3. In Interventional Urology, organic growth was 2% for the full year, and growth in Danish kroner was flat. In Q4, organic growth was 2% and reported growth in Danish kroner was minus 2%. Growth in the quarter was driven by good momentum in the Men's Health business. Our flagship product within Men's Health, the Titan Penile implant continued to perform well, with the patient funnel positively impacted by our patient support program targeted at prospective patients. The women's health business also contributed to growth in the quarter. Within kidney and bladder health, the thulium fiber laser drive continued to deliver a solid growth contribution, but the segment overall detracted from growth due to the impact from the product recall. We have begun to see early signs of recovery across key accounts, but expect some negative impact to persist into Q1. With this, I'll now hand over to Anders, who will take you through the financials and outlook in more detail. Please turn to Slide #6. Anders Lonning-Skovgaard: Thank you, Lars, and good morning, everyone. Reported revenue for the full year increased by DKK 844 million or 3% compared to last year. Organic growth contributed DKK 1.8 billion or around 7% to reported revenue. Divested businesses, mostly related to the skin care divestment in December '24, reduced reported revenue by DKK 352 million or around 1%. Foreign exchange rates had a negative impact of DKK 587 million on reported revenue or around 2%, mainly related to the depreciation of the U.S. dollar and a basket of emerging markets currencies against the Danish kroner. Please turn to Slide #7. Gross profit for the full year amounted to DKK 18.9 billion, corresponding to a gross margin of 68%, on par with last year. The gross margin was positively impacted by a favorable development in the input cost, pricing increases and country and product mix, partly offset by ramp-up costs at our manufacturing sites in Costa Rica and Portugal. The gross margin also included a small negative impact from currencies of around 20 basis points. Operating expenses for the full year amounted to around DKK 11.3 billion, a 3% increase from last year. The distribution to sales ratio for the full year was 33%, on par with last year. The increase in distribution cost was driven by continued commercial investments in Kerecis and higher sales activities across business areas. The admin to sales ratio for the full year was 5% on par with last year. The R&D to sales ratio for the full year was 3% on sales, also on par with last year. The special items expenses were extraordinary high in '24-'25 and amounted to DKK 469 million. The special items were related to profitability improvement initiatives including the skincare divestment, management restructuring and the integration of Atos Medical. Overall, this resulted in operating profit before special items of DKK 7.7 billion in the full year and a 5% increase compared to last year. The EBIT margin before special items for the year was 28% compared to 27% last year. The EBIT margin included negative impact of around 110 basis points from the inclusion of Kerecis, including PPA amortization costs, in line with the expectations as well as around 30 basis points benefit from the divestment of the skin care business. Currencies had a small negative impact on the reported EBIT margin of around 30 basis points related to the depreciation of the U.S. dollar and the basket of emerging market currencies against the Danish kroner. In constant currencies, EBIT before special items grew 6% in full year '24-'25. Financial items in the full year were a net expense of DKK 1.044 billion compared to a net expense of DKK 925 million last year. The increase in net expenses was mostly due to a noncash effect from currency exchange rate adjustments, which includes losses on balance sheet items driven by the depreciation of the U.S. dollar against the Danish kroner. The ordinary tax expense for the full year was DKK 1.4 billion with an ordinary tax rate of 22% on par with last year. The total tax expense for the full year was DKK 2.5 billion, impacted by the transfer of Kerecis intellectual property from Iceland to Denmark. As a result of the extraordinary tax expense, the effective tax rate amounted to 41%. As a result, net profit before special items for the full year was DKK 4 billion compared to DKK 5 billion last year. Diluted earnings per share before special items decreased by 21% to DKK 17.76. Adjusted for the extraordinary tax expenses related to Kerecis IP transfer, the net profit before special items was DKK 5.1 billion, DKK 123 million increase compared to last year. Adjusted diluted earnings per share before special items increased by 2% to DKK 22.84. Please turn to Slide #8. Operating cash flow for the full year was an inflow of DKK 6.6 billion compared to an inflow of DKK 2.8 billion last year. The positive development in cash flows was mostly driven by lower income tax paid as '24-'25 included DKK 2.5 billion extraordinary impact from the transfer of Atos Medical intellectual property. Changes in working capital and adjustment of noncash operating items also had a positive impact on the cash flows from operating activities. Cash flow from investing activities was an outflow of DKK 1.25 billion compared to an outflow of DKK 1.336 billion and included a positive impact from the divestment of Skin Care business of DKK 192 million. CapEx for the full year amounted to around 5% of sales on par with last year and includes around DKK 450 million related to the new manufacturing site in Portugal, expected to be operational in '25-'26. As a result, the free cash flow for the full year was an inflow of DKK 5.4 billion compared to an inflow of DKK 1.4 billion last year. The adjusted free cash flow for the full year was DKK 5.2 billion compared with DKK 3.9 billion last year or a 32% increase. The trailing 12-month cash conversion was 82%, while the adjusted free cash flow to sales was 19% compared to 15% last year. Net working capital amounted to around 26% of sales compared to 25% last year, impacted by increased inventories and decreased trade payables. Now let's look at the guidance for '25-'26 financial year. Please turn to Slide #9. For the '25-'26 financial year, we expect organic revenue growth of around 7%, and around 7% EBIT growth in constant currencies before space items. We also expect a return on invested capital of around 16%, up around 1 percentage point from 15% adjusted last year. The organic revenue growth guidance of around 7% assumes continued good momentum in Chronic Care, including Voice and Respiratory Care and an improvement in momentum in both Wound and Tissue Repair and Interventional Urology. In Chronic Care, we expect good contribution from our recent product innovation. In Continence Care, we expect Luja to continue driving the momentum in intermittent catheters. In Ostomy Care, we expect the recent line extensions such as SenSura Mio Black bags and the new 2-piece Sensura Mio offering to continue their good launch trajectory and support growth. In wound tissue repair, we expect an improved momentum driven by Kerecis, which is expected to deliver growth of around 25%, partly offset by the negative impact from the product return in advanced wound dressings in China from Q1 to Q3. On Kerecis, performance is subject to a higher degree of volatility due to the expected changes to the skin substitutes coverage and payments in the outpatient setting as of January 1, '26. In Interventional Urology, we expect growth to improve to around mid-single digit in '25-'26, up from low single digit last year. We expect continued strong momentum in our Men's Health business driven by the Titan Penile implant and stable performance in our Women's Health business. In kidney and bladder health, we expect to see a recovery as the impact from the product recall will lapse in December '25, after which we are up against an easier baseline. Reported revenue growth in Danish kroner is expected at 4% to 5% and assumed 2 to 3 percentage points negative impact from currencies, especially the U.S. dollar and to a smaller extent, the British pound and the Chinese yuan as well as 2-month negative impact from the Skin Care divestment. The EBIT growth in constant currencies of around 7% assumes stable inflation levels and continued ramp-up in Costa Rica and Portugal. The EBIT growth also assumes that Kerecis will deliver an EBIT margin uplift to around 20%, driven by scalability in non-sales functions and sales force efficiency improvements, enabled by a good top line momentum and a high gross profit margin of around 90%. Furthermore, the EBIT growth guidance includes the initiation of Impact4 investments, including global technology investments and AI, investments towards the new bowel care opportunity in the U.S. and investments related to -- in tibia. In terms of phasing, we expect the organic revenue growth to be second half weighted with a soft start in Q1, where we will have the impact from the product recall in both advanced wound dressings and interventional urology. Furthermore, we expect a soft start in ostomy care due to a high baseline in the U.S. and order phasing in emerging markets. For '25-'26, we expect around DKK 50 million in special items, from acquisition-related integration costs. The integration of Atos Medical is progressing according to plan, and will be finalized during the year. The net financial expenses for '25-'26 are expected at around minus DKK 500 million, down from around DKK 1 billion in '24, '25, mostly driven by a more favorable outlook on net exchange rate adjustments based on spot rates as of October 31, and to a smaller extent, lower net interest expenses due to lower net interest-bearing debt and lower interest rates. The effective tax rate for '25/'26 is expected to be around 22%. Net profit is expected to significantly increase year-over-year as '24-'25 has been impacted by extraordinary high special items, high financial items due to negative exchange rate adjustment and the extraordinary tax expense related to the transfer of Kerecis intellectual property. The CapEx to sales ratio is expected at around 5% and includes investment to complete the new manufacturing site in Portugal, investments in new machines for existing and new products and IT and sustainability investments. On net working capital, we expect the net working capital to sales ratio in '25-'26 of around 25%, down from 26% in '24-'25. Our guidance is based on the knowledge we have today and assumes immaterial impact from tariffs as we expect our products to remain exempted and no impact from health care reforms in the year. On October 31, '25, the centers for Medicare and Medicaid services in the U.S. issued a final rule on the Medicare physician fee schedule for calendar year '26 with a fixed payment of $127 per square centimeter for all products in the physician's private office in the outpatient setting. We consider both this rule as well as the final LCD policy as positive for the market and Kerecis in the long term, and will be closely monitored or -- and we will closely monitor market developments in relation to these initiatives. With this, I will hand it over to Lars for final remarks. Please turn to Slide #10. Lars Rasmussen: Thank you, Anders. Coloplast is now entering an exciting phase as we begin to unfold the potential of our new Impact4 strategy. And I look forward to continue leading this work until a new CEO takes office. As we move into Impact4, we do so from a position of strength with a strong product offering, a clear structure, a strengthened leadership team and an ambitious strategy towards 2030. I'd like to thank our customers, my colleagues and our investors for your trust and support in 2024, '25. Your engagement and partnership have been instrumental in advancing our mission, making a positive impact for patients, health care systems and society. Coloplast is well positioned to set the standard of care at scale, create lasting value for all stakeholders and continue making life easier for people with intimate health care needs. Thank you very much. And operator, we are now ready to take questions. Operator: [Operator Instructions] Our first question comes from Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: I'm going to try and sneak in 3, please. Firstly, can you talk about the China Ostomy business and the increased competition in the community channel and whether consumer sentiment is getting worse given the decline here and how you're thinking about business development in '26? Secondly, if you can expand on the drivers for the Kerecis margin ramp this year, and the phasing of that improvement, given some of the volatility you've observed around reimbursement changes. And then finally, Lars, when we met recently, you talked about slower volume uptake in the U.K. for Halo. How is this trending? And to what extent are you shelving potential launches elsewhere? And in hindsight, what went wrong? Lars Rasmussen: That was a good opening, Hassan. So the China the China situation first. So it's more or less a flat growth that we are seeing. We actually see that we are quite competitive in the market. So we -- in that specific part of the market, we don't see that we're losing traction. But we have a consumer sentiment, which is super important because it's out of pocket in the Chinese market, in the community market. We have a consumer sentiment, which is negative, and that basically reflects on how much consumers are willing to spend. We don't have an increased number of competitors. We still have a lot of competitors in the market, but the total market share is still super low. So we feel that our competitiveness is intact but that the market sentiment basically is the reason why we don't grow in China. On the Kerecis margin, yes, we expect to have a significantly better margin this year than we had in the year that we are coming out of. And it is basically due to scale. So now we -- now we start to be a little bit more of a mature business. It's not that we are not investing. But we do have more sales per head in the organization. We don't need to scale to the same extent all over the place when we are growing, and that is basically what is sitting in the increased margin for Kerecis. And yes, there is volatility as we go into this year. And as you all know, Friday night, we received news on the LCD and the physician fee schedule changes. And I expect that we'll also talk to that a little bit later, but that means that there is some turbulence as we go into the year. But we -- I would like to say from the get-go, we consider the changes to be positive for us. But of course, it also means that we will have a bit of volatility as we go into the year. And then for Halo, what went wrong? Super good question. We are addressing the most pronounced problem that any Ostomy patient has to understand how much of the adhesive that are still intact at this given point in time and how much of it have given up, and we can show that via the mobile phone. We haven't found a way to sell this where we get the uptake that we expect to have. We give it still a chance to do that in what we consider to be the most advanced market in the world for Ostomy Care in Great Britain. And we are not going to go anywhere else until we have found a way to solve that in that market. Operator: The next question comes from Jack Reynolds-Clark from RBC Capital Markets. Jack Reynolds-Clark: My first one was on the Atos integration. You mentioned that you're expecting that to be completed next year. I guess what's left to do on that? And when do you expect the benefits to start kind of going through meaningfully there? Then the next question was on tracheostomy. I think for the last couple of quarters, growth here has been a bit lower than it has been in the past. Is this a function of a low -- of a higher base? Or is there something else kind of going on here? How should we think about this going forward? Anders Lonning-Skovgaard: Jack, let me take the first one. So we are finalizing the integration of Atos into our IT infrastructure and into our processes, our shared services and all of that here during this financial year. And what we are -- it's basically some of the bigger markets that are left. So it's the U.S., the U.K. that we are currently focusing on and then the integration will be finished, and we will also reap the synergies of around the DKK 100 million that we have communicated when we acquired Atos some years ago. In terms of tracheostomy, yes, we have seen a little bit of a slowdown recently. It's also because we are up against a high baseline. So last year or the year before, we had a quite significant sales uptake due to forward integration. And when that is said, the tracheostomy business is developing very well, also compared to the acquisition case we did some years ago. And we actually expect that our tracheostomy will support our growth within Atos quite significantly towards 2030. We are currently sitting with a market share of around 10%, and we actually feel we have an okay product platform and this will be one of the key focus areas towards the 2030 and also an area we will invest further in. So the tracheostomy business is an area that we are very optimistic about going forward. Operator: The next question comes from Martin Parkhoi from SEB. Please go ahead. Martin Parkhoi: Yes, Martin Parkhoi, SEB. Two, I don't know, 2 questions, I guess. Just on your guidance, I just want to get your confident level because you're starting the year saying it will be back-end loaded, and that gave me some kind of this view for the last couple of years. How are your confident level this year of this actually will materialize? Do you think you have been more prudent this year than you have been in previous year? Are there a buffer or potential hiccups, which you have faced the last couple of years? And then second question is just on the ASP development. What kind of ASP development have you assumed in your guidance for this year? And maybe you can talk a little bit to that across your business areas? Anders Lonning-Skovgaard: Yes, Martin, let me take your 2 questions. On the guidance side, as we have communicated today, we expect organic growth to be around 7% for the year. We are, as I also said, seeing some headwinds here in Q1 due to the product recalls that we had last year. So the urology recall will -- we will lap that in December. And the recalls we have in China on the dressings part will still impact us in Q1 but also Q2, Q3. But overall, we are very confident that we are able to deliver on our organic growth guidance also back -- on back of a very challenging year. Last year, where we also had some challenges that we did not expect back to the product recalls. But also back to, as Lars said earlier, our Chinese momentum did not play out as we anticipated. And so that's how we see it. And I would also highlight that the Continence business, the Atos business is strong, and we also expect those to continue as well as the Kerecis business throughout the year. So then your second question around that was ASP. We are expecting a small positive on ASP development. We are not expecting any bigger health care reforms. So we are expecting small positive impact from ASP, especially within urology. We are also expecting some on the chronic side, and that is, again, primarily in emerging markets, and then we get the yearly inflation adjustment in the U.K. So those are some of the main reasons for us being positive on the ASP. Operator: The next question comes from Martin Brenoe from Nordea. Martin Brenoe: I'll build a bit on the other margins question here. We learned at the CMD that you held earlier in the year that you have quite normally 2 or 3 recalls during a year. And I just wonder how much you have baked into potential recalls in this year and how you have -- if you have a financial buffer for that potential outcome? And then secondly, on Kerecis, would be interesting to hear how you expect to reaccelerate 500 basis points? A few words on what is going to drive it in terms of product launches, new geographies, anything like that? Lars Rasmussen: So when you produce products in the numbers of billions, then of course, there can be from time to time, recalls. What we saw from urology, primarily is something which we see very, very rarely. And I would like to take this opportunity to remind everybody that the product returns that we have seen in China has nothing to do with products that doesn't work or complaint rates or anything like that. So that was -- the reason for that was actually reasons that we have never seen before and that we could not have done anything internally to avoid, I would say. So therefore, we do not have a buffer for very large recalls and it is something that we don't see. What we have seen of real events over the last couple of years has been the distribution center event that led to difficulties in delivering and then what we saw in IU. And they were completely unexpected and to a very large extent, internally driven. So we could have avoided them. And that's what we have tightened the system to make sure that we don't get into that situation. Having said that, you can't run a business and never have issues, but that we do have significant or not significant, but realistic buffers for. On Kerecis, the -- your question is how we are going to get the uptick on the EBIT margin? Martin Brenoe: No. Sorry, on organic growth. Lars Rasmussen: Okay. So as I started by saying, we actually consider this to be the changes to the physician fee schedule to be positive for us. And we also see that we have strong momentum. We are not in a situation where we have fully utilized the -- our sales muscle, so to speak. So we are, of course, still hiring sales reps to go to the market. But we see it as we get more access with what is happening now because there will be fewer companies to serve the same customer group as we had before, and that is definitely going to help us. We just need to see it, play fully out before we start to become too positive, but we think that with where we are now, we can have an uptick because the turmoil that we saw in Q3 is not going to come back. Operator: The next question comes from Aisyah Noor from Morgan Stanley. Aisyah Noor: My first one is on the competitive bidding program in the U.S. for chronic care products. You mentioned in the press release that any changes would take effect in 2028 at the earliest. But your peers are flagging that this could even be a bit later, so 2029. Just curious what your internal assessments involve towards this time line and whether you have any renewed thoughts on the potential magnitude of the sales impact for you? My second question is just a quick one on the wound recall impact in China. Could you help us quantify the negative impact that you're calling out in Q1, 2 and 3 for 2026? Anders Lonning-Skovgaard: Yes. Let me take the competitive bidding question. So as you all are aware, this is something that is currently going on, and we expect some kind of an outcome as we understand it during this quarter. We, however, believe that if there will be an impact, and that is still highly uncertain, that it will not impact us until '28 at the earliest. So that's the information we are currently sitting with. In terms of the wound recall in China, as we have said a number of times now, we expect that to have an impact in Q1, Q2, Q3 and my estimate per quarter is something around DKK 25 million based on the knowledge we have. It's DKK 25 million per quarter. Operator: The next question comes from Anchal Verma from JPMorgan. Anchal Verma: The first question is just around gross margin. How should we think of gross margin development over FY '26? Can you provide your assumptions around COGS inflation, Hungary wage inflation and the other moving parts? And then the second one was just around if you could provide us an update on how the search for new CEO is going? Or is the expectation still for having announced a replacement by spring next year? Anders Lonning-Skovgaard: Yes. Thanks for your question. Let me take the first one. So our gross margin, my high-level assumptions are that we are looking into a year with a pretty stable inflation levels. That also means that our raw material prices, utility costs, freight, et cetera, are pretty flattish compared to last year. But we will also have some headwinds still from high salary inflation in Hungary. We are still seeing a very intense labor market and then we are investing in ramping up our facilities still some ramp-up in Costa Rica. But next year, we will really start to ramp up in Portugal. We are expecting Portugal to be in operation in Q4 of '25-'26. So those are the main moving parts on our gross margin into '26. Lars Rasmussen: And on the CEO search, so in a sense, what I have said before, the search is going on. It's like a funnel, right? You start broad and then you -- then the field is narrowing down and that's, of course, where we are now. We haven't signed any contracts at this point in time, but we have a number of qualified candidates. And once we have a signature, you will be the first to know. And then, of course, it depends then on what kind of garden leave or other terms does that person have and that will then put a date on when a person can start. And until then, it will be the team that you are meeting today that will be running the company together with the rest of the leaders in Coloplast. Anchal Verma: That makes sense. And maybe just a quick follow-up on margins, please. Are you able to provide or quantify the FX headwind to margins for FY '26, the EBIT margin? Anders Lonning-Skovgaard: Yes. So what we are saying is that on the top line, we will -- we are expecting a reported growth in the level of 4% to 5%. And that is also again driven by the U.S. dollar to a large extent. On the EBIT growth, we will see some headwind also coming from the U.S. dollar, also some on the British pound and the Hungarian HUF . Operator: The next question comes from Veronika Dubajova from Citi. Veronika Dubajova: I'll keep it to 2, please. One, obviously, looking at the revenue growth and the EBIT growth guidance, and I appreciate, Anders, you don't want to talk about gross margin guidance, but it does seem to me that there is a fairly large amount of investments going into the business, obviously, year-on-year, especially stripping out Kerecis, which is delivering a nice little tailwind to profitability. I was just hoping you could talk about what are some of the areas of the business where you are investing meaningfully with this high single-digit kind of OpEx growth guidance, that would be super helpful. And then I just want to circle back on the China competition answer because it wasn't clear to me, Lars, from your comments at the beginning. If I look at the press release, you are calling out competition in China for the first time. It wasn't in the prior releases. So just trying to understand what really has changed? What has prompted you to put it into the release? And I guess, is that competition from local players? Or is it from other multinationals that are becoming more focused in the market? Anders Lonning-Skovgaard: Thanks a lot, Veronika. Let me take the first one in terms of the investments. So now we are entering into the first year of our Impact4 strategy. And as we also said at the Capital Markets Day, we are going to invest into new initiatives, both to drive the top line growth, but also to support our EBIT growth ambition. And what we will initiate this year is investments primarily into our U.S. chronic business. We see quite a few opportunities also with the new opportunity within bowel care. We will also initiate investments in urology to support the launch of INTIBIA. We are expecting when we get approval from the FDA that we will launch INTIBIA into '26-'27. So we will also initiate investments here. And then we will initiate quite a bit of investments into technology and AI, both to support improvement in our user experience, but definitely also to support activities to automate and optimize back-office activities, especially order management, the prescription management through AI. So those are some of the things that we will initiate basically to support our long-term growth and value creation agenda. Lars Rasmussen: And for China, yes, I think it's actually a very appropriate follow-up. Veronika, thank you for that. That gives me the opportunity to say that we have -- our community market share in Ostomy Care is very, very high in China. And we are not -- yes, well, more than 60%. So -- and as we are not seeing growth like we used to, it is primarily because we have a consumer sentiment that is not super positive. But of course, we also feel the pressure every single day that somebody would like to take away some of the market shares that we are having. We are seeing very able competitors in China. But having said that, the fact still is that we have a very, very -- even though we have many local competitors, they have a very, very small market share, very low single digit, I would say. And therefore, it is maybe just the way that we are writing it, it's not because we see an increased local competition. But of course, we feel local competition also in China. But it has not worsened. So that's not how you should read it. Operator: The next question comes from Oliver Metzger from ODDO BHF. Oliver Metzger: Yes. First question is also on Kerecis and you mentioned this market shift towards the higher-priced products. Can you just elaborate a little bit more about the dynamics and how sustainable you regard this shift? And the second question is about still also the operating cost development. So a follow-up on Veronika. So if I do the math and calculate a stable gross margin and, let's say, also a stable EBIT margin and still the amount of operating leverage you should have. It would be great if you can dive deeper into respective costs. And yes, you mentioned the ramp-up to INTIBIA, but I calculate still a quite significant operating leverage, which is according to your augmentation, eaten up. So it would be great to have a little bit more transparency regarding the cost positions and how the math works. Lars Rasmussen: So on your first one, Oliver, so the physician fee schedule changes to the payment as we are -- we are running right now with an average price of USD 110 per square centimeter. And the new fixed price is USD 127.3 per square centimeter from 1st of January 2026. That is, of course, positive on an average basis. There will also be fewer competitors we expect that has not been -- does not come out yet, but we expect before 1st of January that we will have a full list of who has coverage. And that dynamic altogether means that as the year progresses. And as the stocks that have been built, they are being consumed, that we will be in a better position to compete, than we are at this time because there are fewer competitors and what we compete with would have a higher average price. That's how we see it. That's also why we think that this, at the end of the day, is a positive change seen from our point of view. Anders Lonning-Skovgaard: And Oliver, to your second question around our cost development, I think I talked to the gross margin moving parts earlier. I also talked to where we are going to invest back to Veronika's question. And you should -- as I also said earlier, you should expect our inflation levels or the inflation levels, salary regulation, et cetera, to be pretty stable also compared last year. So we are really -- the leverage effect we have, we really invest that back into new initiatives and I explained those initiatives earlier. So it's the U.S., it's INTIBIA and then also invest into technology, AI to support long-term growth and long-term value creation. Operator: The next question comes from Julien Dormois from Jefferies. Julien Dormois: The first one relates to Continence. We should have the coding change taking effect in January of '26. So just curious what are your latest thoughts on this and how you ambition to make the most of that coding change? And whether we should see any positive impact in '26? Or is it more a mid- to long-term benefit we should observe? And the second question is trying to dissect a little more into the guidance for '26, particularly in chronic care. You have highlighted continued momentum in the business, but is it fair to assume that Continence will continue to outperform Ostomy as it has in the recent past and also considering the regulatory changes, the recent product launches and so on. So just curious whether Ostomy should remain slightly subdued compared to the Continence into the next year. Anders Lonning-Skovgaard: Thanks a lot, Julien. Let me start with the U.S. coding. Yes, it's going to have effect here from January. But we also are aware that there will be quite a lot of operational activities going on in moving the coding from the previous way -- or the previous reimbursement codes and now to specific hydrophilic codes. So there will be quite a big operational activities in our U.S. business to get that fully implemented. And it is still, for us, too early to call out the impact. But over time, we expect this to be positive. In terms to your second question around guidance on the chronic side, as you have seen also last year, we have a good momentum within the Continence, driven by our intermittent catheters driven by the Luja launch, but we're also seeing good momentum within our bowel care business. And we see that momentum also continue into '25-'26 and remember, the Ostomy franchise, as Lars also has mentioned a number of times now are also impacted by low growth or flattish growth in China. So that is the main headwind on OC versus CC. But overall, we are expecting that the chronic business will continue with good momentum also into '25-'26. Operator: The next question comes from Sam England from Berenberg. Samuel England: So the first one is just a follow-up on the investment and margins piece. Can you talk a bit about how the Impact4 investment evolves over the plan period? To understand how margins might trend from here? Is it pretty much front-end weighted? Or are there areas like AI and more sort of multiyear investments throughout the plan period? And then in Voice and Respiratory Care. Just wondering if you're expecting any more positive momentum on reimbursement during 2026 following the improved reimbursement that you saw in France for HMEs earlier this year? And then are you expecting any other new markets in Voice and Respiratory Care to open reimbursement in '26 like we saw with Poland this year? Anders Lonning-Skovgaard: Yes. So thanks, Sam. To your first question around investments during the Impact4 period. The ones we have talked about today, that is, yes, front loading some of the activities to support the growth and also value creation over the period. So we are -- yes, as I said a couple of times now, front-loading activities within the U.S. INTIBIA and technology AI to reap the benefits later in the strategic period. On Voice & Respiratory Care, we expect the momentum we have seen in recent years to continue. We have seen some reimbursement openings in some of our smaller emerging markets, but also in France, but you should not expect any bigger ones, at least not short term. Operator: The next question comes from Graham Doyle from UBS. Graham Doyle: Just one for Anders and one for Lars. Anders, just in terms of the Q4, it looked like there was a fairly sizable step-up in other operating income, which seems to be related to a transition services agreement. And it was kind of like 2%, 3% of EBIT. How sustainable is that? And when should we expect that to sort of run off? And then just a point on reimbursement, for Lars here. When you look at the skin subs, is there not a danger if the ceiling reimbursement, i.e., what a doctor receives is capped at $127. Why would there not be a race to the bottom to products for like $20, $30, $40, where you make this spread? So just to understand how you think doctors balance patient outcomes with, I suppose, financial incentives would be helpful. Anders Lonning-Skovgaard: So thanks a lot, Graham. Let me take the first one. Yes, we have a step-up in other operating income throughout the year. And this is really related to our TSA or our services to the buyer of our skin business in the U.S. But actually, the cost to do these services are sitting in the individual cost items. So when I net it up in our P&L, it's actually a neutral effect. You should expect the other operating income also to continue into '25-'26, and we expect to be done with the services towards the end of the year. But for the total EBIT, it's a neutral impact. Lars Rasmussen: So on the Kerecis, I think you know at least as much as I do about the dynamics, the financial dynamics of the skin care market in the U.S. The way I see this change is that for most vendors, they will get into a space where they have a significantly lower pay per square centimeter than they had before. And we come into a space where we have more. The vendors that are left in that space now -- they can only be there when they have good quality clinical data. And the clinical data that you have to obtain to be in that market, you can only get those when you have a certain investment in the -- in the quality of those data. And I think that it's hard to see with the kind of investments that you have to do to both create these products, but also to document them that it's going to be a substantial race to the bottom. On the contrary, I think that it's going to be a market that for some of the vendors will be hard to compete in. We just happen to be set up in a way where we have extremely strong clinical data. We also have a very competitive setup when it comes to the cost on this. So we are, of course, prepared to compete but we -- we just don't think that we are in a space where what you described there is there's a logic that, that will just be the right or the first thing that happens. But we might be proven wrong on this, of course. But I really think that what happens, the steps that have been taken here that gives a choice for the society to offer very, very strong products at a reasonable price. And those who would like to compete on that is in that space, that's how I see it. Graham Doyle: No, I completely hear you. Just -- it was just something I thought about as we looked at how some of the higher priced products are trending today. Lars Rasmussen: Thanks. Okay. Should -- I think that we'll have to end with the next question because we are over time, but could we take one more? Operator: The next question comes from Carsten Lonborg Madsen from Danske Bank. Carsten Madsen: I was just hoping that you could talk a little bit about the scenarios for the LCD because that is, of course, a sort of continuous rumors about it not being implemented and maybe being canceled. So what will actually happen with your organic revenue growth guidance for next financial year and if it should be in a situation where the LCD is not being implemented? Anders Lonning-Skovgaard: Carsten, let me take that one. Our assumption around Kerecis for the coming year is a growth of around 25%. And remember, around 70% of our business, that's the hospital business. And the hospital business, we have a very strong growth quarter-over-quarter. And it's really the outpatient setting when we discuss the LCD and the price levels where we have some volatility. But we are -- we expect to deliver growth of around 25% for our Kerecis business, '25-'26. Carsten Madsen: And then maybe a quick follow-up to this one in terms of the venous leg ulcers. I cannot completely remember your plans for submitting data and maybe potentially getting on to that list as well. Could you help me remember it? Anders Lonning-Skovgaard: Yes. So we are in the process of doing clinical studies, and we expect those to finish sometime next year. So that's the current assumption. Lars Rasmussen: Okay. So actually -- I changed my mind, that happens sometimes in life. So yes, but if you're still online, you can ask your questions because you're the last one who is left. So that would be like almost personally if we leave you out here. Operator: The next question comes from Jesper Ingildsen from DNB Carnegie. Jesper Ingildsen: Just maybe on the bowel care opportunity that you mentioned in regards to your increased investments into next financial year, could you just elaborate a bit on that opportunity? And what kind of contribution you expect to get from that? And then lastly, on Halo and the special items that you have specified. To my understanding, you don't do capitalization of your R&D. I'm just trying to understand what's specifically driving that? And to some extent, how big that cost is? Anders Lonning-Skovgaard: Jesper, let me take your questions. When we had the CMD back in September and described our Impact4 ambition also for the U.S., we also talked to an opportunity we are seeing in the U.S. for our bowel care business. So the good news are that we are now getting reimbursement for bowel care in the U.S. And that's why we are now initiating investments into this specific area. And that's what we have been planning for doing this year. In terms of your second question, the -- related to the Halo, yes, we have evaluated the value of Halo also as a consequence of the current sales in the U.K. and our plans not to launch in other markets. And therefore, we have included a quite significant amount in our special items. And it's related to the IT investments we have done, so to develop the solution and to develop the app and therefore, we have reassessed the -- basically the depreciation for the Halo solution, and that's what we have included in special items. Lars Rasmussen: Thank you very much, guys, and looking forward to seeing many of you over the next period. Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Good morning, and welcome to Verastem Oncology's Third Quarter 2025 Earnings Conference Call. My name is Liz, and I'll be your call operator for today. Please note, this event is being recorded. [Operator Instructions] I will now turn the call over to Julissa Viana, Vice President of Corporate Communications, Investor Relations and Patient Advocacy at Verastem Oncology. Please go ahead. Julissa Viana: Thank you, operator. Welcome, everyone, and thank you for joining us today to discuss Verastem's Third Quarter 2025 Financial Results and recent business updates. This morning, we issued a press release detailing our financial results for the quarter and year-to-date. This release, along with the slide presentation that we will reference during our call today, are available on our website. Before we begin, I would like to remind you that any statements made during this call are not historical and are considered to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Risk Factors section in the company's most recent annual report on Form 10-K filed with the SEC on March 20, 2025, and the current report on Form 10-Q that will be filed later today as well as other reports filed with the SEC. Any forward-looking statements we make represent Verastem's views as of today, and we disclaim any obligations or responsibility to update. Joining me on today's call are Dan Paterson, President and Chief Executive Officer of Verastem, who will provide opening remarks and recap key highlights from the quarter. Matt Ros, Chief Operating Officer; and Mike Crowther, Chief Commercial Officer, who will walk through the continued progress of the AVMAPKI FAKZYNJA CO-PACK commercial launch; and Dan Calkins, Chief Financial Officer, who will provide an overview of our financial results. I will now turn the call over to Dan. Daniel Paterson: Thank you, Julissa. Good morning, and thank you for joining us today to discuss our third quarter financial results and business update. In Q2, we shared our excitement about achieving FDA approval for AVMAPKI FAKZYNJA CO-PACK in KRAS-mutated recurrent low-grade serous ovarian cancer, or LGSOC, and reported our first 6 weeks of commercial performance. Today, I'm pleased to share that the strength we saw in those initial weeks has accelerated. With a full quarter of commercial operations now complete, the fundamentals we put in place to guide our commercial launch are translating into meaningful results. Our third quarter net product revenue of $11.2 million surpassed our expectations and was driven by consistent adoption among both academic centers and community oncologists. We set 3 key objectives to support our commercial execution and drive sustainable growth. Physician engagement, patient initiation and retention and streamlined reimbursement, all 3 are trending positively. We're simultaneously advancing our broader strategic priorities, specifically expanding the opportunity set for AVMAPKI FAKZYNJA CO-PACK and accelerating the clinical path of VS-7375, our KRAS G12D (ON/OFF) inhibitor program. Let me highlight a few achievements. We completed the enrollment of our expansion cohort in RAMP-205, our first-line pancreatic cancer trial evaluating avutometinib plus defactinib and standard of care chemotherapy. We completed the planned enrollment of our confirmatory Phase III clinical trial, RAMP-301 in recurrent LGSOC, and we'll be making a modest increase in enrollment per the IDMC's recommendation. This does not have a meaningful impact on our expected time lines. We shared initial safety and tolerability data from our G12D program with VS-7375. We cleared 2 monotherapy doses with no dose-limiting toxicities. We reported that we did not observe nausea, vomiting or diarrhea above Grade 1. Importantly, these dose levels included the Phase II go-forward dose that was chosen by our partner in China. We're now moving ahead of opening the combination cohort with cetuximab. These are exciting developments that add to our continued success. In the fourth quarter, we remain focused on our 3 key launch objectives and maintaining our execution discipline across all commercial, clinical and operational functions. Let me now turn the call over to Matt to review some specific highlights from the third quarter. Matthew Ros: Thank you, Dan. The strong AVMAPKI FAKZYNJA CO-PACK growth reflects the high unmet medical need and physician enthusiasm for this first-ever treatment option. The team has achieved significant results since our May approval, and we continue to execute well against all 3 strategic launch imperatives. Dan touched upon these, and they are: first, to effectively reach health care providers, remembering that the top 100 commercial health care organizations comprise about 50% of the sales opportunity. Second, to engage and support patients throughout their journey as we know that as patients progress through other therapies, many will be ready for a new treatment option. And third, to ensure seamless access so we can support patients and ensure any barriers to reimbursement are removed. Our approach is highly targeted, and we're utilizing a deliberate mix of one-on-one meetings, group discussions and conference engagements to maximize the impact of every interaction in this rare disease market. Thus far, each element of this approach has proven to be successful. As Dan shared, we generated $11.2 million in net product revenue in the third quarter, which was our first full quarter of launch. We've leveraged the momentum from the first 6 weeks of launch and uptake has been strong. With 133 prescribers of that AVMAPKI FAKZYNJA CO-PACK, physician excitement is palpable and our field teams continue to do an excellent job in engaging with health care providers to ensure they understand the unique benefits of the CO-PACK and how to administer. Consistent with Q2, we continue to see prescriptions generated by gynecological oncologists and medical oncologists. This well-rounded base of prescribers reinforces the touch points our teams are making across our top 100 organizations and Tier 1 and Tier 2 targets. We are experiencing high levels of engagement within community practices that are either large affiliated practices or are associated with group purchasing organizations. We are directly contracting with the GPOs and conducting educational programming. We are also having meaningful success in accounts that are typically closed to sales representatives. We continue to engage and support patients with outreach efforts to help educate them about the treatment and support their conversations with their doctors. And while we won't be speaking to future trends or prescriptions at this time, we are encouraged by specific insights following our first full quarter of launch. Approximately 65% of prescriptions written have been generated by our top 100 organizations. What's great about this is that we are making strong headway in our Tier 1 and Tier 2 accounts, but we are also seeing prescriptions coming from other accounts as well. We believe that speaks to the strength of the data and brand awareness. More than half of total prescriptions are coming from the academic setting, and we expect the split to be consistent between the community and academic setting providers over time. 60% of the prescriptions written are coming from GYN oncologists and 40% written from medical oncology. Our specialty distributors are now fully on board, and we see a good mix between the 2 specialty pharmacies onboarded in Q2 and the 4 specialty distributors we added this quarter. The initial orders across our specialty distributors were managed closely and have been consistent with the initial orders from our 2 specialty pharmacies at launch. For these reasons, we believe inventory stocking has been minimized, and we plan to continue to manage this closely through year-end. Lastly, reimbursement has not been a barrier to any access, and Mike will provide more specifics in that regard shortly. Looking at the fourth quarter, we aim to continue to build on our momentum while staying laser-focused on our strategic imperatives to ensure every appropriate patient benefits from this novel treatment. The key opinion leader community continues to reinforce our thesis that every KRAS-mutated LGSOC patient should not only receive this treatment, but should do so at their first recurrence. Given our early achievements, our team's effective execution and the high unmet need in this rare form of ovarian cancer, we believe we are well positioned for continued growth. Now I will turn the call over to Mike to speak further about the launch dynamics. Mike? Michael Crowther: Thanks, Matt. Let's get right into the specifics of our AVMAPKI FAKZYNJA CO-PACK launch. I'm extremely pleased with how well the launch is going as net product revenue growth accelerated in the third quarter. While we consider ourselves still in the early days of launch, the underpinning of success is built upon the breadth and reach of our field engagement to raise awareness of the availability of the first-ever treatment, specifically for people living with KRAS-mutated recurrent LGSOC. These impressive results are driven by a few key factors: high unmet need, increased engagement with both academic and community oncology practices, expanding reach and removing barriers to access through specialty distributors and their GPO partners and continued efforts to ensure seamless access. From an engagement standpoint in the third quarter, we have had high engagement among our top 100 organizations and top 100 offices, which includes a mix of academics and community providers. These efforts have resulted in approximately 65% of prescriptions coming from them and specifically within our Tier 1 and Tier 2 accounts. We continue to see both repeat prescriptions from physicians prescribing to multiple patients and refill for patients given the CO-PACK's favorable safety profile. An important insight we have gained is that HCPs treating LGSOC have a good understanding of where their patients are in the treatment journey and are keeping CO-PACK top of mind for when the patient's current therapy fails due to either intolerability or clinical progression. Doctors continue to share that they are actively assessing and identifying patients that may become appropriate candidates for this targeted combination therapy, demonstrating that our efforts with HCPs are creating visibility into new patients becoming available for treatment. Additionally, the awareness about AVMAPKI FAKZYNJA CO-PACK is high. Our medical science liaisons and oncology nurse educators have engaged in 800 scientific exchanges and well over 100 educational forums with health care providers within this quarter alone. We believe payers are acknowledging the unmet need that can now be addressed by the CO-PACK as well as the clinical value of the combination therapy. The payer coverage continues to be broad and the time to fill prescriptions has been fast within approximately 12 to 14 days. We can also confidently share that covered lives has now exceeded 80% and that the payer mix for our combination therapy is about half commercial and half Medicare. From a patient perspective, we continue to see high engagement in our branded website. Our digital campaign is effectively driving traffic to this resource and patients are downloading our patient brochure and opting in to receive more details associated with how the CO-PACK can be appropriate for them. To close, we strongly believe that the AVMAPKI FAKZYNJA CO-PACK combination therapy has the potential to make a significant impact on the lives of patients who previously had no treatment options specific to their disease. With several months now under our belt, the team is executing well against all our launch objectives. We continue to believe a steady adoption will occur over time, and our early observations post approval support this perspective. I look forward to sharing more in the coming quarters as we progress through the launch and gain more experience and insights. With that, I'll turn the call over to Dan Calkins to provide an update on our financials. Daniel Calkins: Thank you, Mike. We issued a press release before the call today with the full financial results so I'll focus on the highlights for the third quarter. In our first full quarter of launch, I'm also pleased to report $11.2 million of net product revenue for the third quarter. Cost of sales were $1.7 million for the third quarter of 2025 and did not include a significant amount of product costs as inventory produced prior to FDA approval was fully expensed at the time of production. Currently, we're not providing guidance on gross to net other than to say that expectations should be consistent with other oncology small molecule therapeutics. Turning to research and development expenses. They were $29.0 million for the third quarter of 2025. R&D expenses were driven by both the ongoing global confirmatory Phase III RAMP-301 clinical trial and the ongoing BS-7375 Phase I/IIa clinical trial as well as higher costs associated with drug substance production activities related to BS-7375. SG&A expenses were $21.0 million for the third quarter. The expenses were driven by commercial activities and operations, which included personnel-related costs to support the ongoing CO-PACK launch. We continue to be prudent in our expense management, making the right investments at the right time to support the ongoing commercial launch efforts while simultaneously advancing our pipeline. For the third quarter of 2025, non-GAAP adjusted net loss was $39.4 million or $0.54 per share diluted compared to non-GAAP adjusted net loss of $35.3 million or $0.88 per share diluted for the 2024 quarter. Please refer to our press release for a reconciliation of GAAP to non-GAAP measures. Moving to the balance sheet. We ended the third quarter of 2025 with cash, cash equivalents and investments of $137.7 million. We believe our current cash, combined with future revenues from AVMAPKI FAKZYNJA CO-PACK sales and the exercise of the outstanding cash warrants provides runway into the second half of 2026. We had a solid first full quarter as a commercial company. We have sufficient capital to fund our ongoing commercial launch in the U.S. and continue advancing our current clinical development plans. With that, I'll turn the call back over to Dan. Daniel Paterson: Thanks, Dan. Before we open the call to Q&A, I'll share a few final remarks to close out today's presentation. We've seen another strong quarter of execution at Verastem as we continue to deliver on all our strategic priorities, meeting our key milestones and delivering a strong commercial launch. As we're in the final quarter of 2025 and look to 2026, I want to reaffirm our strong confidence in our growth trajectory and the significant value creation opportunities ahead for our company and shareholders. Commercial execution remains a top priority. The fundamentals are driving AVMAPKI FAKZYNJA CO-PACK adoption and the launch is progressing as planned. Our clinical pipeline continues to advance on multiple fronts. We expect several important data readouts in the first half of 2026 that will further demonstrate the breadth of our RAS/MAPK pathway-driven approach. We expect to share safety and efficacy results from our RAMP-205 expansion cohort in first-line advanced pancreatic cancer in the first half of 2026. We also plan to share initial results from our Phase I/IIa trial evaluating VS-7375 and advanced G12D mutant solid tumors in the first half of 2026. We'll continue to advance our trial of VS-7375 in both monotherapy and combination expansion cohorts in pancreatic, lung and colorectal cancers. Importantly, we believe VS-7375 has demonstrated significant and best-in-class potential among KRAS G12D inhibitors to date in both advanced pancreatic cancer and lung cancer. And we're committed to moving quickly to registration-enabling studies in these and other high potential priority indications. This is an active area of focus for the company, and we plan to engage with the FDA in the first half of 2026 to discuss our path forward. This would include seeking their input on how to harmonize the abundance of existing data generated by our partner in China to advance the program efficiently on behalf of patients who currently have no FDA-approved treatments for their KRAS G12D mutated cancers. We now have a commercial product generating growing revenue and a robust clinical pipeline with multiple near-term catalysts that will determine the future development plans. We are building a sustainable multi-asset oncology company to address important unmet needs in RAS/MAPK Pathway-Driven cancers. With that, we'll open up the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Michael Schmidt with Guggenheim Securities. Michael Schmidt: On the LGSOC launch, yes, just wondering if you could provide a few more comments on how the product is being used in the market in terms of patients having had prior lines of therapy. I'm just thinking about some of the market dynamics around incidence of new patients that relapse versus that sort of existing prevalence pool. How is the product being utilized in that context? And what are you seeing in terms of KRAS mutant versus wild-type use? Daniel Paterson: Yes. I mean we're early in the launch. So you do end up seeing some patients with later lines of therapy, but we're also seeing patients that are first recurrence, and it is a mix of wild-type and mutant as well as some just off-label totally. We don't have exact numbers on that. Again, we don't see total visibility of that through the distribution channel that goes through the distributors as opposed to specialty pharmacy. And we don't always have a good view in the total number of lines of therapy. I don't know, Mike, if you wanted to give a little more color. Michael Crowther: Sure, Dan. I mean, consistent with what you've said, we've seen a variety of patients across a range of lines of therapy. We're not always giving the information about what prior therapies they've been on, but obviously, they've seen most of the classical mix of chemotherapy, AI, bevacizumab plus or minus a MEK inhibitor. Since we're promoting just on label, the vast majority of our patients that we've seen so far are KRAS mutant LGSOC. Michael Schmidt: Great. And then a question on the RAMP-301 study update. Just curious if you could comment on what type of analysis the IDMC did? Was this just looking at event rates and adjusting for event rates? Or did they perhaps look at additional information in terms of effect size? Any comments there would be helpful. Daniel Paterson: Yes, great question. I mean, to be clear, we're blinded by what the IDMC did. And we had put this interim analysis in place because -- and we've mentioned this before, there wasn't perfect information on the comparators. There weren't prior studies with prospectively broken out KRAS mutant and wild-type. And we tried to keep the sample size as low as possible, but also have the ability to be able to upsize that if needed. I'm optimistic because the number of recommended additional patients was relatively small, about 30. It was across both wild-type and mutant, which, again, I think speaks to them being within the range. And what I was told is because the study accrued faster than we had projected, there were less events than one normally would have had. And I think part of the reason for adding a couple more patients is there just aren't enough events yet really to draw any definitive conclusion, and we want to make sure we're -- we have enough patients to be in the range. Michael Schmidt: And congrats again on a great quarter. Operator: Your next question comes from the line of Justin Zelin with BTIG. Justin Zelin: Congrats on the strong quarter. I wanted to ask about the NCCN committee review in October, if you had heard back on a recommendation for the labels to be expanded to include KRAS wild-type patients? And I have some follow-ups. Daniel Paterson: Yes, that's a great question. And to be clear, had we heard, we would have told people, we don't know. We know the committee met. We don't know the outcome of that yet. Justin Zelin: Got it. Do you have an expectation on any time lines on when you might expect to hear back? Daniel Paterson: We actually don't. We've heard it can be as long as early next year, could be earlier. I think different committees operate differently. We've not been given a lot of guidance. It's a relatively opaque and what I would say, secret process, and they've all signed NDAs and things. And so as much as I would love to know the outcome of the meeting, we just don't know yet. Justin Zelin: Understood. And maybe just one additional question just on the commercial launch. Do you have any color on new patient starts versus patients who are refilling prescriptions as far as contribution to your strong quarter? Daniel Paterson: Matt, do you want to take that one? Matthew Ros: Yes, sure. Great question. We aren't providing that level of detail or specificity on new to Rx refills. However, we are continuing to see significant new prescriptions come in for patients and patients that have started on therapy, particularly in the beginning of the third quarter have continued to receive refills. So we are seeing the dynamic in the marketplace, but providing that level of granularity at this point is a bit too premature for us. We wanted to see another full quarter or 2 underneath our belts before we provide that level of detail. Operator: [Operator Instructions] your next question comes from the line of Sean Lee with H.C. Wainwright. Xun Lee: Congrats on a good quarter. I just have 2 quick ones. First, on the LGSOC market. I was wondering whether you could provide some details on what are you seeing in terms of patient retention. Correct me if I'm wrong, I think on the clinical study, the average treatment duration was about 10 months. So it's still a little bit early for that. Maybe if you can provide some color on the patient dropout rates, has that been in line with what you expect? Daniel Paterson: Yes. I would say it's really early to tell. And actually, average duration was about 18 months in the clinical trial. I don't know, Matt or Mike, if you want to provide any more color. It is really too early to tell. Matthew Ros: Yes. I mean it's a great question. Dan is right. The performance of the CO-PACK in the clinical program, the DOR was around 18 months. We're seeing patients that are coming in at first recurrence. And so we would expect if they're coming in, in an earlier line of treatment that the benefit would be prolonged, but it is still fairly early to provide specific commentary. Xun Lee: I see. My second question is on the VS-7375 study. I was wondering whether there are any significant differences between how you're treating the patients compared to the study that your partners running in China? Because I think I recall that you were discussing some prophylactic antiemetics and such. Are there any notable differences? Daniel Paterson: Yes. Thanks, Sean. That was a great question. Yes, one of the things that we've said we were doing differently is -- and this was based on experience with the G12C inhibitors being developed and a number of our investigators participated in those studies is really the differences where the patients in China were fasted. This first couple of cohorts we treated in the U.S. were fed. They were also mandated to have prophylactic antiemetics, which is not a part of the protocol in China. And part of the reason we released the information on the first 2 cohorts is, a, we thought it was important that we cleared those first 2 cohorts, which included the recommended Phase II dose in China without any DLTs. But also the early data that we're seeing is that those interventions are making a difference. And as we said earlier, we didn't see any GI toxicities, nausea, vomiting, diarrhea that were greater than grade 1, which we were very happy to see, and we hope that carries forward. Operator: Your next question comes from the line of Yuan Zhi with B. Riley Securities. Yuan Zhi: Congratulations on the commercial launch. And maybe my first question is for your confirmatory trial, can you remind us what was the enrollment plan for the KRAS mutant patient population and the KRAS wild-type patient population separately? Daniel Paterson: So the total enrollment was planned for 270, and there were guardrails to set up to keep the amount somewhere between 1/2 and 1/3 KRAS mutant to mirror the population. And so this accrual has come out that way. And as I mentioned, the data monitoring committee recommended that we put a couple more patients on both of those groups. And so we were glad to see, a, that it was a small number of patients that actually could have gone up quite a bit and that it was both arms, which tells us that we're in play with both of them. Yuan Zhi: Got it. My second question is, what is your next step or priority in the commercial launch? Do you plan to target more prescribers or just make sure a higher number of prescription per doctor? Daniel Paterson: I would say both. We're not going to change what we're doing. We feel that between our direct calling on individual doctors, the programmatic work we're doing with the organizations and our digital work as well as reaching out to patients that we're covering the waterfront. So we're not planning on changing what we're doing, but it's really a matter of making sure existing prescribers continue to prescribe. New prescribers come on because in any launch, you've got early adopters, mid-adopters, late adopters, and we're working through that chain. And then importantly, that when patients go on, they stay on. Yuan Zhi: Got it. Maybe before I jump back to the queue, my last question is on the patient's journey. So let's say a patient got their prescription, how long do they have to refill? And how often do they have to visit the doctors to check either symptoms or any side effects? Additional color will be very helpful. Daniel Paterson: Yes, Mike, do you want to take that one? Michael Crowther: Sure. So prescription is for a month supply, 3 weeks out of 4. And in terms of doctors' visits, there is a small amount of visits to begin with just to make sure they're being monitored closely for early toxicities, but that rapidly goes down to every 3 to 6 months. Operator: Your next question comes from the line of Eric Schmidt with Cantor Fitzgerald. Eric Schmidt: Apologies, I hopped on a little bit late. But with regard to the RAMP-301 IDMC recommendation to moderately upsize the study, can you talk about what the potential outcomes could have been through that look and what data the committee had access to in order to make the decision? Daniel Paterson: Yes. So the committee had the full data set and the outcomes could have ranged from everything from futility adding, I believe, up to 100 patients to they could have added none. Again, we're blinded to the actual results, but our understanding was there were less events than one would have anticipated given the rapid accrual and that may have led to the small number of patients being added on, but they are being added on to both KRAS wild-type and mutant and it's about 30 across the 2 groups. Eric Schmidt: So that's helpful. There wasn't any prespecified criteria for adding the 30-ish, 27 patients -- sorry, 29 patients. It was just what the IDMC chose to do, that number? Daniel Paterson: My understanding is it was within their purview and they made a recommendation to us and we followed it. And again, we don't have full transparency into exactly what they were doing. Eric Schmidt: And then maybe switching to the 7675, the G12D in your ongoing study. We're very clear that GI tolerability was good in the first dose with no more than grade 1 cases of GI issues. Were there any other side effects to report in that initial cohort? Anything at all of grade 2 or 3? Daniel Paterson: Well, I believe there were some grade 2 or 3 in very, very small numbers, but nothing -- no signal that we had not expected based on the Chinese data. I think the only thing that was really different was the level of GI tox. And we'll give a more full release of the full efficacy once we've got a few more patients on. I think we've guided early next year, we'll give an update on both efficacy and safety. Operator: Your next question comes from the line of James Molloy with Alliance Global Partners. James Molloy: I was wondering, could you share any sort of anecdotal updates from the launch, talking to the usage and potential off-label usage on the wild-type versus mutant and sort of any feedback you're getting early stages of the launch? And then I have a couple of other questions as well. Daniel Paterson: Sure. Mike, Matt, you guys want to give a little more color? Michael Crowther: Sure. I mean I think as we shared in our scripted remarks and an earlier question, we're promoting obviously, our labeled indication. So the vast majority of use we've seen thus far has been within the KRAS mutant LGSOC population. That doesn't mean there haven't been wild-type patients because they have, and those have also been seeing coverage through the payers as well thus far. James Molloy: Okay. Great. Then maybe a follow-up, looks like there's been some M&A in the oncology space recently. You guys are obviously off to an excellent launch here. Any thoughts -- care to discuss any inbound interest you may or may not have from other partners? Daniel Paterson: I mean obviously, we wouldn't talk about any specifics. But given the launch trajectory to date, and I'd say even more so the excitement around G12D and how the molecules perform both preclinically and clinically. We do get a fair amount of inbound interest and entertain those discussions all the time. We've got some very exciting plans to take these forward, but we're always evaluating could we do more with more resources. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Evonik Industries AG Q3 2025 Earnings Conference Call. I'm Mattilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Kullmann, CEO. Please go ahead. Christian Kullmann: Thanks a lot, and welcome to our Q3 earnings call. Looking around in our boardroom, I see a very different setup here today. First of all, welcome to First of all, welcome to Claus Rettig, our interim CFO, who is sitting left to me. Many of you already know him. In his previous roles, he represented Evonik at many investor conferences and Capital Markets Day. His extensive experience and knowledge of our company is helping us in this new role while the search for our CFO is ongoing. I would like to take the opportunity here today to thank Maike Schuh for many years in different roles at Evonik. She has left the company at her own request in September. And while this was very sudden, we have to accept that. I would like to thank her for her efforts and the positive impact she had on our organization. Second, after 49 -- worthwhile to repeat, after 49 reported quarters as a public listed company, Tim is not sitting on the right side of this table anymore. For more than a decade, he has built an Investor Relations program, which is highly regarded by all of you out there. Now he is taking a well-deserved sabbatical. Thank you, Tim, for your lasting commitment to the Evonik Equity story. Christoph, whom all of you already know pretty well, will have a strong foundation to build on in the coming years. And with that, let's go into today's results release. We will be largely focusing on the outlook during the short prepared remarks. You will know that we are facing a very tough environment currently, although already coming from quite a low level, customers currently are acting even more cautiously across all segments and in nearly all end markets. Demand stayed very weak, exiting the summer break. That is why with our prerelease end of September, we had to lower our full year guidance to around EUR 1.9 billion of adjusted EBITDA, coupled with a cash conversion rate between 30% to 40%. Your and our look today goes ahead into the fourth quarter. For that, I'm now handing over to Claus, who will show you why we are confident to achieve our outlook for both EBITDA and cash conversion in the last 3 months of the year. Claus Rettig: Yes. Thank you, Christian. As you already said today, I'm here in my role as interim CFO, which I took over a good month ago. I have to say, during my almost 30 years at Evonik and in my different roles, I've joined quite some meetings, events, investor presentations, presentations, discussions with customers, suppliers and partners. Nevertheless, this earnings call marks a first for me. And unfortunately, we have to report a weak quarter 3 for Evonik. However, I spent most of my time in my new role already on the future. Let me therefore comment on the fourth quarter in 2 parts. I would like to start with the supporting factors for our earnings development. And then I would like to comment also on our free cash flow and net working capital expectations. Starting with the EBITDA. There are several supporting factors in Q4. We will see the typical year-end recognition of sales and earnings in our Health Care segment, which will be more pronounced this year versus a weaker last year. In Animal Nutrition, we will see a pickup in sales coming from the low levels in Q3, especially compared to previous year. And these low levels were, of course, impacted by a planned maintenance shutdown. In Q4, almost full capacity will be available again. And we have already rather good visibility on the booking levels today. Another aspect to address are lower personnel costs. For several quarters, we are seeing a reduction in our FTE numbers, which will come through more and more into the bottom line. In addition, bonus provision releases are further supporting our earnings and also in the upcoming quarter. So all in all, with the environment that will stay tough, the finish until the end of the year will also certainly not be easy. But there are good reasons why we are confident to deliver around EUR 1.9 billion of EBITDA this year. The same is true for the free cash flow. We are on track to deliver our guidance, which we gave as between 30% and 40% cash conversion. In the first 6 months of the year, the weaker-than-expected environment has made it difficult for us to reduce the net working capital as intended. Now we have adapted to the new situation, which has resulted in a positive free cash flow of around EUR 300 million in Q3. And we have seen an acceleration in net working capital reduction throughout the quarter, making most progress in September. This makes us optimistic for further significant steps in quarter 4. To reach the midpoint of our guidance range, we will need another EUR 380 million of free cash flow in Q4. Again, as with the EBITDA, it will not be easy. But looking into the past years, it is doable, and that's what we are going to do. And with that, I hand back to Christian. Christian Kullmann: Thanks a lot, Claus. Ladies and gentlemen, in this tough environment and facing clearly weaker results than we would like to see, the execution of our long-term strategy is more important than ever. Continuing to transform our portfolio and to optimize our administrative and operational processes is a necessity, and we have made good progress in both regards this quarter. A significant milestone is for Europe, carve-out of our infrastructure activities, although maybe not so visible from the outside, this is one of the most complex reorganization projects in our history. More than 3,500 employees are directly affected, many more indirectly. So it is good to see that we are well on track in our initial project plan. The new SYNEQT, that is the name of the new company, will start in January of next year as a 100% subsidiary of Evonik Industries. The different options for the future will then be evaluated. But also our Evonik Tailor Made program and the Business Optimization programs like in high-performance polymers or health care are progressing as planned. Compared to the end of last year's third quarter, the number of employees has shrunk by more than 740 without divestments. And these are mostly leadership roles, mostly in Germany. This impact will be lasting and felt all the more once demand recovers. Executing those projects will help us to focus on our core activities, which is essential in these difficult times. Having said so, we are now happy to take your questions. Operator: [Operator Instructions] The first question comes from the line of David Symonds from BNP Paribas. David Symonds: Yes, two from me, please. So just the first one, if you could give any comments on October trading and what you're seeing so far and whether it's supportive of hitting the EUR 1.9 billion on the nose. And then the second one, so I'm a little bit confused by Advanced Technologies. And if I bridge from last year, taking relatively minor impacts from price, volume and FX sales and the standard drop-throughs, then I would probably come to an EBITDA number of around EUR 260 million for this year's Q3. Then you've reduced full-time employees in this division by around 450 year-on-year. So I would think that would contribute sort of EUR 10 million to EUR 12 million positive. And yet the eventual number was only EUR 202 million EBITDA. So there's arguably -- there's a EUR 70 million gap compared to what I'm able to bridge. And I'm just wondering are there any sort of production effects or anything in this quarter? I can see that you've reduced working capital. Did you reduce production in Advanced Technologies in Q3 in order to support cash and so had less coverage of fixed costs? Or where does that gap come from, please? Christoph Finke: Yes. Thank you, David. Both questions actually go to Claus. So the first one on Q4 and October trading and the second one and then on Advanced Technologies. Claus Rettig: Yes. Yes. Thank you for the question. And let me answer them as following. Maybe first on current trading and outlook. Like I said before, we are absolutely confident to reach our guidance around EUR 1.9 billion. And there are certain factors that are supporting this. So like I said, we have a very strong demand on the health care side, which we see in Q4. And we have some of the negative impacts we have seen in Q3, not anymore, like that goes into costs for maintenance shutdowns we had. Our methionine business was really weak in Q3 because of this maintenance shutdown costs plus lower business. This we don't have in Q4 anymore. And we also, like I said, have already a good visibility in our order book on the methionine side. So this is clearly giving us confidence. Another piece that gives us confidence is when you look to our Q3 development month by month, September was already clearly on the upside. We had a weak August, but also not as weak as August, but a weak July. September, certainly better. September contribution margin from the market was above the average of Q2. And first indications of October are also that we are on the level of September. So we head into the Q4 really along what we are expecting. And that makes us very, let's say, confident that we can reach our guidance range as published. Maybe so far for this one. The other one was Advanced Technologies. Yes, it looks when you -- on the first glance, when you look to the numbers, of course, it looks strange because the EBITDA is much weaker than you would expect when you look to the loss on sales. However, some of the factors I already mentioned here is we had methionine shutdown, which created quite a bit of cost on the cost side. But even more so weighing on the EBITDA was quite a big step in inventory reduction. As we said, last year, we have done inventory management maybe a little bit earlier than this year. That's why we had a better cash flow last year at the same time. Now in Q3, we really, really go down on the cash flow side, management of cash flow, reducing inventories is a big portion of this. And when you look to the numbers we provided to you with our KPIs, financial KPIs, you will see that when you look into the Advanced Technology, yes, we dropped down from EUR 1.5 billion in Q3 '24 to EUR 1.4 billion, you can say, in Q3 '25. And we almost lost the same amount on the EBITDA line from EUR 296 million to EUR 202 million. But when you look on the cash flow side, you see that cash flow increased. So from EUR 146 million previous year's quarter to EUR 182 million this quarter. And that gives you clearly indication this is due to working capital management. And as you all know, this is suppressing EBITDA. And -- so these are the 2 factors, net working capital reduction, maintenance shutdown costs, mainly on the methionine side, with also force majeure on the crosslinker side in the last quarter, which also was jeopardizing our crosslinker business. These elements have contributed to this low EBITDA in Q3. Operator: The next question comes from the line of Martin Roediger from Kepler. Martin Roediger: Three questions. Number one, the earnings effect from the release of bonus provisions in Q3 has been obviously above the EUR 20 million level you had in Q2 already. Can you provide some color how much above EUR 20 million was it? And what are the targeted bonus provision releases in Q4? Secondly, on the cost savings, based on what you have announced or done already so far with restructurings and disposals, what are the incremental cost savings in 2026? And thirdly, a more general question. Do you see any rising imports from Chinese competitors into Europe because export volumes, which were initially dedicated to the U.S. market are now rerouted to Europe due to the implemented tariffs. If so, in which product categories is this the case? Christoph Finke: So yes, a lot of questions for Claus today. So we will start with the cost savings and incremental savings in 2026. And then going to the additional imports from China. On the bonus provisions, Martin, I think I can answer that. We don't comment and break that down in detail. So of course, it has been an impact in the other line in the third quarter. It will continue to support us to a certain degree, but there's also a structural element to that. As we mentioned during the prepared remarks, we have 740 FTEs less this year. So on the personnel cost side, it's a combination of both. And with that, over to Claus for the 2 points on cost savings and imports from China to Europe and the rest of the world. Claus Rettig: Yes, let me comment on this as well. So like I said, we have the structural cost savings from all our cost savings programs, mainly ETM, Evonik Tailor Made. And you heard before, they are actually proceeding fully as planned. So -- and one of the most significant key performance indicators is we are now year-on-year 740 FTEs less by the end of September, and that's a very hard cost saving element. So this is by far the biggest one. And then like Christoph said already, we don't disclose and publish bonus pieces. Of course, they play a role, but to a much lesser degree. And so I think the structural part is going on. It's going to continue into the next year and also going to continue into Q4. So we have the 740 less as we speak. But of course, they are being released or leaving us during the course of the year. That means we don't have the 740 FTE cost impact for full year yet. But in the Q4, of course, we have a full element of this. And of course, even more so in 2026. So from that point of view, we have also -- there's no doubt about it, we have compensating factors. We have inflation. Unfortunately, this year, we had pretty high salary adjustments in the chemical industry. They are on the other side. So that's counteracting these cost savings. Nevertheless, without the structural improvements, we would have a bigger problem. So that's maybe to the cost saving -- maybe inflation last year, salary cost inflation, to give you a number, around 7%. I think that's a pretty high number. Then the other one, imports from China. When you look to the general statistics, imports from China into Europe have been rising. That's clear. We have certain areas in our business where we see this as well. It's sometimes indirectly, I'll give you one example. We have imports on the silica side, so which are used in tires. There we see directly, but you see also an indirect impact that the entire tire is coming from China. And therefore, tire demand or tire production in Europe is going down. So yes, we have these effects. I could not quantify it at this moment in time exactly. But there are elements like this, the crosslinker, I think we mentioned this some time before. We have pretty tough competition from China as well. It's not across the entire range, but in certain areas, it is. And from that point of view, it has an impact. Unfortunately, I cannot quantify it for you now. Operator: We now have a question from the line of Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question was following up on Martin's question in a slightly different way. Maybe this goes to Christian. I think the message you gave us, it seems is much more of earnings pressure due to what you call broad-based demand weakness. I'm just curious, if I look at what BASF mentioned last week that they think the global chemical production is up 4% year-on-year. It doesn't feel like the demand itself is so bad. So what I'm trying to understand is how much of the pressure that you see and not just you as in Evonik, but also as an industry right now in Europe is actually structural in a way because there's just genuinely more competition across many, many product segments than we ever used to. And if that's the case, why should we think next year perhaps will be any different? That's one. And second, maybe a bit related to that. If I look at your Q3 earnings or Q3 EBITDA, if I just run rate that, we are close to EUR 1.8 billion annualized EBITDA right now. I mean what are the key moving parts into next year, which can help your number grow versus that run rate? Christoph Finke: Thank you, Chetan. Christian will start, and I think Claus can then add a few points on 2026 performance, maybe a bit more on the business side. Christian Kullmann: Chetan, I appreciate it to take your questions. Maybe first about the market environment. The simple math is the higher your businesses are positioned in respect of specialties, the better will be a chance in 2026. And if you look at our numbers and figures in respect, for example, of our Custom Solutions businesses, you could see that they have been able, even in this tough environment, to hold the prices up. So that is somewhat I would take as sign, which is providing me with confidence, first. Second, it was about your expectations now in detail. Chetan, as you know, if I could, I would provide you with the very specific details, but it is a little bit early than to give you now a complete picture about what we do see in 2026. But for sure, that we -- and I guess you could do the same. So it's fair to assume that the macroeconomic environment will stay somewhat challenging also in next year. Are there reasons that it could become better? Are their signs? For example, the German stimulus program, which we think the German industry, and that means also we could benefit from the second half of the year. That is something we see as supportive. And then it is to see how the weak U.S. dollar will next year -- how the Americans will manage on the other side. And that is what I guess it is in those times of uncertainty worthwhile to underpin that we do remain delivering on our revised EBITDA and our free cash flow guidance. And here, as Claus has already conveyed to you, we are confident to get it. So in a nutshell, it is about the long view. It is about executing our strategy of reducing costs and bettering our position in regards of growth and optimization. And I guess, having said so, I do hand over to Claus. Claus Rettig: Yes. Thank you, Christian. Yes, Chetan. So maybe to add -- the Q3, I think, would not be a good quarter to extrapolate because I think the reasons I tried to explain before, this is a very weak quarter for certain also extraordinary factors, like we said. 2026, super difficult to judge right now, even though we are in the middle of the discussions of how to see 2026, what kind of budget we are going to have. And of course, we always have the ambition to be the next year better than the year before. But so far, super difficult to judge. However, there are certain areas which clearly make us confident that 2026 for Evonik can be better and should be better than 2025. The total environment, we don't believe will change much. Even though you have seen President Trump and President Xi in South Korea agreed upon, let's say, call it a cease fire, which helps. But since it's only a year, it does not really remove the underlying total uncertainty, but it certainly will help. So from that point of view, we believe the environment will be as tough as it is in 2025. Will it be worse? I don't think so. So then it comes back to our own kind of elements that we believe are supporting us in 2025. We have a very weak Oxeno business, our C4 business in 2025. Here, we clearly see an improvement coming up in 2026. And Oxeno this year is not contributing at all, as you know, this will be different in 2025. Will it be back to 2024 levels? No, but something in between. So that is certainly a major element, which we see. Then we -- like we said, we have capacities that are ramping up. One is older, our polyamide 12. And by the way, polyamide 12 also in 2025 has volume growth. So it's on the way up and it's going to continue. We have the membrane business where is this year a little bit weak. We expect better business next year. We have the price erosion on the crosslinker side that has come to a standstill. It's starting to reverse. And -- yes, then we have methionine. And not to forget, we have methionine as, of course, a challenge, maybe new capacity coming on stream or most certainly on stream. When exactly? Not clear yet. That can have a suppressing factor on the price. At the same time, we have improved our cost position. In Singapore, where I'm living, we have put a new technology into a methionine plant this year, which is not only increasing the capacity, but also improving the cost. And over and above, even bigger cost improvement will come in our U.S. plant once we have the back integration in methyl mercaptan on stream, which also will happen next year. So this is -- then we have new plants. We have a new alkoxide plant in operation now in Singapore. The demand for biodiesel catalysts and biodiesel is strong. So there, it's going to ramp up, contributing next year. We have just started the new plant for aluminum oxide, highly dispersed aluminum oxide used in 2 big fields. One is lithium ion battery and the other big field is coatings. This is moving into markets where the demand is there, and we have this new plant will contribute. Maybe I already mentioned health care. Health care is also a market segment where the demand is strong. So it's not really affected by the general weakness. You know that we have also tendencies that health care production is coming back from Asia to the United States and to Europe. I think we are going to benefit from this. And -- so there are these kind of elements which make us confident that we can increase our business in 2026 a little bit despite still remaining challenging market conditions. Operator: The next question comes from the line of Geoff Haire from UBS. Geoffery Haire: I was just wondering, could you help us understand what the sustainability of the profitability in Infrastructure and Other is? Obviously, that was a big surprise, at least relative to what we were forecasting on consensus going forward because obviously, there's one-offs from bonus releases in there and how -- what proportion of that is one-off and what portion is ongoing. Christoph Finke: Yes. Geoff, this goes to Claus. Claus Rettig: The sustainability -- just to make sure I understood it correctly, is sustainability of... Christoph Finke: The earnings level was better than in the past quarters in Infrastructure and Other lines. Claus Rettig: Others. Yes. Okay. As you know, in Infrastructure and Others, we have grouped our , like I said, infrastructure business, which we are currently carving out into a separate legal entity. And we have also our Oxeno business in this. And here, the profitability improvement is coming from Oxeno in the next year. So this year, like I said, it's weak. Here, of course, we have profited from -- this is a very FTE-heavy operation. So a lot of the -- many of the FTE reductions are taking place there. Also in the course of the carve-out, we streamlined the processes. So absolutely sustainable. And the Oxeno part in it, like I said, we had to deep dive into our Oxeno business, you can believe me. And here, we're also confident that we are improving step-by-step over the next years, and we will certainly make a step in 2026, which we also -- okay, this is, of course, also depending on market conditions. The part which is on the bonus side, which is the lower part in the end is, I have to say, hopefully not sustainable. We all won't have a normal bonus again. And so we are aiming for not making that sustainable, that's for sure. Operator: We now have a question from the line of Anil Shenoy from Barclays. Anil Shenoy: I have two, please. The first one is on lipids. So you've spoken about lower demand for lipids in Custom Solutions in Q3. So I was just wondering if you could quantify in terms of percentage, how much was it down quarter-on-quarter and year-on-year as well? I mean, any kind of color on it would be very helpful. And on that note, if you could give us an update on the new lipids plant in U.S. I'm trying to understand what kind of a contribution could we expect in 2026 from it? And if you could remind us the EBITDA contribution that you expect once the plant is fully ramped up? So that's my first question. And the second question is on the divestments, especially SYNEQT. Now that you have carved it up as a separate entity, do you have a time line? Or would you like to give any color on it as to when can we expect the sale of SYNEQT? And would you be okay with the JV structure like the one Macquarie did with the infrastructure assets of Dow? And would you expect similar kind of multiples to that of Dow's assets? So those are my questions. Christoph Finke: Okay. Thank you, Anil. This time, both questions will go to Christian. So lipids and then SYNEQT. Christian Kullmann: Maybe first about the lipids. We are quite happy with the ramp-up of the capacities we have started to build in the United States of America. And here, we made good progress. So we are confident that we will benefit from it in future. But besides, it is a long-term perspective. So maybe give us now, first of all, a chance to build the -- to finalize the construction and then to ramp the capacities up. But nevertheless, and worthwhile to underpin it, here, we are confident that it will in future become a good and attractive EBITDA contribution business. All the more, as you see that the government of the United States of America has started some reshoring initiatives to bring pharmaceuticals and in particular, these on this very high level, high technological level back to the United States of America. So here, we are confident. In respect of Infrastructure, first of all, yes, we are progressing pretty well in respect of separation. This is close to be completed. And from January next year onwards, we will have a legal entity with SYNEQT fully organizationally and legally independent. And then as you know, all options are lying on the table. What do I mean talking about this? Could it be a partnership? Could it be a straight divestment? Could it be a JV? Yes. And for us, it means that we will tackle these different opportunities and that we will judge upon how to move ahead over the next year. But for Evonik, it is quite clear that the main benefit will be that we will have a less amount of CapEx, which we will pump in future -- which we would have to pump in future into our infrastructure businesses, and that is, for sure, helpful. So having said this, and then maybe that was -- you have asked about the revenues, somewhat -- the revenues and the EBITDA. In 2024, these infrastructure businesses have gained around EUR 1.8 billion of revenues. Here, it is fair to say Marl plus Wesseling plus C4. So in respect of the EBITDA, it was half -- first half of this year, EUR 100 million in the Infrastructure plus C4. But because C4 was virtually -- they have not contributed to the results, you could take this as, by thumb rule, EUR 100 million half a year, EUR 200 million full year in respect of our infrastructure business. I guess these are the two questions I have taken pride to answer. Operator: The next question comes from the line of Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. Firstly, on Custom Solutions, you've done well with pricing, but volume has fallen 8%, which might suggest that pricing is coming at the expense of volume, which in itself might be a harsh statement. But then I look at the EBITDA change, much like Advanced Technologies, and it's substantially weaker in 3Q for the loss in sales than we've seen in 2Q. So is it that we're losing high-value tons in the volume? Or -- yes, I'm just kind of keen to unpack that a little further. Secondly, on methionine, I think you called out the methionine prices are down and yet you've been taking maintenance in 2Q and 3Q indirectly managing the volumes into the market. As you add tons and have full availability into 4Q, how do you expect pricing to perform? And do you think that your return of tons will weigh on prices into 2026 as well? Christoph Finke: Thank you, Tom. First one, Custom Solutions to Claus and then Christian on methionine. Claus Rettig: Okay. Good. Yes, Custom Solutions, I can actually first say, when you look -- we can do the same as with Advanced Technologies. If you look to the data we provided you, you will see that some of the EBITDA decline is not reflected in the cash flow. That's because we have also here, not to the same degree as in Advanced Technologies, but also certainly substantial net working capital reduction to align the inventories mainly to the current sales and demand. You can see that even though the EBITDA is down from EUR 287 million in Q3 '24 to EUR 215 million in Q3 '25, cash flow remains the same at EUR 172 million. So this is something we have to consider. Yes, volumes are down, which is unusual, I have to say, for this usually very stable business. And it shows also how broad, I have to say, the weakness in the market is because here in Custom Solutions, as you certainly know, we have a very broad portfolio, which makes it usually resilient because not all markets go down at the same time. But when I look right now to the performance in Custom Solutions, you can see an impact everywhere. I can see it in almost all the businesses. And I think in Custom Solutions, all the businesses have an impact to different degrees, yes, but also in all regions, and it shows -- first of all, it's a general slowdown of the demand. Nevertheless, I think what we are looking into is exactly what you are mentioning, is our price volume strategy, the right one. And are we not sacrificing volume to keep the margins high, and that's certainly on our agenda for the next months to come. And from that point of view, pricing, I think in these days, remains super critical. Also in the market, everybody knows in the market going for market share is not a good idea. And because with lowering the prices, you don't create more demand. But nevertheless, we will look into this. So it's one of the agenda points on our agenda. Christian Kullmann: Okay. And I take then the methionine question. First, maybe let me split my answer up into 2 parts. First, about the expectations in the fourth quarter. Here, we see a demand which remains overall pretty healthy. Yes, fair to say. And that is what we could give to you because we have a quite good visibility on the already booking level for the fourth quarter. So in a nutshell, the volumes will be up compared to the last quarter. And in respect of the prices, it might. It might end up a few cents lower, but it depends. It depends first on the ramp-up of a new capacity of NHU. So here, it depends. I won't call it -- it's a question, but let's say it depends. And second, on the [indiscernible] side, we do have the situation in the United States of America, where the businesses are protected by the U.S. tariffs. That is why I would say, for sure, volumes up compared to last year -- to last quarter and in respect of price, could be down in some sense, but don't forget that there is an exception in respect of the trade tariffs in the United States of America. Now maybe outlook 2026, what do we think about this? First, it's somewhat like an evergreen, an evergreen that we do see a market growth that will continue in an average between to 3% to 4% to 5%, maybe by thumb rule around 4%, which translates into an additional capacity of 80,000 tons per year. On the other side, we are aware that there are some new capacities which could come on stream over the course of the next year, but it is hard to judge as of today when they will come on stream. And you should keep in mind that there's a new brand-new competitor in. We could not really calculate if he could bring his capacity without having any experiences in this market and with this technology right into the market in the first step. So let's see how this will work. And on the other side, don't forget that some older capacities could be taken offline. That is what we have seen, what we have observed over the course of the last year. For sure, the market is in a restructuring period. And let's see how this will work over the course of 2026. That is what we could give to you in respect of methionine for 2026 as of today. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christian Kullmann for any closing remarks. Christian Kullmann: Yes. Ladies and gentlemen, it was great having had you today. This is what now ends our call. So far, thanks a lot for your attention. Have a happy autumn and hope to meet you soon in person. Take care, and goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Hello, and welcome to JELD-WEN Third Quarter 2025 Conference Call. Please note that this call is being recorded. [Operator Instructions] Thank you. I'd now like to turn the call over to James Armstrong, Vice President of Investor Relations. You may now go ahead, please. James Armstrong: Thank you, and good morning. We issued our third quarter 2025 earnings release last night and posted a slide presentation to the Investor Relations portion of our website, which can be found at investors.jeld-wen.com. We will be referencing this presentation during our call. Today, I am joined by Bill Christensen, Chief Executive Officer; and Samantha Stoddard, Chief Financial Officer. Before I turn it over to Bill, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. JELD-WEN does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for the results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measures calculated under GAAP can be found in our earnings release and in the appendix of our earnings presentation. With that, I would like to now turn the call over to Bill. William Christensen: Thank you, James, and good morning, everyone. Before we begin, I want to once again recognize our entire team for their ongoing commitment and continued hard work in what has remained a challenging environment. The past quarter has tested our organization in many ways. I'm grateful for the dedication, resilience and collaboration shown across every part of JELD-WEN. It is because of their continued efforts that we remain able to navigate this environment and position the company for long-term success. The third quarter, both in Europe and North America, was marked by further softening in market conditions and an overall degradation in demand trends. While we had anticipated stability at low levels both new construction and repair and remodel activity weakened further. We also faced operational challenges that limited our ability to capture additional market share with customer orders coming in below expectations. As a result, our performance fell short of our plans, and we are taking clear actions to address the areas that need improvement, strengthen execution and ensure that we are better aligned with the current market conditions. We continue to experience price cost headwinds across several areas of the business. Inflation in both labor and materials has persisted and given current market dynamics, we have seen some pushback on both tariff-related pricing actions and pricing increases to offset market inflation. These factors have created additional short-term margin pressure, which we are actively working to offset through cost reductions, operational efficiencies and focused performance improvement initiatives. Importantly, we remain confident that the steps we are taking will help us better balance our cost structure with current demand while protecting our long-term strategic priorities. Turning now to Slide 4 and our third quarter highlights. The quarter reflected a more difficult backdrop than anticipated, driven by softening demand and continued inflationary pressure. In response, we are taking meaningful actions to address our cost base, including approximately 11% reduction of North America and corporate headcount. Additionally, we are preserving liquidity while continuing to advance our transformation efforts. As part of that work, we are announcing a strategic review of our European business, evaluating all potential alternatives to strengthen our balance sheet and sharpen our strategic focus. While the process is in its early stages and there is nothing further to announce at this time, we believe this review will allow us to effectively address our upcoming maturities and enhance our long-term balance sheet flexibility. We are also evaluating additional options around smaller noncore assets such as our distribution business and select sale-leaseback transactions, but have nothing specific to announce at this point in time. Our liquidity position remains strong with approximately $100 million in cash and approximately $400 million of revolver availability. As a reminder, we have no debt maturities until December 2027. Importantly, our only relevant covenant requires an approximate minimum of $40 million in total liquidity compared to our current position of approximately $500 million. We also continue to strengthen the North American team with the addition of Rachael Elliott as EVP of North America. Rachael brings broad experience from our time with other notable building products companies and we are excited to have her join the organization. While the near-term environment remains uncertain, we continue to focus on what we can control: improving execution, strengthening operations and ensuring a strong financial foundation. These actions are designed to ensure that we remain well positioned to capture growth as market conditions improve. With that, I'll hand it over to Samantha to review our financial results in greater detail. Samantha Stoddard: Thank you, Bill. Turning to Slide 6. As Bill mentioned, market conditions remained challenging throughout the quarter, and our results came in below our internal expectations. The shortfall primarily reflects softer market demand, operational challenges that limited our ability to capture incremental share as expected and ongoing price and cost headwinds across several categories. Revenue for the quarter was $809 million, with core revenue down 10% year-over-year. This decline was driven mainly by lower volumes in both North America and Europe as market softness more than offset the benefits from our cost reduction initiatives and productivity efforts. Adjusted EBITDA came in at $44 million or 5.5% of sales and was up sequentially from the prior quarter, although below prior year and below our expectations. The lower margin primarily reflected continued price/cost pressure, unfavorable volume and staffing levels that were set in anticipation of market share gains that did not materialize. Turning to cash flow. Earnings pressure and continued investment in transformation initiatives led to negative free cash flow in the quarter. That said, working capital performance remained disciplined, contributing modestly to liquidity despite the softer sales environment. Our net debt leverage increased to 7.4x driven by lower year-over-year EBITDA rather than new borrowing. Reducing leverage remains a top priority for us as part of that effort, we have initiated a strategic review of our European segment aimed in part at addressing this elevated leverage and further strengthening our balance sheet. As shown on Slide 7, the revenue decline this quarter was driven primarily by lower volumes with core revenue down 10% year-over-year. The softness reflects continued market weakness and share loss, along with carryover from the loss of business with the Midwest retailer that occurred in the third quarter of last year. We also had a negative impact from the court order divestiture of our Towanda operations, which weighed on the year-over-year comparison. Product mix was slightly positive versus the prior year but the benefit was not enough to offset the volume pressure. In a few moments, I will provide additional context on the market factors influencing our performance and how we are positioning the business for the remainder of the year. As shown on Slide 8, adjusted EBITDA for the quarter was $44 million, a decline of about $38 million from the prior year. This reflects the continued softness in demand and the unfavorable price and cost environment that persisted throughout the quarter. Lower volumes were the main driver of the decline as reduced production levels weighed on earnings and more than offset the benefits from our ongoing cost actions. Product mix was slightly positive, but the benefit was not enough to offset the volume deleverage from lower demand. At the same time, price and cost pressures remain significant, particularly as labor and material inflation continued to outpace our ability to recover pricing in the market. These factors led to a sequential decline in margins and further compressed profitability year-over-year. Even with these challenges, we continue to make steady progress on our transformation and cost reduction programs, which provided a partial offset to these headwinds. We also delivered additional savings within SG&A reflecting disciplined expense control and execution of the cost actions we've put in place. Turning to our segment results on Slide 9. In North America, revenue declined 19% year-over-year, with volume and mix down 13%. The decline was driven primarily by weaker market demand while mix was slightly positive for the quarter. The remainder of the year-over-year decline reflects the court order divestiture of our Towanda operation. Adjusted EBITDA for North America was $38 million compared with $75 million in the same quarter last year. The decrease was largely the result of lower volumes and operational inefficiencies associated with reduced manufacturing throughput in addition to the price cost challenges mentioned previously. These headwinds were partially offset by the benefits from our ongoing cost reduction and transformation initiatives. In Europe, revenue increased 2% year-over-year with volume and mix down 6%. As in North America, mix was slightly positive, but overall demand remained soft across several key markets. Adjusted EBITDA for Europe was $16 million, which was roughly flat compared to last year as the benefits of productivity improvements and cost actions largely offset the impact of lower volumes. Before turning it back to Bill, I want to take a moment to address tariffs, which continued to be an area of focus. If you turn to Slide 10, you'll see an overview of our current exposure under the most recent tariff framework. At current rates, we estimate the annualized impact of tariffs on our business to be around $45 million, with roughly $17 million expected to materialize in our 2025 results. While the situation remains fluid, we've been largely successful in passing through tariff surcharges to most of our customers. However, in recent months, we've begun to experience greater resistance from some of our larger accounts which has slightly tempered our overall recovery rate. From a sourcing perspective, our exposure remains relatively modest. Approximately 13% of our combined Tier 1 and Tier 2 supplier spend is subject to potential tariff impact. As we have previously stated, direct sourcing from China represents less than 1% of our total material spend. Even when including Tier 2 exposure, China accounts for about 5% overall. This limited exposure positions us well relative to others in the industry. Overall, while the tariff environment remains uncertain, we're staying nimble in our approach, actively managing near-term impacts and maintaining a disciplined focus on pricing and sourcing strategies that help mitigate cost pressures. With that, I'll turn it back over to Bill to discuss our updated market outlook and how we're positioning JELD-WEN for the path ahead. William Christensen: Thanks, Samantha. Turning to Slide 12. I want to provide some perspective on how the market environment has evolved since our last update. Earlier this year, we expect the conditions to stabilize at relatively low levels during the back half of 2025. However, over the past 3 months, we've seen a notable deterioration across our core markets both new construction and repair and remodel activity have weakened further as both consumer confidence and housing affordability remain under pressure. In Canada, the slowdown has been especially sharp with housing starts down more than 40% year-over-year, reflecting the broader slowdown in the economy. Given these developments, we've updated our market outlook expectations. In North America, we now anticipate full year demand for windows and doors to be down in the high single digits compared to our prior view of a low to mid-single-digit decline. In Europe, we expect demand for doors to be down mid-single digits versus the low single-digit decline we previously forecasted. Across both regions, demand continues to be concentrated at the lower end of the market with affordability driving purchasing decisions and limiting overall mix-up improvement. Turning to Slide 13. I'll walk through our updated full year guidance. Following the significant market deterioration we saw during the third quarter, we are lowering our 2025 outlook to reflect current demand levels and operational performance. We now expect sales of $3.1 billion to $3.2 billion compared to our previous range of $3.2 billion to $3.4 billion. Adjusted EBITDA is now expected to be between $105 million and $120 million, down from our prior range of $170 million to $200 million. Core revenue is expected to decline 10% to 13% compared with our previous expectation of a 4% to 9% decline. This change is primarily due to 3 factors. First, we had limited success on converting the market share gains we had planned for and staff against earlier this year. Second, this revision reflects the further weakening in market demand that emerged late in the quarter and some of our own operational challenges. On sales, we faced continued pressure in a weak market and experienced a modest share loss tied to ongoing operational performance issues. Third, while operations are improving the pace of that improvement is not yet where it needs to be, and we continue to be focused on execution and consistency across the network. Because of these 3 challenges, we now expect a more typical seasonal pattern in the fourth quarter rather than the relative strength we had previously forecasted. We also anticipate continued negative price cost as pricing pressure has intensified, particularly around the edges of the market. At the same time, some of our larger customers are pushing back more forcefully on tariff surcharges, while cost inflation has accelerated across materials, freight and labor. On operating cash flow, we now expect the use of approximately $45 million compared to our prior forecast for a use of $10 million. This includes approximately $15 million of restructuring that will occur in the fourth quarter as part of our workforce reduction. Although EBITDA expectations have come down, we've taken a disciplined approach to working capital and our focus on cash management remains unchanged. We also expect capital expenditures of approximately $125 million, down from our prior forecast of $150 million, reflecting a tighter focus on critical investments. Looking ahead to 2026, while we're not providing formal guidance, we would expect CapEx to be lower than this year's level given the current demand outlook and our intent to align spending with market conditions. On leverage, we are actively addressing the issue. As part of this, we have announced a strategic review of our European operations. While we cannot predict the outcome of that process, it represents one potential avenue to help reduce leverage and strengthen the balance sheet. We continue to evaluate other strategic options such as selective smaller asset reviews and targeted sale leasebacks. Beyond the European review, however, we have no further updates at this time. Finally, I want to reiterate that we continue to maintain sufficient liquidity for the midterm. As of the end of the third quarter, we have not drawn on our revolver, and we are taking proactive steps to ensure our liquidity position remains strong as we navigate through this challenging environment. Turning to Slide 14. This chart bridges our 2024 adjusted EBITDA of $275 million to our 2025 guidance midpoint of $113 million. As shown on the left, the first step reflects the court order Towanda divestiture, which is expected to reduce EBITDA by about $50 million this year. The most significant change comes from market volume and mix, which we now expect to reduce earnings by roughly $100 million, reflecting the broad-based deterioration we have seen in both new construction and repair and remodel activity. We're also seeing a modest impact from share loss as operational challenges have limited our ability to recapture volume in several key product lines. Moving left to right across the chart, price and cost headwinds have intensified when compared to our earlier expectations. Competitive pricing pressure has increased, especially at the lower end of the market, while cost inflation in materials, freight and labor has accelerated. These dynamics, combined with lower base productivity driven by volume loss represent another significant drag on earnings. On the positive side, we continue to benefit from headwind mitigation actions and transformation initiatives, which together are expected to contribute about $150 million in savings this year. These benefits include both carryover savings from 2024 and the in-year actions already implemented. The remaining items include variable compensation and onetime reversals which represent a modest headwind and foreign exchange and other, which provide a small tailwind. Altogether, these factors bring us to our 2025 adjusted EBITDA guidance midpoint of $113 million, reflecting the additional price, cost, volume and productivity headwinds and that have emerged since our last update. Moving to Slide 15. The current results do not reflect the potential of JELD-WEN and are disappointing. We have begun and will continue to take broader actions required to change the trajectory of JELD-WEN, including addressing our cost base. First, we have initiated a strategic review of our European business, while the outcome of this review is not predetermined, we know that significant and difficult decisions must be made. Our European operations include well-known brands and highly skilled teams that have built leading positions in their respective markets. The strategic review will determine how we can unlock the value of our European assets to strengthen our long-term financial foundation. Second, we are rightsizing our North America cost base, which includes a headcount reduction of approximately 11% by the end of this year. The market for windows and doors has contracted sharply over the past 3 years, and we do not expect a rapid recovery. We can no longer maintain a structure designed for a level of demand not expected in the near-term. Third, we continue to simplify our product portfolio and are removing unnecessary complexity. Our portfolio breadth has added complexity that must be balanced with our customers' expectations on service and product costs. We will center our efforts on a defined set of core product families. And when customers need bespoke solutions, we must deliver them with precision and price them for their value. This will lead to improved service levels and better operating efficiency. These actions are not adjustments and will redefine how this company operates and competes. The current environment requires the painful but necessary decisions to ensure performance, accountability and free cash flow growth. As we execute on these significant changes, I want to take a moment to thank our teams across JELD-WEN for their dedication and hard work. Their focus and commitment are driving real progress in our operations every day. I also want to thank our customers for their continued partnership as we further strengthen our service and reliability. We remain confident that the actions we are taking today, both operational and strategic are setting up a stronger JELD-WEN in the years ahead. Thank you once again for your continued support and interest. With that, I will now turn the call back over to James for the Q&A. James Armstrong: Thanks, Bill. Operator, we're now ready to begin Q&A. Operator: [Operator Instructions] Your first question comes from the line of Susan Maklari of Goldman Sachs. Susan Maklari: My first question is going back to the share losses that you talked about in your prepared remarks. Can you give us a bit more color on where those are coming from? How they came through over the last quarter? And then understanding that you've had a more challenging time regaining some of that share. But just how do you think about the path from here? William Christensen: So thanks for the question, Susan. A couple of comments. As you remember, there was a significant share loss last year with the Midwest retailer on the windows side of the business. So that laps in September. So we were still tackling that base effect in Q3. Second point, as we did note in our prepared remarks, pricing remains challenging across the market in North America, particularly and there have been some aggressive pricing actions around the edges from some competitors, mainly on the door side of the business. So we have seen specific regional share loss, but on balance, not material. And I think the third point is, as we continue to our simplification of our portfolio, our target is to reduce approximately 30% of our SKUs by year-end -- or not by year-end, excuse me, we're in the process of reducing 30% of our SKUs. We're about 50% of the way there. So we have been trimming complexity which allows us then to optimize our service levels into our customers. I think the last point is then just a weak overall market. And we've said we're really focused on rebalancing our shares with customers where we have strong door volume, we want to try and increase our window business and the other way around. We've actually made some progress on the Windows side. But in general, the soft market has created, I think, opportunities from aggressive pricing as we've talked about and our portfolio reduction, which is simplification driven has also led to a little bit of that. And as we look forward, we see that continuing into the fourth quarter from a market standpoint. Volumes remain soft. Nothing that we've seen in the month of October would suggest a different run rate. So we're expecting that through the end of the year, and you can see that on the bridge. Samantha Stoddard: And just to follow up on that, Susan, when you compare kind of our previous guidance to the bridge that we're sharing in this earnings release, the share loss hasn't changed. That is, as Bill described. Most of this has already occurred. It's more about the volume mix that we expected to gain that did not materialize. That's the big change on that. Susan Maklari: Okay. That's very helpful. And then turning to the productivity and the cost saving efforts that you have been working on, can you give us an update on where those projects are and how you're thinking about the carryover benefit into 2026? Appreciating you're not giving guidance for next year yet, but just any thoughts on those projects specifically where they're falling and the outlook there? William Christensen: Sure, Susan. As you've seen on our guidance bridge, Page 14, we expect about $150 million to offset the various headwinds that we've laid out. As in prior years, we would expect from our transformation savings of about $100 million, roughly half of that to roll forward. And in addition, as we've announced and talked about today in the prepared remarks, there are going to be some pretty significant headcount reductions taking place in the fourth quarter of this year, and we would expect benefits of roughly $50 million as we're thinking about a full year impact 2026. So that's roughly $100 million currently. And I think we wouldn't want to give any more specific guidance than that. Samantha Stoddard: And Susan, on that, the headwind mitigation of $50 million, that was already done and executed in the beginning part of this year. So taking effect in Q2. The transformation initiatives that we have, the $100 million, those are already underway delivering results, things like plant closures, automation equipment that is now up and running in production. So back to Bill's point, these are already done in our P&L. Unfortunately, the other items like the more significantly negative price cost volume essentially not the incremental share that we expected is offsetting those. Operator: The question comes from the line of John Lovallo of UBS. John Lovallo: And maybe just a follow-up on Susan's question and just to put a finer point on it. The outlook implies $55 million of productivity, SG&A and other in the fourth quarter. I think there's only been about $37 million year-to-date. So what is driving that ramp? It sounds like if I understood the answer to Susan's question that a lot of this is already baked and is just and is waiting to come through? Is that the right way to think about it? Samantha Stoddard: Yes. So thanks for the question, John. It's -- a lot of the savings are fully baked. So the headwind mitigation, the transformation is fully baked. The actions that Bill described in the recorded remarks, are not expected to have a material impact in Q4. We would expect that full run rate going into 2026. Where you see in just kind of isolating maybe Q4 and looking at that year-on-year, the biggest drivers, I would say, on the negative side are the volume mix, which is, let's call it, in line with what we expected in Q3 in previous quarters. Price cost, unfortunately, being more negative. And part of that is some of the resistance on tariff surcharge pass-throughs. So that is more negative in Q4. And then the continued, let's call it, court ordered divestiture of Towanda's impact into our P&L. The mitigation efforts, those are -- as I said, they're already done and dusted and they're in the P&L. And so that's going to be helping to offset some of those. John Lovallo: Okay. Maybe I'm missing it. So I'm still curious where that $55 million is coming from when there's been only $37 million year-to-date. What's driving that $55 million? Samantha Stoddard: You're talking about the $55 million of negative base productivity. John Lovallo: No -- of productivity savings. Yes. Samantha Stoddard: Okay. So when you think about on the bridge, the base productivity, and I think this is what you're referring to, the negativity on that is coming from the fact that we staffed up our network in order to support incremental share gains that did not materialize. So in addition to essentially not having the volume flow-through, we then had costs we had to come out. So when you think about -- I think question, John, is looking at there's transformation of around $100 million and then there's going to be base productivity offsetting that. And I think that's where you get to essentially the combination of what you're driving at. So $150 million, right, let's call it, good guys from actions we've already taken, less that negative base productivity gets you to a net of, let's call it, $100 million. John Lovallo: Okay. All right. We'll follow up on that. Just I guess the 39% reduction in EBITDA expectations since August, I'm curious, I mean has the market gotten that much worse? Or were there things that just were not foreseen by you guys that maybe should have been? I mean what drove that 39% reduction? William Christensen: So let me start with -- let's start with sales, John, at the top. So in the second quarter, we had growth plans that we had staffed up for in our network, as Samantha mentioned, and they did not materialize. There's a couple of reasons for that. Number one, the market was softer in Q3 than we had anticipated. That's point #1. The initiatives also that we were running, there was a basket of different initiatives to start trying to offset some of the headwinds in the market, and we were really focused on product line initiatives and the market was pivoting and wanting more portfolio baskets in the different projects that they were running across the network. So we were product line focused and not portfolio focused, which created challenges for us to be able to drive that penetration and there was a lower take rate. And third, we've had some selective service issues across our network, and we've made a ton of progress and I would say we're very close to where we need to be, but we were still struggling in the third quarter and our ability to react on some specific areas was below our own expectations. So what are we doing? We're rightsizing our cost structure to market reality. We're further simplifying our portfolio as I've noted, we were taking about 30% of the SKUs out, we're about midway through that. And we've been really driving the operating model rollout across our network of distribution windows and doors manufacturing sites in North America. And so we missed the market downturn, John, we thought we're going to be able to compensate some of it with our own initiatives. We did not materialize based on limited take rates, and we staffed up for that, and that hit us hard in the third quarter, and we're correcting now that as we go into the fourth quarter. Operator: Your next question comes from the line of Philip Ng of Jefferies. Fiona Shang: You have Fiona on for Phil today. Just wondering on your full year EBITDA guide, can you help us understand how much of that is coming from Europe? We're assuming about roughly half of the consolidated total. Is that directionally correct? Samantha Stoddard: Yes. That's directionally correct. So when you think about Europe and North America, how much is coming from each, it's about in line. We've seen, let's call it, an improvement of Europe. And unfortunately, because of some of the challenges in the North American market, a bit of a decline in North America year-on-year from an EBITDA standpoint. So that's the right way to look at it, Fiona. Thank you for the question. Fiona Shang: And then one more. So if you were to sell your business and say you got probably 7.5 multiple like you did for Australia business, our math shows that it wouldn't really move to leverage that much so just wondering, can you provide more color on that, maybe both on deleveraging and liquidity? William Christensen: Thanks for the question, Fiona. So clearly, we're not going to share any details of expectations. What I want to say is that if a decision made on the strategic review would be one that generates capital we would use that to deleverage and strengthen our balance sheet. And clearly, that is a focus that we've been talking about for a number of quarters to make sure that we are managing our balance sheet effectively. I think the second comment in that area is there's no liquidity issues. We have a revolver. We're expecting that we have ample liquidity. And so we're managing the process and evaluating all options as you would in a strategic review. And once we have more clarity on that, we'll be back to the capital markets share details. Operator: Your next question comes from the line of Trevor Allinson of Wolfe Research. Trevor Allinson: First one just on 4Q EBITDA guidance, the implied 4Q EBITDA guidance. The bottom end of that is roughly breakeven from an EBITDA perspective. That would be a pretty severe decline sequentially compared to what you guys are expecting from a revenue standpoint from 3Q to 4Q. Can you just talk about what's driving that big drop-off in EBITDA expectations sequentially? Anything more onetime in nature occurring in 4Q, then that wouldn't repeat going forward? Samantha Stoddard: Yes. I can go through that. So a few things. When we initially guided out, we expected a nonseasonal Q4, so a much stronger Q4 in terms of both the volume as well as the productivity. And unfortunately, we are seeing, I would say, more of the seasonality that we've seen in previous years. So when we think about the range that we've guided to, you're correct on the low end of that range and that's tied to some of the uncertainty that we are seeing going into Q4. The last month of the year is generally for us, a very soft year with different holiday period, customer buying patterns. And so it's hard to predict on that. But I would say when you look at kind of the midpoint of our range and how we're guiding to the 2 biggest drivers, as I talked about earlier are the volume mix being, I would say, as down year-on-year as Q3 with maybe a little bit more of softness and then the price/cost negativity being almost double what we experienced in Q3. We are seeing cost inflation, of course, more in line with our expectations, maybe slightly higher, but more in line with what we expected. Unfortunately, the pricing realization is lower than expected, as we talked about earlier. So those 2 are, I would say, the biggest needle movers in driving. And then some of the base productivity is we need to rightsize our North America structure for the lower demand that did not materialize from the incremental gains we initially expected. Trevor Allinson: Okay. That's very helpful. And then circling back to liquidity here, more near-term liquidity, assuming Europe takes some time to play out here and any actions potentially in your distribution business takes some time to play out. Is your expectation to lean into your revolver near-term, just given we're going into a slower part of the year. And then you also talked about potential for sale and leaseback actions. Any color on how much liquidity those actions could generate? Samantha Stoddard: Sure. So in terms of liquidity, as we've talked about, we have not draw on the revolver to date. Our plans are to not draw on the revolver in Q4. We have not guided anything on 2026 nor are we providing guidance at this time. But from a liquidity standpoint, we are already working through some select sale leasebacks to provide additional liquidity as a buffer. And when you look at Q4, just in isolation outside of some of the cost measures or the cost actions that we are taking, which will have restructuring costs tied to it. We are driving to a free cash flow neutrality in Q4. So we are pulling back our CapEx. We are managing working capital in a much more, I would say, rigorous and disciplined fashion, and that would continue. So from a liquidity standpoint, we are taking actions on, let's call it, more select smaller pieces of our real estate portfolio. And I would say nothing to guide into '26 at this time. Operator: [Operator Instructions] Your next question comes from the line of Steven Ramsey of Thompson Research Group. Steven Ramsey: On the share gain that you expected to capture, would you say that opportunity is gone? Or is that something that you hope to get in '26 to greater fruition and then maybe if you could share any detail on the opportunity itself, if it was windows or doors or channel? Any color there? William Christensen: Yes, Steven -- so definitely something that we expect that we're going to be able to target in 2026. A number of these things that we were targeting would be in the bucket of share we never should have lost, and I'm linking that to some challenging performance across our network, service levels, specifically and we felt we were ready to go and get it, but the market obviously took a step down in the third quarter and that was unexpected by our organization, and we were challenged by that headwind. So clearly, we're making great progress across our network, getting our service levels where they need to be, and we're going to be tackling this in 2026 on a different cost base, and we do expect as we've said, that there's not going to be dramatic changes in volume. So we're going to have to control what we can control, and that's what we're planning on doing in '26. Steven Ramsey: Okay. That's helpful color. And then on the pricing pushback, I think you attribute it to large customers. Can you share any more detail on that pushback? And is this something that continues to impact in '26? Or does this impact the usual annual pricing actions that you would be taking as you would every year for 2026. William Christensen: Yes. So there a number of different questions in that question, Steven. Let me just start with 2025 because that's what we're talking through and what we have visibility to. So as you've seen from our bridge, we're expecting roughly a $50 million price/cost headwind for full year in '25. And clearly, we can't continue at that rate. So we're taking a lot of actions addressing cost structure, driving efficiency and simplification to more effectively manage the headwinds going forward. It still remains a dynamic market with tariffs still, I would put it in the dynamic bucket with potential changes ahead. We know what we need to do in order to drive mitigation, and that's going to be our focus and already is our focus this year. And I don't want to guide or commit to anything that we'd be thinking through next year. But clearly, we know that we have a lot of homework to be done and it is a challenged environment. We can see consumers are still being very discretionary on larger ticket items, especially what we see through our retail partners. There's hesitation based on affordability and uncertainty, and that's continuing putting additional pressure, obviously, on the price side of the equation. Operator: Next question comes from the line of Matthew Bouley of Barclays. Anika Dholakia: You have Anika Dholakia on for Matt today. So I wanted to start off. I'm wondering how sales trended through the quarter and into October as we saw some interest rate relief. And similarly, how has mix trended as you see relief on the rate side. I'm wondering if people are willing to mix up and more broadly, what you think is necessary to improve the mix dynamics? I know mix is positive this quarter, but maybe it was more so a function of lapping easier year-over-year comps. William Christensen: Yes. So let me take the first part. When we're thinking about kind of the rate -- the funds -- Fed funds rate decline and that trickling then down through. There's a couple of different dynamics. I mean there's huge pent-up demand. Obviously, there's a lot of home equity that's there but not being acted on because there is uncertainty. If we think about mortgage rates and where mortgage rates currently are and where they need to be to create some additional significant traction. I don't think we're yet at a point where we're going to see dramatic improvements. And again, you need to remember after the Fed funds rates decline, if it does flow through to the long end of the curve and mortgages are repriced, there is an expectation that doors and windows, especially if it's new construction or probably 6 to 9 months behind the start. So there clearly is a lag from rate reduction to products being purchased and built in to new homes. So don't expect a very close connect between rate reductions and volume increases on the new construction side of the business. I think in general, consumers still remain very cautious I said before to Steven's question, big ticket items are still very slow in the retail side of the business and the expectations are that this continues. We haven't seen a significantly different trend in October than we did through the third quarter. And so I think, to answer your question specifically, the Fed funds reductions did not move the needle for us in the month of October. Anika Dholakia: Understood. That's helpful. And then second, I'm just wondering, you lowered the revenue guide for core. It's now down 10% to 13% from prior 4% to 9%. It seems to be largely driven by volume and mix as you look at the '25 guidance bridge. So just going back to that mix point, if you can separate how much is volume given you lowered the end market assumptions for both new construction and retail? And then how much is mix? Samantha Stoddard: Yes. I can take that question. A very small portion of that is mix. I would say there's maybe small mix changes on the edges of some of the product groups. But we are expecting in the near-term, as Bill talked about, to be at a very low mix level. So we don't expect mix further down from where we are. But I mean, just in ballpark, I mean, it's more than 90% volume. It's a much bigger volume story than it is mix. Operator: I'd now like to hand the call back to James Armstrong for final remarks. James Armstrong: So thank you for joining our call today. If you have any questions, please reach out to me, and I'm happy to answer anything I can. This ends our call, and have a great day. Operator: Thank you for attending today's call. You may now disconnect. Goodbye.
Operator: Good morning. My name is Katie, and I'll be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this call may be recorded. It is now my pleasure to turn the conference over to Ryan Reed, Vice President, Investor Relations. Please go ahead, sir. Ryan Reed: Thank you, and good morning, everyone. Welcome to our third quarter 2025 earnings call. With me today are Mark Stewart, CEO and President; and Christina Zamarro, Executive Vice President and CFO. A couple of notes before we get started. During this call, we'll make forward-looking statements and refer to non-GAAP financial measures. For more information on the most significant factors that could affect our future results and for reconciliations of non-GAAP measures, please refer to today's presentation and our filings with the SEC. All our earnings materials can be found on our website at investor.goodyear.com, where a replay of this call will also be available. I'll now turn the call over to Mark. Mark Stewart: Thank you, Ryan, and good morning, everyone. Thank you for joining our call. As outlined in our press release, we delivered revenue of $4.6 billion and segment operating income of $287 million in the quarter, results slightly ahead of the revised expectation we shared with you all on our last call. It's important to view these results in the context of an industry environment that remains challenging, particularly given continued volatility and global trade flows. Even in that environment, we achieved meaningful sequential earnings and margin expansion, driven by the continued strong execution of the Goodyear Forward initiatives. Last quarter, I emphasized our focus on controlling the controllables and that approach continues to guide our actions here at Goodyear. With yesterday's announcement on the Chemicals business, we've now completed our planned divestitures, and we're bringing the balance sheet back to a position of health. We've introduced more premium product lines than ever before while improving organizational agility and sharpening our focus on margin and profitability. We're positioning the business to be able to leverage those strengths as the market environment begins to normalize. With the remainder of my time today, I'll discuss what we're seeing across the industry and in each of our business segments, also how we're responding. After that, I'll hand it over to Christina to walk through our third quarter financial results and how we're thinking about the outlook for the remainder of '25. Let's start with the Americas. In the Americas, the consumer replacement market continued to experience disruption similar to last quarter. On the consumer OE side, volume performed well, supported by strength in light truck and SUV fitments. Additionally, we've won additional fitments driven by OEM preferences for USMCA compliant supply. We expect OEM resourcing to remain a positive contributor for us going forward. As you all know, with U.S. tariffs on consumer tires effective in May, the domestic replacement market saw a surge of low-cost imports, coinciding with the implementation of increased duties during the first half of this year. In the third quarter, U.S. non-USTMA member imports were up an estimated 2%, which is actually a positive development compared to the significant growth we saw in the first half of this year. More recently, we're hearing that the low-end imports may have slowed further, though it may take more time to confirm that trend, given the current government shutdown, which impacts the reporting of the imports. As we look at the drivers for the industry at a macro level, U.S. vehicle miles traveled are trending up about 1 percentage point year-to-date, while industry sellout is roughly flat, suggesting consumers are extending the replacement cycle. Meanwhile, dealer and distributor channel inventories remain elevated with prebuy, and we expect the consumer replacement environment to stay challenging in the near term. Our focus in that environment has been on introducing new high-margin product lines, the 18 and above rim size and targeted product line extensions to drive our earnings in the coming year. In October, we've revitalized our all-terrain product portfolio with the launch of 3 new product lines that were designed for SUV, light truck and off-road applications. The new lineup includes the Goodyear Wrangler Outbound AT, Goodyear Wrangler Workhorse AT2 and the Goodyear Wrangler Electric Drive AT. We've also finalized our famous Goodyear Eagle F1 lines with our new all-season tire for the high-performance segment as well. Our products are absolutely second to none, and the consumer feedback during launch events has been exceptionally strong. We're also better aligning distribution and retailer partnerships to ensure priority availability and service for our most profitable products. In our company-owned retail stores, we are upgrading the store and the customer experience through multiple enhancements, including the addition of more products, more financing options and a complete refresh of the environment in select locations around the country. As I've mentioned previously, we've been able to achieve meaningful earnings growth in our retail business over the past year, through increasing same-store service revenues and through the addition of new last mile mega fleet business. With this proven success in our existing footprint, we plan to open a slate of new brick-and-mortar store fronts in the coming quarters. Strengthening our retail footprint will help our retail business be even more of a differentiator for us in the future. Conditions in the Americas truck business were similar to the second quarter. Heavy truck builds in the U.S. declined over 30% as OEMs adjusted production amid reduced end market demand, driven by the uncertainty over EPA emissions mandates. In the replacement, imports remained elevated during the third quarter as the commercial tire IEEPA tariffs were implemented in August. As we finish the year, we expect fourth quarter industry conditions in the U.S. to broadly reflect the same dynamics as the third quarter with elevated channel inventories and potential for some incremental reductions in OE volume, given multiple OEM customer supply chain challenges. We continue to expect momentum to return as we work through some of the transitory headwinds we're seeing today. Let's turn to EMEA. Similar to the U.S. dynamics, EMEA's consumer replacement industry was driven by a prebuy of imports ahead of the tariffs expected early next year. While domestic manufacturers lagged the industry, we reached an important milestone for our EMEA business. We returned the business to profitability following a weak first half. This improvement was driven by 20% growth in our consumer OE volume, representing more than 3 points of market share gain. At the same time, OE profit per tire in EMEA is increasing, so we are making the right choices with our OE partners as well. Our OE portfolio is a testament to our industry-leading tech as well as our product performance. We also completed 2 major factory restructuring actions in the region during the quarter, which strengthens the foundation for continued operational performance in EMEA. Looking ahead, our winter order book and channel inventories are healthy, and we are optimistic as we think about EMEA's earnings potential in the fourth quarter. Turning to Asia Pacific. Execution and SOI margin remained strong. Over the course of this year, we've exited less profitable SKUs and continue to increase our mix of high-margin product lines in the region. In the third quarter, we outpaced the consumer replacement industry as far as growth in our Goodyear brand, 18 and above rim sizes in China. As our recent OE fitment wins with Geely, VW and Toyota ramp through the fourth quarter, we expect to return year-over-year OE growth and further improve SOI and margin from today's levels. Before closing, I'd like to add that even with the uneven market backdrop, our steady and consistent execution of our Goodyear Forward Plan has been even more important for us to position the business for near-term stability as well as long-term success. I'd like again to acknowledge the efforts and the results of all of our associates around the world and thank them for what's been accomplished thus far. Goodyear Forward is much more than numbers on the sheet of paper. This program defines the evolution of the company and how we will continue to create value going forward. With that, I'll turn it over to Christina. Christina Zamarro: Thank you, Mark, and good morning, everyone. Our third quarter results show lower costs with the benefit of Goodyear Forward and a significant reduction in debt. We are well positioned for growth as the broader economy strengthens in 2026. Prebuy channel inventory tied to tariffs is depleted and the implementation of tariffs in the U.S. and potentially in Europe, begins to reshape market dynamics in our favor. Turning to the financial results on Slide 9. Third quarter sales were $4.6 billion, down 3.7% from last year, given lower volume and the sale of OTR, partly offset by price/mix improvements. Unit volume declined 6%, reflecting lower consumer replacement volume. Segment operating income was $287 million, decreasing from last year, but reflecting an increase of $128 million compared to the second quarter. Goodyear net loss of $2.2 billion was driven by noncash nonrecurring items including a deferred tax valuation allowance and a goodwill impairment in the Americas. The valuation allowance against our tax assets does not limit our ability to utilize them in the future. After adjusting for significant items, our earnings per share were $0.28 compared to $0.36 last year. Turning to the segment operating income walk on Slide 10. The sale off-the-road business reduced earnings by $10 million. After this change in scope, our segment operating income declined $49 million versus last year. Lower tire unit volume and factory utilization were a headwind of $90 million and price/mix was a benefit of $100 million, driven by our recent pricing actions and RMI contracts. Raw materials were a headwind of $81 million. Goodyear Forward contributed $185 million of benefit during the quarter. Inflation and other costs were a headwind of $137 million. Other costs include approximately $40 million of tariffs, $25 million of manufacturing inefficiencies related to factory closures and lower production and $20 million of increased transportation and warehousing costs. The nonrecurrence of insurance proceeds received last year was $17 million and other SOI was a headwind of $16 million. Turning to the cash flow and balance sheet on Slide 11. we Cash flow from operating activities was about flat for the quarter, including third quarter CapEx, free cash flow was a use of $181 million. As I mentioned last quarter, our year-to-date free cash flow includes a portion of the proceeds from asset sales, reflecting the value of long-term supply agreements and a prepaid for Dunlop inventory that will transfer at the end of the year. The remaining amount will be amortized into SOI over roughly 6 years. We expect our year-end benefit in operating cash flow related to the various supply licensing and transition agreements to be approximately $370 million, inclusive of the chemical sale. Pro forma for the chemicals transaction, our third quarter debt declined about $1.5 billion, which reflects asset sale proceeds net of fees, partly offset by cash used for working capital and restructuring over the last 12 months. We continue to expect to generate significant free cash flow in the fourth quarter, consistent with our historical seasonality. Moving to the SBU results on Slide 13. Americas unit volume decreased 6.5%, driven by consumer replacement. U.S. consumer replacement industry sell-in was down 4% during the quarter, with industry members declining and low-end imports up 2%. Importantly, year-over-year growth in imports has slowed from both Q1 and Q2. Our Americas consumer OE volume grew 4%, reflecting industry recovery in the U.S., where we continued to outperform the industry in our share of fitments. Q3 marks the seventh consecutive quarter of OE share gains in the Americas. Americas commercial OE volume declined 33% as OEMs decreased production given continued weakness in freight market conditions and uncertainties surrounding the implementation of 2027 EPA mandates. The U.S. commercial replacement industry saw nonmember import growth of 64% during the quarter, just ahead of August effective date for IEEPA tariff implementation. Americas segment operating income was $206 million, a decrease of $45 million compared to last year, driven by lower volume and partly offset by Goodyear Forward benefits. Turning to Slide 14. EMEA's third quarter unit volume decreased 2%, driven by declines in replacement volume given prebuy of low-end imports in the EU. We expect the EU to make its final tariff determination early next year. As a reminder, proposed tariff rates are 41% to 104%, and we expect that the tariffs may be applied retroactively through the end of October. During the third quarter, we announced the relaunch of the Cooper brand in EMEA to fulfill customer demand following the sale of Dunlop. The availability of the Cooper brand across our regional network will ensure our portfolio provides a comprehensive and competitive offering. EMEA's consumer OE continued to be a bright spot, where volumes grew 20%, reflecting continued OE share gains. Like in the Americas, this is the seventh consecutive quarter of OE share gains in EMEA. Segment operating income was $30 million for the region, up $7 million, driven by price/mix benefits. Turning to Asia Pacific on Slide 15. Third quarter unit volume decreased 9%, driven by consumer OE and replacement volume. Lower consumer replacement volume was driven by actions we've taken to reduce low-margin business and realign our distribution and retail strategy in the region. OE volume was lower, given our customer mix with aggressive new car promotions in China, mostly supporting opening price point vehicles. Segment operating income was $51 million and over 10% of sales. As Mark mentioned earlier, for Asia Pacific, we expect to return to volume growth during the fourth quarter, driven by the ramp-up of new fitments and higher replacement volume. Turning to our fourth quarter outlook on Slide 17. We expect a meaningful sequential increase in SOI in the fourth quarter, with all regions contributing to the step-up in earnings. And on a year-over-year basis, we expect Q4 SOI growth in the mid-single-digit range, excluding the impact of this year's divestitures. In consumer, we expect replacement volume to be impacted by high channel inventories in the U.S. and EU. Consumer OE volume growth is expected to be consistent with the third quarter. Our expectation for commercial truck volume is extremely modest, given ongoing industry challenges. Overall, we expect global volume to be down about 4%. In addition, we expect higher unabsorbed fixed costs of $70 million, reflecting lower production volume of 2 million units in the third quarter. In addition, with the industry volatility we've experienced this year, we expect our fourth quarter production to be as much as 4 million units lower than last year. Fourth quarter price mix is expected to be a benefit of approximately $135 million, driven by pricing actions taken earlier in 2025. Raw material costs will be a slight benefit, given current spot rates and Goodyear Forward will drive benefits of approximately $180 million during the quarter. Inflation, tariffs and other costs are expected to be a headwind of approximately $190 million in the quarter, reflecting higher costs given U.S. tariff impacts and a global inflation rate of about 3%. This amount includes tariff costs of approximately $80 million and above average increases in freight rates and increased manufacturing inefficiencies related to lower production. Based on rates in effect today, our annualized tariff costs are expected to be approximately $300 million, which is $50 million lower than we cited last quarter as Canada eliminated tariffs on imports coming in from the U.S. effective September 1. We continue to expect proceeds from business interruption insurance related to our fire at our factory in Poland in late 2023. This benefit should mostly offset the nonrecurrence of $52 million of insurance proceeds received last year. And finally, the sales of OTR and chemical will be a headwind of approximately $30 million in the fourth quarter. Turning to Slide 18. Our other financial assumptions include some puts and takes, including an update to our assumption for 2025 working capital, given second half volume and an increase in restructuring given a new Q4 program. With all of the work we've done to improve the balance sheet this year, we are focused on driving strong free cash flow through the end of the fourth quarter. Finally, as a reminder, the $2.2 billion in proceeds from asset sales will be reduced by fees and taxes. We previously guided total transaction fees including indirect fees related to carve-out administration as well as taxes at approximately $200 million, the majority of which will be paid this year. These costs will be included in operating cash flow. So as you think about how to account for asset sales and your modeling on our cash flow statement, we expect cash flow from investing activities to reflect proceeds of approximately $1.9 billion, and cash flow from operating activities to reflect $370 million of proceeds that will be amortized into SOI over roughly 6 years, offset by up to $200 million in fees. With that, we'll open the line for your questions. Operator: [Operator Instructions] Our first question will come from Itay Michaeli with TD Cowen. Itay Michaeli: First question, just on some of the consumer OE market share gains that you've been reporting. I'm just curious how we should think about that going forward? To what extent is it just a function of prior wins? And do you sort of have a view on kind of how your OE volume may track just relative to the industry going forward? Mark Stewart: No. Thanks, Itay. As we look at it, OE has been one of the key focus areas since I joined the company and we looked across -- actually across the world and what was our current percentages of OE versus replacement. And so there was definitely an opportunity for us to move up in that and create that nice pull-through on those first and second replacement cycles. We had not had enough exposure to the premium, larger rim sizes. And the very best way for us to affect that change in a fast manner is through the enhanced OEM partnerships. And it absolutely is about more premium pricing, larger sizes, larger margins. We know we can get out there and win with OE. We've been really pleased. As Christina mentioned, we've got 7 quarters in a row of growth in both the Americas and in EMEA on that consumer OE business. And as we look to the partnerships that we've gotten with our strategic OEMs around the world continues to get stronger on the technology road map as well as winning on the right fitments and the right platforms around the world. The other piece as I mentioned in my opening part of the session, we've definitely seen a preference from the OEs in the Americas, specifically around the USMCA compliant. And so we've seen some nice tailwinds coming forward with that as well. Itay Michaeli: Terrific. That's great to hear. And just secondly, I appreciate the detail on the Q4 kind of SOI drivers. I was hoping we could talk a little bit about 2026 puts and takes particularly around kind of price mix and raws, and what that might look like at the current study state as well as any kind of early thoughts on some of the other cost movements we should kind of just be thinking about in our models for next year? Christina Zamarro: So we'll be able to be a lot more specific on 2026 on our conference call in February, but we do know a handful of factors based on our Goodyear Forward programs and as you mentioned, based on where current rates are today. So as we think about SOI, I'd say Goodyear Forward carryover cost benefits should be at least $250 million. Of course, we're looking at all levers to pull ahead cost reduction. Flow-through pricing based on actions we've taken to date in the market will be around $100 million. That's before RMI indexed agreements kicking in next year, which will reduce that somewhat. Of course, Mark mentioned a lot of the new SKUs coming in. So we will continue to push price mix in a positive direction next year as well. Raws at current spot rates will be a benefit of $200 million, and that's inclusive of the chemical transaction, meaning the portion of internal supply that moves external is now included in our raw material base. But even with that headwind, raws should be a benefit of $200 million. And then inflation typically sits around on our cost base, $200 million to $225 million of headwind. I'd also expect tariff carryover costs at current rates. Of course, a lot is moving around, but tariff carryover in the range of $150 million to $160 million next year. And then we have an insurance collection we're expecting in the fourth quarter, which we would have a nonrepeat. I think that gives you most of the puts and takes, excluding the asset divestitures, which there are different impacts from most notably, EMEA will have a headwind related to the sale of Dunlop in the range of $65 million. Reduction in our earnings related to chemical is going to be about $35 million plus some stranded overhead of about $15 million. Now all of that will be partly offset by amortization of that $370 million that we talked about earlier in the prepared remarks, that should be a benefit of about $60 million next year. So a lot of puts and takes, a lot of reasons to believe that we have some tailwinds that we'll be able to capitalize on in 2026. Operator: Our next question will come from James Mulholland with Deutsche Bank. James Mulholland: I was wondering if you could give us an update on the commercial vehicle environment and whether you've seen any kind of improvement or stabilization? In the deck, you mentioned that U.S. commercial replacement was up, but it was driven pretty much entirely by low-cost imports. So I guess the question is, is the similar dynamic playing out there as in light vehicle for the last few years where low-cost imports are coming in, they're taking significant share. And would I guess, you expect that to eventually put margins on commercial vehicle, which has traditionally been very strong? Mark Stewart: Yes. Maybe I can start and then we'll turn it to Christina. When we think about the commercial PV, you're right, right? There has been some trade down, particularly with smaller fleets or the 1z or 2z types of ownership, if you will. Our overarching fleet business, though, remains very strong, right, in the subscription market that we have as well as our rollout of the tires-as-a-service that is a little bit ahead of schedule when it comes to Europe and it's just coming to the U.S. market. But we think about in '24 overall unit sales of about 11 million units, including OE and replacement in that commercial market, we continue to focus on premium fleet customers that really drive that pull-through through the OEs. But we have seen as well through the marketplace, the typical prebuy we would see on the emission changes on engines, on the commercial truck world has been very low, right? And it's -- with the questions around the emissions and what is really happening with that. So a lot of the large fleets -- most of the large fleets have opted to extend the life of their current and some of the feedback we've gotten from customers that the cost of ownership for them at this moment is to hang on to those trucks that they have for an extra period of time, which in terms of our subscription modeling actually is okay for us for that side, right? But when we look at it over the last several years, peak margins were kind of high single digits during a 13.5 million to 14 million unit volume. And just given the current freight environment and this regulatory uncertainty I mentioned, it's been definitely a challenging marketplace for the entire industry globally, probably unprecedented, actually. James Mulholland: Got it. Okay. So I guess my second question is, I was wondering if you could just double click, I guess, on the broader channel dynamics and what you're seeing. A few months ago, we were sitting here, we were talking about the eventual low-cost inventory digestion following that massive inflow that we saw around tariffs on, but it doesn't feel like that digestion is really materializing yet. I know Christina said, we're probably going to see at least a little bit further before that starts to hit. Do we have any line of sight on when you think that might start to flow through? Or is that really going to be something that could be here for quite a bit longer? Christina Zamarro: Thanks for the question. I would say just given the fact that the U.S. industry was negative in the third quarter, sellout continues to trend more positively. We're beginning to see some of the channel inventory sell-through at our -- with the current data that we have, we'd say that the remaining excess in the channels would take at least through the end of the fourth quarter to sell-through in consumer replacement to your point a little earlier in commercial, there's just been this continued glut of prebuy in through the third quarter. And I think that will take longer on into Q1 of 2026. I think the commercial side of the business, as Mark was just mentioning, actually tends to see a significant portion of supply on a run rate basis coming from imports. And so over the longer term, I think commercial trends will be healthier, but we will need to work through the excess imports over the course of the next couple of quarters in commercial. Operator: Our next question will come from Ross MacDonald with Citi. Ross MacDonald: It's Ross MacDonald at Citi. Two questions for me. First one on EMEA. It looks like very strong OE performance. I know Itay already asked on this. But given the 20% volume growth in EMEA original equipment in 3Q, could you maybe just drill into if there's any specific platforms or products that are taking the lion's share of that volume growth? Or is this broad-based market share gains you're making in OE, it'd be very interesting, I think, to understand what's underlying that? And then, Mark, you mentioned that the profit per tire in EMEA is improving. Could you just elaborate on how much of that reflects specifically the winter tire strength that you've called out in Europe versus how much of that improving profit per tire in EMEA should we reasonably expect to carry over into 2026. So that's my first question on EMEA. And then secondly, I see in your Q4 indications, a comment around potential further rationalizations. Could you maybe elaborate on if there's a new plan that we should expect in the fourth quarter? Any details of what that might look like and if that's focused on any 1 particular region. Mark Stewart: Sure. So maybe just to start, I would say that to the first part of your question -- I think you got 3 in instead of 2, Ross, by the way. But I don't know No worries, all good. When you look at the EMEA market, it's actually broad. We have been moving up with the players. One of the differences that when we rolled into our longer-range planning coming into the start of '25, when we put David Anckaert in over our product tech and product planning road map in conjunction with Chris Helsel in engineering was really making sure that we've got the right relationships, the right OEM strategies and the right technological partnerships with those OEs. And again, we're seeing the benefit of that on the go forward. But in the here and now, as well as we look at some of the OEMs coming back stronger in EMEA that we're actually on some really good fitments broad-based across Europe, which is why I think you see that 7 quarters of growth in EMEA on the consumer OE as well as it's a conscious decision as well, right? We are continuing, as we mentioned, not only in Americas but around the world as we globalize our product development to fill the blank spaces with premium product. And specifically the larger rim sizes and we're deprecating the SKUs that are lower margin that we don't make money on. And so we're seeing a partial lift from that as well as the new SKUs coming in and also some of the OEs coming back in the second half. But as well, you are right. The second half and the winter mix, we've been really pleased with our order performance from our customers on the winter mix as well. So all of those are looking good. On the second piece, the rationalizations, we've completed basically, call it, 4.5, I think, is the right way to say that, 3 in EMEA, 1 in Asia and a significant restructuring in one of the U.S. plants to really focus from that side of it. So all of those actions are on track as we committed to the Goodyear Forward Plan and the restructuring activities. As we get into quarter 4 and get ready really as we go to probably the February results as we come and share that with you all, we're continuing to top off and refill our Goodyear Forward as we look to a 2.0, and it's just embedded in our DNA of how we're running the business, and we continue to look and scan at what other things we do to move things from a fixed cost environment to a flex cost environment. So we're working very diligently with that around the world. Christina Zamarro: With respect to the guidance, the increase in the restructuring basket was for a new program in the U.S. in the fourth quarter. Operator: [Operator Instructions] Our next question will come from James Picariello with BNP Paribas. James Picariello: Just hoping to clarify the insurance collection in the fourth quarter. Is this a new item? Or was this always embedded in the full year outlook? Christina Zamarro: So James, we first brought up the insurance recovery in the fourth quarter on our second quarter conference call. So it's not new. We didn't have line of sight to it at the beginning of the year, however. James Picariello: Okay. And it's about $50 million or so. Christina Zamarro: Correct. Yes. That's related to business interruption from the Debica fire back in 2023, and we had called out about that amount as part of the disruption related to the fire. James Picariello: Understood. Okay. And then with tariffs at an annualized rate of $300 million, can you just help us better understand what drives the seasonality to this? Because the third quarter was a full clean quarter of all tariffs and only came in at $40 million. The second quarter was, I think, $10 million. Like what's implied for the fourth quarter? And then, yes, just help us understand the seasonality to this. Christina Zamarro: So broadly, the seasonality should follow our volumes, which tend to be a little lower in the first half, particularly in the first quarter and then seasonally stronger in the second half of the year. What I would say about the third quarter tariff amount coming in right around $40 million, a little bit less than we had expected. Some of that was a basketing issue as we look to pull tariffs out of raw materials. We overestimated the amount of tariffs for Q3 and underestimated raw materials, you can see it's a net there. Also, because of days inventory, lower volume in Q2, lower volume in Q3, tariff costs are little pushed into Q4. So James, what I would say right now, based on rates we see today, fourth quarter tariff costs should be about $80 million. And then the flow-through into next year, looking around $160 million, mostly weighted to the first half. And so I'd say something on the order of $60 million to $65 million each in Q1 and Q2. James Picariello: Got it. If I could squeeze in 1 more. I appreciate that. In regards to the chemicals divestiture, I could see the guided $7 million of lost EBIT for the 2 months post sale. Can you just clarify what the expected annualized impact is for that chemical sale? Because it sounds as though there is an involvement of the divestiture, and that will show up in a raw material headwind for next year. So just hoping to clarify what those [ headwind ] versus internal buckets look like. Christina Zamarro: Yes. No, that's right. So it's going to show in a couple of different baskets, part lost earnings in SOI, part increase in raw materials as we move to third-party sourcing. I think about this total impact of being something in the order of magnitude about $120 million all in. Just the earnings, the lost earnings, James, will be about $45 million of a headwind on an annualized basis. You can think about doubling that. And the other portion would then show up in raw materials, maybe with some additional margin for our new supplier, and then stranded costs will be about $15 million in conjunction with the transaction. Of course, we're going to look to flex costs as part of our ongoing savings initiatives next year. Operator: Our next question will come from Ryan Brinkman with JPMorgan. Ryan Brinkman: You've gotten the one about low-cost tire imports into the U.S., maybe a similar one, but about Europe. What I think can you provide there with regard to what you're seeing, with regard to potential tariffs that could be implemented in that market? And then as well as what might be happening with regard to the prebuy of those tires? Is it tracking any differently to what you saw in the U.S. given the potential, I think, for tariffs to maybe be made retroactive to the date of the opening of the antidumping investigation? Christina Zamarro: Ryan, I would say what we're seeing in Europe feels a lot like the U.S. just on a quarter or 2 lag because the tariff announcement came a little bit later. We have seen over the course of Q2 and on into Q3 a lot of prebuy of lower-end tire imports. And what this means is that our dealers and distributors are saving warehouse space and saving liquidity in order to stockpile these imports. I think as we look to the fourth quarter, not expecting so much of an impact. We do not see the same competitive dynamics necessarily on winter tires that we do in summer or all-season. I think we still would say that the EU consumers are very sensitive to making sure that their winter tires come with a very high quality and performance. Expect that it will take on into 2026 to sell through some of that all-season and summer prebuy because it's, again, not really for winter tire selling. Ryan Brinkman: Okay. And on the look ahead, thank you for 2026. I heard Christina, I think you said $250 million of savings from Goodyear Forward. I mean, just looking at the numbers, from Slide 6. It seems like with Goodyear Forward savings expected to be at an annualized run rate of $1,500 million by 4Q this year and with $750 million of SOI benefit in '25 on top of $480 million in '24. You should have like $270 million, I think, year-over-year benefit in '26 just from the anniversarying of what you've already accomplished without any incremental action required on your part. Is that the right way to think about that? And then because I heard Mark reference, I thought, 2.0, I think Goodyear Forward 2.0, I presume and Christina, did you say something about an incremental cost save program here in 4Q. So just curious if the overall cost saves could be maybe substantially greater than $250 million in '26 to help defray that $250 million -- or $200 million of inflation, general inflation headwind to help ensure that some of these savings go through to the SOI line? Christina Zamarro: Well, certainly, looking ahead, our goal is to make sure we're never done with self-help. And the $270 million flow-through is exactly the right number based on the math and the calculations for flow-through. And as I mentioned earlier, we're going to look to accelerate cost reduction into next year. I think we'll be able to share more about our plans as part of our February conference call for 2026. But as Mark has mentioned in the past, this is a lot about making cost savings a lot about the way we work, making it part of the company's DNA and how we will position growth for the company going forward. Ryan Brinkman: That's helpful. And just lastly, I know you said strong cash flow in the fourth quarter. You always have extremely strong cash flow in the fourth quarter. Is there any sort of way to dimension that or provide an update on the puts and takes, how you expect the full year to shake out in '25? Christina Zamarro: Sure. So if you're looking at the drivers of SOI, I think you should get to a level of about $370 million, $375 million in the fourth quarter. That should bring you inclusive of corporate costs and D&A to an EBITDA of about $1.8 billion. On the operating side, and our free cash flow drivers, there were several puts and takes, but everything we've laid out pretty much is a net. So on an operating basis, I would say free cash flow is about breakeven. And then what we said as part of this call is that our asset sale fees, which we've indicated will be about $200 million are going to flow through operating cash flow this year. And so as you think about the geography, we should show cash flow from investing activities, proceeds from our asset sales of about $1.9 billion and then breakeven cash from operations excluding $200 million of fees that will also flow through there as well. Operator: Our next question will come from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was actually hoping to pick it up right here, which is you were very helpful with the puts and takes -- early puts and takes of SOI into 2026. Just curious about how to think about the early puts and takes on the free cash flow compared to what you just described for 2025. It sounded like, at least on an SOI basis, the expectation of modest growth this year when I quickly added your puts and takes. But anything to think of in terms of the free cash flow items. And in particular, that portion of the asset sales that flows into the cash flow from operations this year, would it be missing next year? Christina Zamarro: So Emmanuel, on cash for 2026, we know that restructuring flow through from Goodyear Forward would be about $200 million to $250 million, so significantly less cash outlay than we saw in 2025. Also, interest expense will be a lot lower. Obviously, we've been doing a lot of hard work to get to the lower leverage, and we would expect net interest expense to fall in the range of $425 million. That's down about $100 million since the end of 2023 and since we first started Goodyear Forward. When I look at the amortization of the $370 million, I'd expect about $60 million beginning in 2026. Emmanuel Rosner: Okay. And so I guess putting that all together compared to that breakeven on an operating basis that you're speaking about for 2025 directionally, where would that leave us for '26? Christina Zamarro: So Emmanuel, we'll be able to be a lot more specific as to our drivers of -- SOI drivers of free cash flow on our February conference call. We have volumes down in the second and third quarter also anticipating that in the fourth quarter, wanting to see some of this industry disruption work its way through the channels before we guide into next year. Emmanuel Rosner: Understood. And then one question on tariff, please. So I appreciate all the color around the impact this year and sort of like the annualization into next year. Can you talk about -- is there any room for mitigation efforts in terms of either moving things around or just sourcing it differently? Just a quick update, please, on any way to sort of like reduce that load on a go-forward basis. Mark Stewart: Yes. So we're really working on it on all fronts on it when you think about Emmanuel from we're -- first of all, we're super active in D.C. on a regular basis, making sure that we've got our viewpoints and fact points in. And we've got really strong working relationships with the right folks in D.C. around that can help us on the right implementation of the tariffs and how to do that to have best foot forward for Goodyear and our strong U.S. footprint. On the EMEA side as well, I think our lobbying efforts there also to the -- really the antidumping, I would call it, but really the tariff impact there. The teams have been working very hard with the EU on that. And cooperating with that aspect. When it comes to the rest of your question, right, we absolutely -- it's one of the reasons we created and I did the move to get us set up under Don Metzelaar for global manufacturing. So that we can constantly be pulling and looking at best landed cost around the world. As we've shared on earlier calls, right, we continue the journey of moving from a cost center approach to a P&L approach at each of our factories around the world to make sure that we're flexing cost structures that we are absolutely the most competitive we can be. And so as I mentioned before, I think we saw a lot of positive momentum and sourcing from OEMs in the U.S. market, preferring that USMCA compliant footprint that takes effect going into next year and then in the coming years as well when we look at that sourcing of that preferential really more preferred to the USMCA side. So absolutely, we're doing all those things and relocating things to moving within the footprint to have the best landed cost in the region or in some cases, it is still shipping from other locations, but we try to preference for in the region for the region wherever possible. Operator: This concludes our question-and-answer session. I will now turn the meeting back to Mark Stewart for any final or closing remarks. Mark Stewart: Thank you all for joining the call today. So that's a wrap for Christina and I, and I'm sure we'll have some other conversations with you guys over the course of the week. Clearly, while the short-term conditions have been pretty turbulent, right, with a lot of global trade volatility, but we are absolutely laser-focused on controlling the controllables, right? That is absolutely our mantra. It is about us continuing to drive the Goodyear Forward to conclusion and keep the pipeline refilled, and making sure that we are staying absolutely on our toes and all of our folks around the world continue to implement and make sure that we're monitoring our costs. At the same time, making sure that we are being absolutely focused on bringing the new SKUs into the marketplace around the world of the higher rim size, the premium rim sizes and deprecating low-end volume in terms of the margin play. We've completed our planned divestitures. We've restored our balance sheet to health, and we for sure are driving sequential earnings growth through our cost actions as well as our share gains. Our OEM volume growth, as we've talked a lot about on the call today, outpacing our 18-inch and above around the world, particularly in China. And then we're really excited about the new Wrangler and the Eagle F1 launches here. in the U.S. marketplace and the strength of our winter tire orders in EMEA, as we mentioned. So we're sharpening the portfolio. We're expanding our retail operations, and we continue to position ourselves to leverage as the markets resume a normalcy. So thank you guys for joining today. Operator: That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.
Operator: Thank you for standing by. This is Betsy, the conference operator. Welcome to the Fortis Inc. Third Quarter 2025 Earnings and New 5-year Capital Outlook Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Stephanie Amaimo, Vice President, Investor Relations. Please go ahead. Stephanie Amaimo: Thanks, Betsy, and good morning, everyone. Welcome to Fortis' Third Quarter 2025 Results and New 5-year Capital Outlook Conference Call. I'm joined by David Hutchens, President and CEO; Jocelyn Perry, Executive VP and CFO; other members of the senior management team as well as CEOs from certain subsidiaries. Before we begin today's call, I want to remind you that the discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slide show. Actual results can differ materially from the forecast projections included in the forward-looking information presented today. Non-GAAP financial measures referenced in our prepared remarks are reconciled to the related U.S. GAAP financial measures in our third quarter 2025 MD&A. Also, unless otherwise specified, all financial information referenced is in Canadian dollars. With that, I will turn the call over to David. David Hutchens: Thank you, and good morning, everyone. Today, we are proud to announce another solid quarter marked by strong execution and momentum from our regulated growth strategy. Operationally, we continue to deliver safe and reliable service to our customers. And through September, our utilities invested $4.2 billion in our systems. For the full year, we expect to invest approximately $5.6 billion. Financially, we delivered adjusted earnings per share for the third quarter of $0.87. In September, we completed the sale of FortisTCI. The sale strengthens our balance sheet and reduces our risk profile. More recently, we entered into an agreement to sell our investments in Belize, including the non-regulated hydro generation facilities to the government of Belize. I am happy to announce that the transition closed last Friday and that Fortis is now comprised of 100% regulated assets. We recognized these were long-held assets in the Fortis family, and we wish our best to the teams in Turks and Caicos and Belize as they continue to serve their customers and communities. And today, we are pleased to unveil our 5-year capital plan and announced that our Board of Directors has declared a fourth quarter dividend increase of approximately 4%. Our new $28.8 billion 5-year capital plan is up $2.8 billion compared to the prior plan. This supports rate base growth of 7% and annual dividend growth guidance of 4% to 6% through 2030. This new plan was developed with a strong emphasis on maintaining customer affordability. We prioritize capital investments that provide cost savings that flow through to our customers. This includes the coal to natural gas conversion at the Springerville Generating Station in Arizona, which is more economical compared to the new energy resources included in the prior plan. Our utilities are also continuing to manage operating costs by finding efficiencies through innovation and process improvements. As you can see on the slide, the growth in our 5-year plan is largely driven by higher transmission investments. At ITC, the $2 billion increase was primarily driven by new interconnections, including the Big Cedar Load Expansion project as well as the MISO long-range transmission plan and baseline reliability projects. At UNS, transmission and distribution investments increased $1 billion with FERC-regulated transmission making up $700 million of the increase. This was largely attributed to a new transmission line at TEP. Generation investments at UNS were reduced by $900 million driven primarily by the planned conversion of the Springerville Generating Station to natural gas, which I spoke to previously. The remaining increase is driven by growth at our other regulated utilities and a higher assumed foreign exchange rate. The new plan is highly executable with approximately 77% directed towards transmission and distribution investments and critical infrastructure that drives stable, predictable returns. The capital program is low risk and anchored in 100% regulated projects and includes only 11 major capital projects representing 21% of the plan. Consolidated rate base is expected to increase by $16 billion from approximately $42 billion in 2025 to $58 billion in 2030, supporting average annual rate base growth of 7%. This is up 50 basis points from the 6.5% in the prior plan. Now I'll take a few minutes to dig a little deeper into our larger utility capital plans. ITC's capital plan of $9.8 billion is the largest in the company's history and support strong rate base growth of 8%, up 100 basis points compared to the prior plan. Key elements of ITC's plan includes investments for base infrastructure, MISO's long-range transmission plan, customer connections and grid security. Significant opportunities above and beyond the base plan exists at ITC, including approximately USD 3.3 billion to USD 3.8 billion post 2030 for tranche 2.1 projects assigned through rights of first refusal. Work is also underway at ITC to evaluate projects within the tranche 2.1 portfolio that are subject to the competitive bidding process. If any of these projects are awarded to ITC would be incremental to ITC's plan. Other avenues of growth at ITC include customer connections associated with over 8,000 megawatts of load growth for proposed data centers and economic development projects in various stages of development across their footprint. This is up 3,000 megawatts just since last quarter. ITC may also realize future opportunities associated with the ongoing MISO LRTP process. All in all, it's a very exciting time at ITC with a significant transmission build-out. Let's now turn to UNS Energy. Their capital plan of $5.6 billion supports average annual rate base growth of approximately 7%. As a vertically integrated utility, investments are spread across the value chain. Notably, 1/3 of the capital plan is concentrated in transmission with the balance consisting of generation and distribution investments. Regulated generation includes the coal to natural gas conversion of 800 megawatts at the Springerville Generating Station, which is aligned with TEP's exit from coal by 2032 as well as the Black Mountain generation project at UNS Electric. While there is no new generation reflected in the plan associated with data centers or other large load growth, a new era of demand is approaching with a significant interconnection queue. As we discussed last quarter, TEP reached an energy supply agreement to serve a demand of approximately 300 megawatts that starts to ramp up in 2027 and will use existing and planned capacity. The agreement awaits ACC approval as well as other contractual contingencies. Negotiations are actively ongoing for an incremental 300 megawatts of capacity to support a full build-out of 600 megawatts at this initial site. TEP is also in active negotiations for additional capacity to second site in the range of 500 to 700 megawatts. If agreements are finalized for these subsequent phases, we estimate new generation in the range of approximately USD 1.5 billion to USD 2 billion through 2030 would be required as well as new transmission. We expect the supply will include a mix of renewable energy, natural gas generation and energy storage. All agreements will be structured to maintain reliability and provide financial protections for our customers and the company. Other opportunities beyond the plan include new energy resource investments required at TEP and UNS Electric as part of their next integrated resource plans expected to be filed in 2026. In British Columbia, our natural gas infrastructure is in focus. FortisBC's capital plan of $4.9 billion supports projects that ensure system reliability and integrity as well as major capital projects for LNG and advanced metering infrastructure. Beyond the base plan, we have several opportunities. Just last week, the BCUC approved the Tilbury LNG Storage Expansion project. Given our capital plan assumes a smaller storage tank, we now have potential upside of approximately $300 million. This project is contingent on an environmental assessment, which we anticipate next year. Other opportunities include LNG expansion at Tilbury for marine bunkering as well as customer and load growth in the Okanagan electric service territory. Some of these opportunities have the potential to fall within the plan period. This is a dynamic and promising time to be an energy delivery utility in North America. As we execute our base 5-year capital plan, we are concurrently focused on unlocking growth opportunities above and beyond the plan across all our jurisdictions. Turning now to our favorite slide. Today, we announced the declaration by our Board of Directors of a fourth quarter dividend of $0.64 and representing a 4.1% increase. This brings us to 52 consecutive years of increases in dividends paid, a track record that speaks for itself. With our strong dividend history and regulated growth strategy, we are extending our 4% to 6% annual dividend growth guidance through 2030. Now I will turn the call over to Jocelyn for an update on our third quarter financial results. Jocelyn Perry: Thank you, David, and good morning, everyone. For the quarter, reported earnings were $409 million or $0.81 per common share, and on a year-to-date basis, reported earnings were $1.3 billion or $2.57 per common share. As you can see on this slide, reported earnings include income taxes and closing costs of approximately $0.06 per share associated with the disposition of FortisTCI. Excluding this impact, adjusted EPS for the quarter was $0.87 per common share, up $0.02 compared to the third quarter of last year. And year-to-date September adjusted EPS was $2.63, up $0.18 per common share compared to the same period last year. Adjusted EPS growth to date in 2025 reflects strong performance across all our regulated utilities. On Slide 14, you will see the adjusted EPS drivers for the quarter by segment. Our U.S. Electric and Gas utilities delivered a $0.03 increase in EPS, higher earnings at UNS reflected an increase in transmission revenue and higher AFUDC associated with ongoing major capital projects. As we discussed last quarter, earnings at UNS are tempered by regulatory lag, driven largely by over USD 700 million of rate base, not reflected in rates. The increase in earnings at Central Hudson was due to rate base growth as well as a change in the recognition of a regulatory deferral for uncollectible accounts effective July 1, 2025. Growth was moderated by a contribution to a customer benefit fund associated with the joint settlement agreement, which concluded an ongoing enforcement proceeding. Together, these regulatory items impacted adjusted EPS by $0.01. Moving to ITC, continued capital investments and related rate base growth increased EPS by $0.02, the increase was partially offset by higher stock-based compensation and holding company finance costs. For our Western Canadian utilities, EPS increased $0.01, largely driven by rate base growth, including earnings associated with FortisBC Energy's investment in the Eagle Mountain Pipeline Project. The expiration of a PBR efficiency mechanism and a lower allowed ROE effective January 1, 2025, at FortisAlberta tempered earnings for this segment. And while not shown on the slide, at our Other Electric segment, EPS was largely consistent with the third quarter of 2024. Rate base growth was offset by the September 2 disposition of FortisTCI. For the full year, we expect the sale of FortisTCI to have a $0.02 impact on adjusted EPS. A higher U.S. dollar to Canadian exchange rate also contributed a $0.01 EPS increase for the quarter. For the Corporate and Other segment, the $0.03 decrease reflects higher holding company finance costs, unrealized losses on foreign exchange contracts and lower unrealized gains on total return swaps. And as David mentioned, we sold our assets in Belize in October and do not expect the transaction to have a material impact to adjusted earnings going forward. And finally, higher weighted average shares impacted EPS by $0.02, driven by shares issued under our dividend reinvestment plan. While most of the factors discussed for the quarter are the same for the year-to-date period, the increase in earnings for the 9-month period also reflects growth at Central Hudson due to the rebasing of costs and a higher allowed ROE effective July 1, 2024, as well as the timing of operating costs in 2025. Earnings year-to-date also reflect lower margins on wholesale sales at UNS Energy and the timing of operating costs at FortisAlberta. Through September, we raised over $2 billion of debt, including an inaugural corporate hybrid issuance of $750 million at 5.1%. Proceeds from both the hybrid issuance and the sale of FortisTCI during the quarter were used to repay our corporate credit facilities, including the non-revolving term loan providing funding flexibility as we focus on executing our capital program. As I just mentioned, with the recent hybrid issuance and asset dispositions, the growth in our capital plan is expected to be funded largely from cash from operations, utility debt and our dividend reinvestment plan. Our $500 million ATM program has not been utilized to date and remains available for funding flexibility as required. Overall, our funding plan remains largely consistent with the previous plan and supports average cash flow to debt metrics up over 12% through the period with ample cushion in the latter part of the plan. This balanced approach to funding supports both our growth objectives and strong credit profile. Turning now to recent regulatory activity with one item of note. In August, the New York State Public Service Commission approved Central Hudson's 3-year rate plan with retroactive application to July 1, 2025, including the continuation of an allowed ROE of 9.5% and a common equity ratio of 48%. That concludes my remarks. I'll now turn the call back to David. David Hutchens: Thank you, Jocelyn. At our core, we are a utility built on strong fundamentals and a clear, disciplined regulated growth strategy with a long CapEx runway supported by FERC-regulated transmission and retail load growth opportunities in Arizona. For our customers, we remain committed to prioritizing safety, reliability, affordability and the delivery of cleaner energy. For our shareholders, we offer a compelling low-risk return profile reinforced by our capital investment plan and dividend growth guidance through 2030. That concludes my remarks. I will now turn the call back over to Stephanie. Stephanie Amaimo: Thank you, David. This concludes the presentation. At this time, we'd like to open the call to address questions from the investment community. Operator: [Operator Instructions] The first question today comes from Maurice Choy with RBC Capital Markets. Maurice Choy: Just first question is on the timing and likelihood of some of the opportunities over and above the base plan. But within this 5-year period plan, specifically, you mentioned earlier that there is about USD 1.5 billion to USD 2 billion of incremental generation opportunities at TEP that may be required through 2030, and also another $300 million for the LNG Tilbury storage expansion upside. If my math is right, that's about $2.5 billion to $3 billion of incremental investments or another 100 basis points addition to your rate base CAGR. Any reason why you think that these two items may not come through in the coming months, such that we probably could potentially put this as part of our base estimates? David Hutchens: I like your optimism, Maurice, but there's a lot of wood to chop between here and there, right? So we have to get the agreements done with these counterparties. We obviously have to have the ability to build the infrastructure that's needed in the time line that they want. So all those things are definitely possibilities, but still getting generation cited, getting things in the queue, all of those pieces and most importantly, getting these customers to sign up for all the protections that we want for us from a credit perspective and for our customers from a rate perspective. And then going through the regulatory process. There's just a lot of steps between here and there, specifically around the data centers. And then also for the storage tank in BC, still have to go through the EA process there. So we obviously are very excited and bullish and after these projects as much as we can be. But as you know, we don't drop those things into our capital plan until we have signatures on the dotted line. And we'll keep you posted as those negotiations go and once we reach agreements with some of those third parties. Maurice Choy: Understood. If I could finish off with the question on the funding plan on Slide 17, where there was a mention about the balance of equity funding to be satisfied from, among others, asset sales. Obviously, you've sold a number of things here, Turks and Caicos as well as Fortis Belize and Belize Electricity and also Aitken Creek gas storage in the past. So you're 100% regulated right now, as you mentioned, thoughts on what else might be worth trimming, optimizing? Or do you feel like this is no longer an avenue that's worth exploring? David Hutchens: Yes. So we're focused mostly on executing that 5-year capital plan and that laundry list of additional opportunities above and beyond the plan that we just went through. So there is no read-through from the transactions that we just completed. Our portfolio is a great portfolio. And we do have 100% of our assets being regulated now. So there's -- that's not -- when you read that sentence that was looking back not forward. So that's we look at funding our capital plan is clearly laid out by that funding plan on the slide. And I'd reiterate that the DRIP is the only source. We don't have any discrete equity in there. So the DRIP is the only source of equity. We have the ATM and hot standby, but that's not needed in the current capital plan process. Operator: The next question comes from Rob Hope with Scotiabank. Robert Hope: Good to see the update on the capital plan. Maybe to follow up on the USD 1.5 billion to USD 2 billion of new generation in Arizona. Can you maybe help us understand kind of the timing of when this capital could be secured, just understanding that a lot of these items have relatively long lead times and when they could be in service? David Hutchens: Yes. So if you ask the customers who are asking for this, it's pretty much tomorrow is when they want it. But obviously, it takes time to build data centers. It takes time for us to get the siting and permitting, and of course, building additional generation, you're going to have to get in the Q4 combustion turbines or combined cycles whatever the resource portfolio requires. But it's also kind of not fully defined at this point where you can look at things that are available, as I mentioned in my prepared remarks, we expect this to be a mix of different energy resources, including battery storage, which can happen pretty quick. Renewables, of course, which can supply a good chunk of energy. And then you look at what the best capacity resource, whether that's a combustion turbine or combined cycle depending on the load features. So that I still think that when you look at longer term, like the current time line that we have with the project in Arizona for the first 300 megawatts as they're looking to be online in '27 and ramping up over the next year or so after that. So I would expect other time lines to be similar to that. But when we look at our plan that goes all the way to 2030, depending on availability of, say, combustion turbines, which would probably be the critical lead item on that. We still think that, that's doable to get that done in that next 5-year time period. Robert Hope: All right. Great. And then maybe taking a look at ITC. So you mentioned that there's 8 gigawatts of potential loan growth associated with data centers and you have Big Cedar in hand. Can you maybe add a little bit of color on how many opportunities you're looking at for that 8 gigs as well as could we see some sanctioning in the next 12 months? David Hutchens: Yes. I'll turn that over to Linda to give some details, but I will remind folks on the call that our three largest customers are DTE, CMS and Alliance. So I'm sure you've seen some of the conversations in those earnings calls as it relates to some of this development as well. So Linda, I'll turn it over to you. Linda Blair: Great. Thank you, Dave, and thanks for the question, Rob. Yes, certainly, the 8 gigawatts that certainly, we are -- we have sort of insight into in terms of those conversations with customers, ongoing planning studies to accommodate them. Certainly, we remain hopeful. I would say there's a lot of activity. We're working closely, as Dave mentioned, with our customers. We're really not in a position to really say or identify just sort of from a time line perspective. I think what we can say is that we continue to see that queue of those prospective data center or other economic development projects continue to grow. So we remain hopeful and optimistic that we will continue to see further announcements. But really, at this point in time, it's premature for us to speculate on which projects were or exactly when. But I would say the queue continues to get larger, and we remain optimistic. Operator: The next question comes from Ben Pham with BMO. Benjamin Pham: Could you update us on your thoughts with respect to an EPS CAGR initiation, if there's any? David Hutchens: Yes, we still continue whether or not we want to take that next step and give earnings guidance, but we have been pretty happy with all the details that we -- and we hope our investors and analysts are happy with the details that we give on rate base growth and seeing how clear our capital plan and funding plan tied together. We give the dividend guidance as well. And we always evaluated, I think probably the last time I've had conversations with you all kind of the one thing that we're waiting for because there's a lot of variability in earnings in Arizona to see the outcome of the Tucson Electric Power rate case. Formula rates will provide a much steadier earnings outlook for us, which would allow us to give a little bit more visibility and detail for you all, whether or not we -- I'm not saying that if we get formula rates, we're going to give earnings guidance. But that's one thing that's keeping us from giving it now. Benjamin Pham: Okay. Understood. And then maybe next on the asset sale side of things. Maybe not to talk specifically on Caribbean valuations. But can you share just the trends you've seen with buyer appetite for those assets? And it seems like you're willing to more do deals with neutral to maybe slightly dilutive perhaps. And just how do you think about CUC in the overall for this portfolio mix today? David Hutchens: Yes. I'd say the interest like in any market, waxes and wanes. I mean, we've seen that over many years as folks had approached us about the Caribbean assets, et cetera. But it's -- there's no like kind of consistency necessarily there. And of course, the buyer universe changes almost on a year-to-year basis. So -- but again, just as far as CUC goes, this isn't a read-through that we're exiting the Caribbean. This is -- those are two distinct and discrete transactions that we did and it doesn't mean we're looking to do anything else. Operator: The next question comes from Mark Jarvi with CIBC. Mark Jarvi: Just wanted to come back to sort of like friction points on potentially higher spend. As far as I can tell, it doesn't seem like customer affordability is one or balance sheet. So really, is it just equipment availability and permitting, Dave? David Hutchens: Yes. So I'm glad you brought up affordability because when you think about these new large load customers that actually can and well, should be, if you design it rightly, if you correctly, you would get the new customers, the large data center to pay for the growth that is needed in your infrastructure is the kind of growth pays for growth argument. So we definitely want to structure them that way so that in the end, we have a positive impact on customer affordability. They either get improved reliability and don't pay any extra or you end up with the great reliability that we always provide and actually seeing some downward rate impact because of all the energy and infrastructure that those larger customers are now paying part of basically paying a bigger part of the pie. So now that is a very difficult conversation, not necessarily to say, but for folks to hear and understand that because there's a lot of mixed messages out there that are telling people in different markets that data centers can drive your cost up. Well, when you have the control over the full value chain like you do in a vertically integrated utility, you can make sure that doesn't happen. And your regulators will make sure that doesn't happen. So that's the tack that we're taking in Arizona. And so when it comes down to it, I mean there's always additional things like making sure that your -- the community is supportive that you -- if you have, whether it's water cooled or air cooled that you understand what that means from a resource perspective, which is one of the reasons that in Arizona, they are all shift into air cooled -- air cooling for the data centers instead of water cooling to kind of take that out of the argument. So it is all of those things permitting, siting. They're great for economic development and jobs in the area, tax base. I mean, it's a great story to tell. But sometimes, it's a bit of a hard story to make sure everybody hears it all. Mark Jarvi: You brought up the shift to air cooling. Just on that 300 megawatts, the initial site, is that all moved ahead? Is there anything else that need approval for that 300 megawatts? And then in terms of other municipal support or other approvals, what's required then to get to the sort of investment decision on the next 300 megawatts of data center load? David Hutchens: Yes, I'm going to turn that over to Susan. We do have the -- as I mentioned, the energy supply agreement has been filed with the Corporation Commission, which is the first thing we have to get through, but I'll turn it to Susan to talk about any of the other pieces that might need to happen. Susan Gray: All right. Thanks, Mark, for the question. So yes, as Dave mentioned, on our side, the biggest approval that we need is that Corporation Commission approval, which we expect to get by the end of this year. But on the data center side, I think the main approval that they need as a permit to dig a well, which is a state permit. This is on county land and the state would actually approve the water. And that's water just for regular building use like kitchens and bathrooms kind of things. So that's for the first 300 megawatts. I would say anything beyond that, we're still negotiating contracts. And so not really sure what the types of approvals we would need, but certainly, anything beyond this first contract, we would need to build something new in terms of a generation resource. So that's going to be a more extended period of time. As Dave talked about earlier, it all depends on the resource mix and certainly, some of the generation resources can be built a lot more quickly than others. Mark Jarvi: So the customer would like to push the time lines, but you need to do your own sort of analysis on generation mix to come back to them with a solution, is that right? Susan Gray: I would say we need to do the analysis on the overall grid impact and make sure that we have all the infrastructure in place to serve the new customers as well as our existing customers as reliably and affordably as possible. I think in terms of what we would build, the customer will have a huge influence on that, right? So if the customer wants to go primarily renewable, that would be their decision and based on what they're willing to pay in terms of resource mix. So we're willing to build whatever they need, whatever they prefer as long as the customer is willing to pay for that incremental cost of maybe increasing the amount of renewable resources. Mark Jarvi: Understood. And then, Jocelyn, a question for you. Just in terms of the funding plan for the next 5 years, does it contemplate further hybrid issuances? And if yes, can you kind of outline roughly the quantum? Jocelyn Perry: Yes. Thanks, Mark. Yes. No, we don't have any further hybrid included, but we do have capacity. So with that growth that we're talking about here today that is not in the plan, should it come in the plan, then it's possible that we will explore the hybrid market when we look at that growth. And we may also look at it regardless, depending on the market and how the hybrids are pricing relative to other instruments. So yes, definitely an area that we're exploring. Operator: The next question comes from John Mould with TD Cowen. John Mould: I'd like to take another stab on the large load front in a couple of places. Maybe just starting with ITC. And I'm not asking for a view on in-service dates, but I'm just wondering if you can provide a little more detail on how the timing of the connection requests are paced. And this 3 gigawatts of growth that you've seen since last quarter, in particular, the pacing of at least what customers are looking for. David Hutchens: So are you asking like how soon they come in before they need it, or just... John Mould: Yes, how soon they're seeking to get connected, like just if I was trying to map out the timing of all those requests, is there a particular time period to which it's weighted? David Hutchens: Yes. Let me -- I don't have any visibility to that. Linda, do you have a view on kind of the detailed queue, I guess, CODs that they're looking for? Linda Blair: Look, I mean, I think I would be sort of generalizing, but I think back to Dave, I think on an earlier comment you made is that look, they all want to be connected as soon as possible. Certainly, there's practical realities just in terms of where they are looking to locate their facilities? Are they co-located with existing transmission infrastructure? If not, what is the infrastructure that's necessary, the MISO approval process to get that infrastructure through the MISO queue. So it's a difficult question. I guess I would generalize and say for the majority, I would say, of the conversations that we are involved with prospective customers, I would say that many of their requests as well as what is reasonably doable, we're looking at the outer years of that existing 5-year plan. Obviously, there's different ramp perspectives around those because some of them want to move more aggressively faster. Some of them are willing to be able to take what they can get as quickly as possible. So I think it's a really difficult question to give any specificity on, but I would say at least for the existing conversations that we are engaged with, I would say, the majority of those requests are looking at the latter part of our existing 5-year plan, so out into the '28, '29, '30 time frame. So hopefully, that provides some context. John Mould: Yes. That's very helpful color. And then just on Arizona and the new IRPs that you're planning to file in 2026. By what time would you need on the large load side to have something more definitive in place so that, that's reflected in the broader IRP and also allows you to potentially demonstrate the rate benefits that could potentially come from that in the various IRP portfolios. Just wondering what the timing looks like there. David Hutchens: Yes. So the IRP is going through its process. They've had a couple of workshops and we'll continue more for -- through 2026 with a target of filing those integrated resource plans, I think, in August of next year. But there will be a bunch of different resource portfolios based on different load growth scenarios with and without data centers. And I think even if we file an integrated resource plan and it doesn't include something that we need later, we just we just update that, right? I mean it's just -- that's basically putting a stake in the ground for sort of the bread and butter resources that we need to serve our load growth. But any of these additional investments that we would see and need and require for additional data center growth. I kind of think of it as almost like its own little mini IRP and rate base that would have its own revenue requirement that would be served by, or that would be met by these customers. So it's a bit of a different model. You wouldn't necessarily need to put them all together. And it's not like we filed this thing in August and say, okay, we got to close up shop any more data centers that come in and ask us for energy, we can figure this out. I mean, this is basically what we've been doing for the past a couple of years while we've had the 2023 integrated resource plan in effect is we still have these conversations, look at how we can meet the load and then adjust accordingly. Operator: The next question comes from Patrick Kenny with National Bank Capital Markets. Patrick Kenny: Just looking at the rate base CAGRs by utility and seeing Alberta and BC continuing to lag the 7% portfolio average. You touched on some upside in the Okanagan, but I'm just wondering if there might be any other macro or political tailwinds that you're watching out for that might help these two utilities close the gap relative to the group average growth profile, say, over the next 3 to 5 years? David Hutchens: Yes, for sure. So the Okanagan one is -- actually, it's a smaller part of the BC utility portfolio. But I think, has some good substantial growth opportunities there. So I know we don't usually talk too much about the electric business in BC because of the gas business is so big, but that does definitely have some additional opportunities there. And then on the LNG front, I mean, this is all about not just the extra upsized, I'll call it, storage tank that just got approved by the BCUC, that's one piece of additional investment. But also the additional LNG liquefaction capacity that we could put there for increased bunkering -- mostly for increased bunkering at that Tilbury site. And there are some political tailwinds, I know there's been a lot of conversations about some major projects and across Canada, related to trying to get the economy jump started. I think maybe some of the more of those details might come out later today when the budget is released, but there is some good emphasis on LNG investments in BC. We hope some of that bleeds down and has some good impact on looking at additional LNG investments for bunkering for BC. So there are some investments there. And I should note, I'll come to BC's defense here a little bit as well. These things are cyclical, right? So the load growth when you complete a bunch of big projects, and then do a new 5-year plan, it might not look as robust as the last one. But believe me, there's a lot of stuff in there. They've executed well on the past and look to add to that on a going-forward basis. Patrick Kenny: Okay. That's great. And then maybe for Jocelyn, just back on the funding plan, looking at that 5-year average cash flow to debt ratio of, call it, 12.4%. Is that 40 basis points above S&P's threshold anyway. Is that where you'd like to see it on a sustained basis? Or would you still like to see a little bit more cushion built over time? I guess maybe a different way to look at it, like how much dry powder might you have based on your debt metrics to flex the capital program or to handle any further weakness in the Canadian dollar? Jocelyn Perry: Yes. Thanks, Patrick. Yes, you're right. The average for the S&P metric over the 5 years is 12.4%. But as you get to the latter part of the plan, we're actually pushing more like 100 basis points. And you've probably heard me say before that, that's sort of where we have been targeting our cushion. It gives us a lot of dry powder to have the flexibility to finance the projects that are not in our capital plan that we're talking here today. So yes, so this is a plan that sets us up nicely to actually get to that adequate ample cushion in the latter part of the plan. I'll actually say 100 basis points is actually a lot of cushion. So I feel comfortable really having like 75 to 100 bps above the threshold of 12%, and we're getting there. And so it's -- this plan has actually improved over the prior year plan, which is a good thing. And in large part, it came from the fact that we've done some asset dispositions and we've continued our DRIP. So yes, the cushion is certainly met on average of 12.4%, but we do get to the, I'm going to call it the ideal cushion by the latter part of the plan. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Amaimo for any closing remarks. Stephanie Amaimo: Thank you, Betsy. We have nothing further at this time. Thank you, everyone, for participating in our third quarter results and new 5-year capital outlook conference call. Please contact IR should you need anything further and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: As it is time to start, we will now begin the Conference Call for the Presentation of the Financial Results for the Fiscal Year 2025 Second Quarter. Thank you very much for your participation. Today, Mr. Sasaki, Representative Director and Senior Managing Executive Officer, will give a briefing on the financial results for fiscal year 2025 second quarter. Later, he will be joined by Mr. Yamauchi, Executive Officer and General Manager of Accounting Department to take questions. We will conclude the call at 4:50. Mr. Sasaki, over to you. Keigo Sasaki: Thank you. I'm Sasaki from Sumitomo Chemical. Thank you very much for attending our conference call today despite your busy schedule. I'd like to thank the investors and analysts for your daily understanding and support to our management. Thank you very much for that. Now let me start with the presentation of the financial results for fiscal year 2025 second quarter. Please turn to Page 4. This is a summary page. Core operating income and net income attributable to owners of parent significantly improved compared to the same period of the previous year. Core operating income of Essential & Green Materials increased significantly year-over-year. There are also profits at Sumitomo Pharma with strong sales results, leading to recording of a sales milestone of ORGOVYX and partial divestiture of the Asian business. Compared to the forecast announced in August, in addition to strong sales at Sumitomo Pharma, there was improvement in foreign exchange gain or loss from a yen weaker than anticipated, as well as a reduction in the deferred tax liability, resulting in a reduction in the corporate income tax expenses, leading to increase in both core operating income and net profit. Please turn to Page 5. Consolidated financial results of the second quarter. Sales revenue was JPY 1,954 billion, down JPY 146 billion year-on-year. Core operating income was JPY 108.7 billion, up JPY 79.2 billion year-on-year. Nonrecurring items not included in core operating income was a loss in total of JPY 5 billion. In the same period of the previous year, there was an impact of recognizing our interest in Petro Rabigh' debt forgiveness gain of JPY 86.5 billion as a nonrecurring factor, leading to a profit of JPY 91.8 billion. So compared to the same period of the previous year, this has worsened by JPY 96.8 billion. As a result, operating income was a profit of JPY 103.7 billion, down JPY 17.6 billion year-over-year. Finance income was a loss of JPY 15.8 billion. Improvement of JPY 136 billion compared to previous year when a loss on debt waiver Petro Rabigh was recognized. Gain or loss on foreign currency transactions, including finance income expenses was a loss of JPY 6.5 billion, improvement of JPY 28.4 billion year-on-year. Income tax expenses was a gain of JPY 3 billion, increase of tax burden of JPY 7.2 billion year-over-year. Net income or loss attributable to noncontrolling interests was a loss of JPY 51.2 billion, worsening by JPY 65 billion year-on-year with the improvement of Sumitomo Pharma's income. As a result, net income attributable to owners of the parent for the second quarter was a profit of JPY 39.7 billion, up JPY 46.2 billion year-over-year. Exchange rate and naphtha price, which impact our performance, average rate during the term was JPY 146.02 to $1 and naphtha price was JPY 64,900 per kiloliter. Yen appreciated and feedstock price declined compared to the same period of the previous year. Next, Page 6. Total sales revenue was down JPY 146 billion year-on-year. By segment, sales revenue decreased in all segments, except Sumitomo Pharma. As for year-on-year changes of sales revenue by factor, sales price decreased by JPY 25 billion. Volume variance decreased by JPY 88.1 billion, and foreign exchange transaction variance of foreign subsidiaries sales revenue decreased by JPY 32.9 billion. Next, Page 7. Total core operating income increased by JPY 79.2 billion year-over-year. Analyzing by factor, price was plus JPY 6.5 billion, cost, plus JPY 6.5 billion. Volume variance, including changes in equity in earnings of affiliates was plus JPY 66.2 billion, all were positive factors. Next is performance by segment. First, Agro & Life Solutions. Core operating income was a profit of JPY 11.2 billion, down JPY 2.9 billion year-over-year. Price variance. Profit margin improved for overseas crop protection products. Volume variance, in addition to decrease in shipments of overseas crop protection products, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen. Next is ICT & Mobility Solutions segment. Core operating income was a profit of JPY 33.1 billion, down JPY 10.5 billion year-over-year. Price variance, selling prices of display-related materials declined. Volume variance, though there was a gain on the sale of a large LCD polarizing film business, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen and decrease in shipments of display-related materials. Advanced Medical Solutions segment. Core operating income was a loss of JPY 1.4 billion, down JPY 1.7 billion year-over-year. Shipments decreased because of difference in the timing of shipments compared to the same quarter previous year for some pharmaceutical ingredients and intermediates. Essential & Green Materials segment. Core operating income was a loss of JPY 18.6 billion, improvement of JPY 16.1 billion year-over-year. Price variance with a drop in naphtha price, which is a feedstock, profit margins improved in synthetic resins and aluminum. Volume and other variances, there was improvement in profitability in investments accounted for using the equity method at Petro Rabigh due to factors such as improved refining margins. For Sumitomo Pharma segment, core operating income was a profit of JPY 97.3 billion, up JPY 94.3 billion year-over-year. Price variance, selling prices declined in Japan with NHI drug price revisions. Cost variance. There was a decrease in selling expenses and general and administrative expenses due to progress in rationalization. Volume and other variances in addition to expanded sales of ORGOVYX, a therapeutic agent for advanced prostate cancer and GEMTESA treatment for overactive bladder, gain posted on a partial divestiture of Asian business and ORGOVYX sales milestone are included. This is all for the results per segment. Next is consolidated statement of financial position. As of the end of September 2025, the total asset stood at JPY 3,364.5 billion year-on-year, this is dropped by JPY 75.3 billion. This is mostly due to a drop in related company's shares by sales of businesses as well as a decrease in cash and equivalents by repayment of interest-bearing liabilities. Interest-bearing liabilities stood at JPY 1,191.7 billion, which has dropped by JPY 94.5 billion compared to the end of the previous term. Equity stood at JPY 1,179.6 billion, which is up by JPY 105.2 billion compared to the end of the previous term. And now let me explain the consolidated cash flow. The operating cash flow is plus JPY 57.5 billion. However, year-on-year, this is a drop by JPY 5.9 billion. The profit level improved. We saw a deterioration of working capital due to revenue increase at Sumitomo Pharma as well as corporate tax increase. And investing cash flow was minus JPY 16.7 billion year-on-year, this is a drop by JPY 91.1 billion. This term, we had a partial sales of Asian business at Sumitomo Pharma. But in the same period last year, we had a significant income by sales of [ low bound of ] shares by Sumitomo Pharma as well as the sales of Sumitomo Bakelite shares. As a result, free cash flow stood at JPY 41 billion compared to JPY 138 billion the same period of previous year. This is a deterioration by JPY 97 billion. Cash flow from financing activity was minus JPY 114.8 billion due to repayment of borrowing compared to the same period of last year. This is an increase in outflow of JPY 39.4 billion. And now I'd like to explain the outlook for fiscal year 2025 on a full year basis. First, let me explain the business environment surrounding our company. Regarding the economic situation, the global economy continues to show signs of a slowdown. Amid heightened uncertainty, the outlook remains unclear. Below, our assessment of the business environment for our key sector is indicated using weather symbols as usual. For agrochemicals at the top, crop protection, price competition is expected to persist with regional variations in slow-moving inventories in distribution. Methionine market bottomed out at the end of last fiscal year and recovered in the first half of this year, but is expected to decline in the second half. In displays, mobile-related components remained robust. For semiconductors, although there is a variation by sector, but the demand is anticipated to show a gradual recovery trend. Regarding petrochemicals and raw materials, low margins are expected to persist. And now on Page 17, you can see the summary of our financial forecast for fiscal year 2025. We have revised the previous forecast in May to incorporate the recent performance trends and the impact of the partial sales of Petro Rabigh shares. The core operating profit forecast for fiscal year 2025 is JPY 185 billion, which is an increase of approximately JPY 45 billion year-on-year and an increase of JPY 35 billion compared to the previous forecast. On the left-hand side, the actual gain on sales of business shown in gray was projected to be approximately JPY 50 billion in the May forecast. But by incorporating partial sales of shares in Petro Rabigh, it is revised to approximately JPY 80 billion. The profit from the business activities shown in blue, representing the underlying profit and loss is projected to show a significant year-on-year increase due to sales expansion at Sumitomo Pharma and reduced stake in Petro Rabigh, we revised it upward from the May forecast, targeting over JPY 100 billion. By segment, growth areas are -- these 2 segments, Agro & Life Solutions and ICT, Mobility, we expect achieving JPY 100 billion in profit from the business activities. Regarding the profit and loss associated with the partial sales of Petro Rabigh shares, the combined impact of the valuation loss associated with subscription to new class shares and the increase in loss accounted for by the equity method is expected to be minimal on the final P&L because they are offset with each other. And now the business performance forecast. We forecast the revenue of JPY 2.29 trillion, a decrease of JPY 50 billion from the previous projection. Core operating profit of JPY 185 billion. Net profit attributable to the owners of the parent of JPY 45 billion. Assumption on the FX and naphtha prices are as stated. Regarding sales revenue, Sumitomo Pharma expects a strong sales in North America, mainly for ORGOVYX. But Essential & Green Materials except the decrease in revenue due to a decline in shipments resulting from the sales suspension of Petro Rabigh products, which is our subsidiary company. Core operating profit by segment will be explained on the following slide. Net income attributable to the owners of the parent is expected to increase by JPY 5 billion from the previous forecast. And related to Petro Rabigh company's shares. Cash contribution methodology associated with Petro Rabigh was not clearly identified and the series of profit and loss impact was accounted for and the nonrecurring items. That is how it was incorporated in the forecast. But this year, this time, the methodology for cash contribution and the accounting treatment was finalized. As a result, for 6 months, the sales timing was delayed by 6 months. As a result, the losses we bear under the equity method will increase. As a result, the gains on sales of equity will increase. As a result, core profit significantly increases. And next, we incur valuation losses of the Class B shares we newly acquired. As a result, there are additions and deductions among accounting items, but the impact on net income is limited as they had been already incorporated in the previous projections. And therefore, impact is not big. Next, regarding the full year performance or the sales revenue and core operating income by reporting segment. On to Agro & Life Solutions, though shipments shifted from the first to the second half, performance has largely progressed as previously announced with the previous forecast kept unchanged. For ICT and Mobility, EV market recovery is slow and the semiconductor market recovery is slightly moderate compared to our projection with some unevenness. As a result, we have adopted a little bit conservative outlook compared to the previous announcement. Essential & Green Materials, as I explained earlier, is expected to see a significant increase in core operating profit. At Sumitomo Pharma, mainly due to strong sales in North America, therefore, is expected to see a significant increase in profit compared to the previous forecast. The other segment sees its profit drop compared to the previous forecast. This is due to the fact that at the time of the previous forecast, a certain degree of performance improvement measures were factored in. So they were incorporated into the other categories. However, in this announcement, based on the assumption that they are likely to materialize in each segment, Essential and Sumitomo Pharma numbers are calculated. And therefore, those factors are not incorporated into others. This concludes our explanation on the financial results and earnings forecast. And now we would like to entertain your questions. Thank you. Operator: [Operator Instructions] Now the first question from Morgan Stanley MUFG Securities, Mr. Watabe. Takato Watabe: In your new forecast, Petro Rabigh's sales impact, I'd like to hear more about it. In Essential, JPY 50 billion is included this time, but the increase in profit is JPY 23 billion. What is the reason for that? Not related to Petro Rabigh, there is minus JPY 40 billion for others. You explained because there were recoveries in other segments, but it seems to be too large. And nonrecurring items, it was minus JPY 45 billion, but with the gains for sale of Rabigh that was assumed, but that is negative. So what is the reduction of JPY 25 billion in nonrecurring items? With the sales related to Petro Rabigh, maybe your forecast was too bearish. Could you explain the reason? Keigo Sasaki: Yes. Thank you for your question. For Petro Rabigh, we announced the influence recently. But for the sales, it's JPY 50 billion of sales proceeds was announced. And as you know, here, there was a time gap of 6 months, and that impact is included. So 22.5% means that the equity method is continued to be applied. So there is an increase in the burden in terms of losses based on the equity method. And that is one factor. And JPY 50 billion, because there were losses from equity method, the sales cost dropped. So in net, it is lower than that. So that included -- the increase in profit was only about JPY 23 billion. Besides, there is included under finance losses for the B shares newly acquired, there is a valuation loss included. So sales of equities, when you calculate the total loss, actually, the impact is not that large. Takato Watabe: Yes, I understand. Petro Rabigh, there is a negative in terms of sales proceeds because of equity method. Keigo Sasaki: So let me add to that explanation. How was that included in the original forecast? I think that is your question. In the original forecast, core operating income -- essentially in Green and EGM, it was not included at all. That is one point. So that makes the difference. And for nonrecurring items, we were including some impact. And by adding some items, for example, valuation loss, it is very difficult to express. So the losses were included in the nonrecurring items. But that is not a nonrecurring item. That is a financial loss. So improvement of a nonrecurring item compared to the forecast is because of this background. So we are not considering the sales gains. Well, when it's not that we are not taking into consideration at all, as I will explain. And your question, you asked about other corporate expenses compared to the forecast, this has worsened about JPY 24 billion, JPY 25 billion. And that part, in the initial forecast, we included some forecast of improved performance in EGM and Sumitomo Pharma. For both, we had conservative figures and Petro Rabigh equity sales, we were not -- we couldn't talk about it. So without including those figures, these were all added together and included under other corporate expenses, but that is now being distributed into other segments. It is now included in the figures of the relevant segments. So it looks as if the total corporate figures has worsened, but that is the reason. Takato Watabe: Is it possible to have such a big negative figure for corporate, about JPY 40 billion? Is that what you mean? Keigo Sasaki: Yes. The reason why it was good so far. Sumitomo Bakelite and other items of profit and loss are included and sales proceeds that happened last year are included. And besides Sumitomo Chemical Engineering and Nihon Medi-Physics, those losses are included under others. But these 2 are already sold. So this fiscal year, there are not so many positive factors. And under others and adjustments, expenses are high. That is how you should interpret it. Medi-Physics, I think that was Life Science, but I understand. So it's not that you are assuming a larger buffer. If you ask me if you are -- we are conservative, basically, yes, our forecast is intended to be conservative, but we are not including a large buffer. Takato Watabe: So you are conservative. I understand. Operator: Now we would like to go on to the next question. Mizuho Securities, Yamada-san, please. Mikiya Yamada: I am Yamada from Mizuho Securities. I would like to double check about the core profit. Agro & Life Solutions in the first half, there was some shortfall. From the first to the second quarter, there was a seasonality. So you said that there is some visibility, but you had some shortfalls from the first half to the second half, there was a timing difference of the shipments. Was it the reason? On a full year basis, there was no change in the forecast. Therefore, my understanding must be correct, but I'd like to double check. And ICT Mobility Solutions, downward revision, the operating profit and the revenue were revised downward. EV and the semiconductor recovery or delayed that is the reason. Marginal profit margin -- marginal profit ratio against the revenue dropped by JPY 30 billion, operating profit drop was limited to JPY 3 billion. Therefore, the balance seems to be optimistic between the 2. So could you please explain this situation? Keigo Sasaki: First of all, AGL, from the first half to the second half, there was some shift. At this point, in Latin America, business is struggling. From the second to the third quarter, there is some shift that is our awareness. As much as possible, we would like to make a recovery within the third quarter. On the other hand, in North America or in India, in these regions, so because they are Northern Hemisphere there, we expect more to come. We do not have any unfavorable factors. Well, the slow-moving inventories start to recover. And based on that, so comprehensively, when it comes to AGL, we are likely to achieve the initial projection. Furthermore, JPY 145, that is the ForEx assumption for this projection. Currently, yen is a little bit weaker than that. So I believe that this will also make a further contribution. And then on to ICT, the major factors are, as correctly pointed out by you, EV and the semiconductor. Although there is some recovery, but not much recovery than we anticipated. So that is some negative impact. They are incorporated. And the profit margin is off, that is what you pointed out. Well, the revenue in itself may be we put the numbers quite roughly and sometimes we round the numbers. So it is not precise. It is better not pay too much attention to the profit. It does not mean that you made a significant change to ForEx assumption. That is why I thought something is off. However, you more precisely calculate core operating profit. That is why you ended up this result. Am I correct? Mikiya Yamada: Yes. And Agro & Life Solutions, regarding the sales status of new products, is there any delay? Or are there any new products that are sold earlier than schedule? Keigo Sasaki: Well, there is no major delay. That is our current understanding. Operator: The next question is from SMBC Nikko Securities, Mr. Miyamoto. Go Miyamoto: I'm Miyamoto from SMBC Nikko Securities. I also have a question about Agro & Life Solutions. As a business environment, you have a cloud mark. So what's the current situation? What is the situation of the inventory? There are differences from product to product. So could you explain a little more about it? And in addition, price competition continues. And in terms of price variance, there were improvements of profit margin of foreign crop protection chemicals. So it seems that -- could you explain the price trend and by rationale in different sales situation, could you talk a little more about it? Keigo Sasaki: Yes. Thank you for your question. For AGL, in the first half, in Latin America, situation was a little worse than what we had assumed. For our distribution inventory compared to the previous year, there are improvements, but still the level is high. And generic products, competition is still expected. For Rapidicil, Argentine, still, we will continue to emphasize expansion of sales. And [ differing ] in Brazil, it is the second season. So this -- we will also continue to expand sales of this large-scale insecticide. So we want to recover from the first half towards the second half. And the other regions, in the United States, it is improving quite a lot, I believe. And of course, competition with generic products exist. But as North America in general, there's improvement in the desire of our customers to accept our product. North America is a place that is just starting. So we will keep watching. And in India, India as well, there is a question of the distribution inventory, but there are improvements seen. Not only North America, but also in India, I think we can look forward to the situation in India by watching with care, we hope we will achieve our target at the beginning of the fiscal year. Go Miyamoto: About the price variance in Latin America, there's still a drop in price and is it getting higher in other regions? Keigo Sasaki: That is a general image. Go Miyamoto: And how about the situation, the places which price is getting higher? Keigo Sasaki: Price itself, rather than higher prices in the price variance, that is a tug of war with cost. So including the cost, the improvements in some places. That is the meaning here. Go Miyamoto: I understand. And on Page 29, in Latin America, there was sales and some carried forward in Japan, but the impact in North America is bigger. Keigo Sasaki: Yes, in Japan, currently, including the price of rice, prices are getting higher in Japan. The customers, the farmers have quite a strong desire to purchase their advanced sales. In Central South America, the market is larger. So still the impact remains. Operator: Now we'd like to go on to the next question. Daiwa Securities, Umebayashi-san. Hidemitsu Umebayashi: I am Umebayashi from Daiwa Securities. I would like to ask you some questions on ICT and Mobility Solutions. From the first quarter to the second quarter, the revenue is approximately JPY 8 billion. So therefore, it is a significant increase, but the profit, JPY 4 billion drop. So there was a gain on sales of the business in the first quarter. I understand that. But excluding that, so the revenue increase is significant. However, the profit was almost flat. So what is the reason for that? And especially in the industry, smartphone in North America is strong. And in the second half, you mentioned that you might be a little bit conservative. Why is it that the situation is deteriorating to this extent? Could you elaborate on that? Keigo Sasaki: Well, let me see. ICTM, in comparison with previous year, currently, yen is stronger. That is our assumption. So this is the segment most affected by the ForEx fluctuation. Another factor is the impact of tariff. So at the beginning of the year, we told you that in total, JPY 10 billion of impact will be felt from tariff. And we start to feel that impact now. Throughout the year, this is likely to be within the scope of our projection at the beginning of the year. So the reason for drop this time is, as I explained earlier, EV as well as mobility. These are the major reasons, partially compared to our initial expectation, there are some change from the semiconductor situation. Therefore, they are separately incorporated. Separator of EV feel the impact. So please understand in that way. Hidemitsu Umebayashi: Between the first quarter and the second quarter, revenue increased. However, the profit dropped. Well, the profit dropped because in the first quarter, there was gains on sales, but it did not occur in the second quarter. However, between the first quarter and the second quarter, what was the major change in the mobile business? Keigo Sasaki: What was the major change for the polarizing film between the first quarter and the second quarter? Well, there is an impact of the gains on sales, which did occur in the first quarter. So that may have an impact on profit. The display was performing quite well last year. So there was some rebound from the previous year. So there are some irregular elements incorporated here. So please do understand in that manner. Operator: The next question is from Nomura Securities, Mr. Okazaki. Shigeki Okazaki: I'm Okazaki from Nomura Securities. For core operating income, a question for confirmation. Essential Green Materials, you made upward revision. But in terms of fundamentals, compared to 6 months ago, is it right to say that there are no major changes? What is your view about Rabigh and Singapore and other places, as was included in previous question, from the first half to second half, losses -- core operating loss tends to increase. What is the item for that? This year, I understand there's not so much difference between first half and second half in terms of sales of business. Could you explain that? Keigo Sasaki: Yes. Thank you. First, for Essential, in terms of wafer mark, I explained, basically, from the beginning of the year until now, there are no changes. So Singapore, for example, for PCS, we are studying the possibilities of optimization in TPC, MMA. In particular for MMA, restructurings and also rationalizations took place. And on top of that, high profitability items, high value-added items are areas that we plan to shift to maintain the profit. So that is a policy. As for the environment, we have not changed our view. And for other areas comparing first and the second half, in the second half, for example, this is a matter of how we spend our expenses. For R&D expenses tends to be concentrated in the second half. That is a trend that we see. So that is also included. Operator: Now we are getting closer to the ending time. So now we would like to take the final question. BofA Securities, Enomoto-san, please. Takashi Enomoto: BofA Securities, I am Enomoto. I have a question on net income. Looking at the plan for the second half, there is a significant gap from the operating profit to net income. Various items are included in the operating profit. Why is it that the net income is so compressed in the second half of the year? Keigo Sasaki: Thank you very much for your question. Throughout the year, nonrecurring items, at which timing they will be recorded that also have an impact. JPY 5 billion was the only one that was generated in the first half. However, there are several structural reform-related expenditures that will be occurring, which will be around JPY 25 billion throughout the year. So the remaining portion will incur in the second half. And regarding the financial profit, it will be skewed towards the second half of the year. That is our view. This is due to ForEx. So this is the current view. It is currently at JPY 150. But based on the assumption of the yen is stronger to JPY 155, then the ForEx loss may occur. And talking about the tax, as I mentioned earlier, Sumitomo Pharma deferred tax liability reversal gain was observed in the first half. This is extraordinary items in the first half. So this will not appear in the second half. So there are several factors. And therefore, the loss will incur in the second half of the year. So that is my explanation. Takashi Enomoto: The ForEx loss, what is your projection of that for the second half? Keigo Sasaki: Not so much. But our assumption is that, the ForEx is JPY 145. Operator: This concludes the Q&A session. Lastly, Mr. Sasaki will give the final greetings. Keigo Sasaki: Thank you very much for attending today. This fiscal year is the first year of our medium-term plan. And within the medium-term plan, we have set targets. So to achieve the target, we will do our best. So we hope we can continue to have your support. Thank you very much for your participation today. Operator: This concludes today's conference call. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
William Lundin: Welcome to IPC's Third Quarter Results Update Presentation. I'm William Lundin, the President and CEO; and alongside with me today is Christophe Nerguararian, our CFO; as well as Rebecca Gordon, our SVP of Corporate Planning and Investor Relations. I'll begin with the quarterly highlights and provide an operational update, then Christophe will expand on the financial details for the quarter. Following the presentation, we'll take questions via the web online or through conference call. It was another strong quarter for IPC with average production rates of 45,900 barrels of oil equivalent per day for the quarter, which was above guidance for the quarter specifically, and our full year production guidance of 43,000 to 45,000 barrels of oil equivalent per day is maintained. Operating costs were slightly below guidance at $17.90, marginally lower unit per production figure than expected, partially due to the production outperformance achieved in the quarter. Full year operating costs are maintained at USD 18 to USD 19 a barrel, likely to end the year around the lower end of this range. We're very pleased today to announce the transformational Blackrod Phase 1 development project is expected to be delivered a quarter ahead of the original scheduled guidance with first steam expected by year-end and first oil in Q3 2026. So great progress on the project has been made to date, which I'll go into more detail later in the presentation. Super proud of the team's efforts to be positioned for an earlier start-up compared to that of our original sanction guidance in early 2023. As a result, we've accelerated some activity from 2026 into 2025, mainly being drilling the final well pad at the Blackrod asset. So IPC full year CapEx is therefore revised to USD 340 million for 2025 compared to the original CMD guidance of USD 320 million. In the quarter, $82 million was spent with about $56 million of that allocated to the Blackrod Phase 1 development. So Dated Brent averaged around $69 a barrel in the quarter. Our operating cash flow was USD 66 million, and our full year operating cash flow is forecast to be between $245 million to $255 million between $55 to $65 Brent for the remainder of the year. Free cash flow for the third quarter after all CapEx was minus USD 23 million or positive USD 36 million pre-Blackrod expenditure. Full year free cash flow forecast inclusive of our final major growth spend year at Blackrod is forecast between minus USD 160 million and minus USD 170 million between USD 55 and USD 65 Brent for the remainder of the year. We successfully refinanced our Nordic bonds subsequent to Q3, took place in October, and that has a coupon rate now of 7.5% maturing in October 2030. Net debt at the end of September stands at USD 435 million with gross cash available to the business of USD 45 million plus additional headroom exists under our RCF in Canada. So for the oil hedges in 2025, we have a mix of swaps and zero cost collars for flat price and differential hedges for around 50% of our exposure for the remainder of 2025. We also have taken advantage of the tight WTI to WCS differential and added around 5,000 barrels per day and a differential hedge for 2026 at $12.50 per barrel. No material incidents recorded during the quarter. We also completed our normal course issuer bid program, the 2024-2025 program in Q3, marking in excess of 6% reduction in our shares outstanding over the course of that buyback program. We have the intention to renew the next NCIB program in December. Production for the quarter, again, was just shy of 46,000 barrels of oil equivalent per day for Q3, and we're averaging around 44,600 BOEs per day year-to-date. So implying we're very well positioned to deliver within our original CMD production guidance of 43,000 to 45,000 barrels of oil equivalent per day. IPC production mix is weighted to 2/3 oil and 1/3 natural gas. Year-to-date operating cash flow is USD 196 million and $4 and $11 per barrel differentials for the Brent to WTI and WTI to WCS, respectively, for the first 9 months of 2025. $66 million out of that $196 million was generated in Q3. There's a slightly tighter differential on the WTI to WCS dip for that quarter. Full year OCF guidance is expected to be between USD 245 million to USD 255 million between $55 and $65 per barrel Brent for the remainder of the year. Really pleased with the base business cash flow generation given we're expected to land in the middle of our original CMD, OCF guidance, as can be seen on the slide, which was based on a $75 per barrel Brent price and the year-to-date settled oil price plus the strip for the remainder of the year is well below that $75 per barrel Brent. Capital expenditure, inclusive of decommissioning spend is forecast at USD 340 million for 2025. So again, slightly increased compared to our CMD guidance, largely due to the acceleration of the drilling activity in 2025 from 2026 for the last well pad at Blackrod given the earlier start-up expectation. And the majority of our non-Blackrod related capital investments have taken place already, mainly relating to the sustaining activities at Onion Lake Thermal and Malaysia. Free cash flow year-to-date, excluding Blackrod CapEx is just shy of USD 80 million, inclusive of Blackrod CapEx, it's minus USD 125 million. With the updated pricing outlook for the remainder of 2025 between $55 and $65 per barrel Brent, we're expecting $80 million to $90 million in free cash flow, excluding the Blackrod CapEx and minus USD 160 million to minus USD 170 million in free cash flow, including the Blackrod CapEx. So this full year outlook has been updated to include the bond refinancing cost, which was opportunistically executed in October this year, and Christophe will touch on that in his section, as well as the additional costs associated with the Blackrod given the acceleration of the activity. At the end of Q3, we completed our seventh buyback program since the company was formed. We do intend to renew the next NCIB in early December. So a total of 77 million shares have been repurchased through all of these programs at an average price of SEK 79 per share or CAD 11 per share, which is well below our current share price level. There's less shares outstanding compared to that when the company was formed and the size of the portfolio has materially grown with current comparatives to 2017 in production being 4.5x higher. We've seen a 17x increase in our 2P reserves, added in excess of 23 years to our 2P reserves life index and added greater than 1 billion barrels of contingent resources and enhanced our NAV by USD 2.5 billion. So the per share metrics are a key focus for the company and driver for maximizing shareholder value. IPC's 2P NAV as at year-end 2024 is in excess of USD 3 billion, representing a fair share price of SEK 287 per share or CAD 37 per share. No value is assigned to our large contingent resource base in this net asset value calculation. Current share price levels suggest we're trading at an approximate 40% discount to our 2P net asset value. So the Blackrod Phase 1 development, this is on budget and progressing ahead of schedule. The original sanction guidance in 2023 suggested a growth capital expenditure for the Phase 1 development of USD 850 million for the total installed cost of the central processing facility and the well stock needed to fill the plant and first oil was guided for late 2026. With the significant progress achieved to date, we now expect first oil in Q3 2026, around a quarter ahead of the original sanctioned time line. So the Phase 1 cumulative capital that's been incurred from 2023 to the end of Q3 2025 is USD 785 million or approximately 92% of the total growth CapEx. So all the surface kit is in place at the central processing facility. Construction and progressive commissioning is ongoing, supported by a lot of manpower at site. Some key milestones have been achieved and derisking the path to startup. Notably, we have commercial gas usage in place now and islanded power generation has been successfully commissioned. So with the detailed sequencing of events planned out and a closer line of sight to start-up, we feel confident pulling the schedule forward, as mentioned. And with that, we have brought forward the drilling of the final well pad into 2025 from 2026. It's a very exciting time at Blackrod for the company as a whole. I'm especially proud of the strong safety record achieved to date with no material incidents since development activities started in 2023. So key items to highlight here on the schedule really is emphasized here with the first team and first oil activity moving to the left, given the great progress that's been made on the project. Moving on to our producing assets. It was a fantastic quarter at Onion Lake Thermal with incremental production benefits coming in from our short-cycle sustaining investments, 4 infills and final well pair tied in from L Pad. So in September, as you can see in the production plot, we saw nearly 14,000 barrels of oil equivalent per day at the asset, which is one of the best monthly production figures achieved at the asset to date. The Suffield area assets is very steady, predictable low decline production from the Suffield area assets and solid low-cost optimization work on the oil side and solid inventory of drill-ready candidates are actionable discretion of the company. So the other assets, this is Canada, as you can see on the map on the right, is yielding around [ 4,000 ] barrels of oil equivalent per day. So seeing great response from our Phase 2 polymer flood at the Mooney asset. In Malaysia, we successfully completed a 2-week turnaround at the end of September and early October. Our investment program in Malaysia was also successfully executed, which can be seen on the production chart. We saw solid production boost come in July and in August, which will come back following the start-up from the shutdown. And France continues to provide stable low decline production. Now over to Christophe for the financial highlights. Christophe Nerguararian: Thank you very much, Will, and good morning to everyone. So again, very pleased to be reporting a solid quarter with very strong operational performance with a production this quarter just shy of 46,000 barrels of oil equivalent per day. And so the average year-to-date production is 44,600 barrels of oil equivalent per day. So we feel really comfortable about our ability to deliver within that 43,000, 45,000 guidance range for the full year. Coupled with operating costs, which on dollar per barrel of oil equivalent remained this quarter below USD 18, partially driven by low gas and electricity prices. So with relatively low costs, it's driven a very strong financial performance as well with operating cash flows and EBITDA this quarter of USD 66 million and USD 62 million, respectively. With $81 million -- $82 million of CapEx this quarter and USD 280 million year-to-date, it's -- this quarter we generated a negative free cash flow of $23 million, $36 million positive before Blackrod CapEx. And our net debt now stands at USD 435 million. As you can see, realized prices were reasonably stable when you compare the second and the third quarter. On average, Brent was at $69 per barrel during this quarter, WTI $65 and WCS was very tight, so that's the good news. I would say, now we have the proof is in the pudding, and we've been able to see over the last few quarters how tight the WTI/WCS differential has been, and that's really a reflection of the expansion of the TransMountain pipeline, which came on stream more than a year ago. Now we can finally benefit in Western Canada from excess egress capacity, which is -- which really bodes well for our production from our base assets today. But also when we bring Blackrod on stream and ramp it up, we should continue to benefit from reasonably strong WCS prices in the future. We're continuing to enjoy a premium of Dated Brent. In Malaysia we're selling our oil on parity with Brent in France and on party with WCS in Canada. You have the examples here of Suffield and Onion Lake. Gas prices, it's not entirely clear yet, but while Q3 was a very weak quarter when we realized that below CAD 1 per Mcf during that quarter. We might be seeing some light at the end of the tunnel. Clearly, 2026 forward curve is showing some good sign with even the summer months in between CAD 2.5 and CAD 3 per Mcf next year, next summer. So it's very encouraging. We hope that the storage are going to continue to reduce. And we're expecting as well the LNG Canada project on the West Coast of Canada to continue to ramp up in Q1. So those elements together should help alleviate the weakness we've seen in the third quarter and which also partially explains why our OpEx per barrel were reasonably low again this quarter. You can see here that on a cumulative basis for the first 9 months, our operating cash flow was just shy of USD 200 million and EBITDA around USD 185 million for the first 3 quarters. And you can see that this third quarter was in terms of contribution to the year-to-date performance was in between the first and the second quarter, driven by very high production at Onion Lake Thermal. In terms of looking ahead at our operating cost per barrel, we still anticipate higher operating cost per barrel driven by some specific project and maintenance or some workovers in the normal course of business in France or Canada. But overall, year-to-date, our operating cost per barrel remained below $18 per barrel. And so we feel very good about our ability to deliver within the guidance range of $18 to $19, which we provided for the whole year and which we keep unchanged. The netbacks have been around $16 per barrel when you look at the gross cash revenues minus production costs or whether you're looking at operating cash flow or EBITDA per barrel of oil equivalent for the first 9 months were at $16 and $15 per barrel, respectively, which is slightly better than our base case guidance netback from our Capital Markets Day. Reconciling the opening to the closing net debt of the last 9 months. You can see here that this is the last year where we are spending so much CapEx because obviously, with 92% of the budget spent on Blackrod, we're getting much closer to first steam and then first oil in Q3 next year. So you can see here with $196 million of operating cash flow during those first 9 months that fully covered the CapEx of the Blackrod Phase 1 CapEx. But then with the CapEx from the rest of the assets, some cash G&A at $12 million, so less than $1 per barrel. Over $30 million of cash financial items and $100 million of share buyback, the closing net debt was $435 million at the end of September. Our net financial items are very stable. You can see a very small increase in net interest expense quarter-on-quarter, driven by the limited drawdown under our revolving credit facility. Otherwise, the costs are very stable. The exception is this FX loss, which is a non-cash item, really driven by some accounting reassessment revaluation of intra-group loans. It doesn't bear any weight on the cash flows of the business. The G&A remain in cash terms around USD 4 million per quarter or less than $1 per barrel. The financial results now. So in the -- during the first 9 months, our business generated close to USD 510 million of revenues, generating a cash margin of around USD 200 million, gross profit of close to USD 100 million and net profit for the whole first 9 months of $34 million. When you look at our balance sheet, it's very obvious what's happening, and it's an interesting way to look at the way we've been funding the investment in Blackrod. You can see our oil and gas assets increasing by close to USD 250 million, which is the net effect between the CapEx invested and some depletion. And you can see our cash, which has decreased from $247 million down to $45 million over that same period. Looking at our capital structure, Will touched upon it. We were lucky or very smart. We marketed the refinancing of our bonds at the end of September, which was one of the -- really one of the best weeks to go to market. The oil price was still in between $65 and $70. More importantly, the credit spreads were as low as they've ever been over the last 5 years. So as you know, the coupon is a result of the U.S. 5-year swap rate and the credit spread. And bringing those 2 elements together, even if the credit spread was much tighter than at our inaugural bonds, the overall coupon was slightly higher. And so the previous coupon was at 7.25% and now the current coupon is 7.5%. The good thing is that the maturity was extended as a consequence to October 2030. And we've introduced a new feature. We've introduced a $25 million semi-annual amortization starting in April 2028 once we have reached essentially the plateau production at Blackrod. The rest of the capital structure has not changed. And on this last slide of my presentation part, you can see a recap of all of our hedging positions. We're continuing to make money to generate money under our oil WTI swaps or oil WTI collars between $65 and $75, losing money on our WTI/WCS differential swaps at minus $14.2. But we've seen, as we mentioned, the tightness in that differential, which led us a couple of weeks ago to hedge 5,000 barrels a day of our 2026 exposure at minus $12.5, which is one of the best levels we've ever seen in the market for the year ahead. We continued to have 2,000 barrels a day of Brent hedged at close to $76 per barrel. We've recently layered in just shy of 10,000 -- 10 million standard cubic feet a day of hedges. I mentioned that we can really see the forward curve for gas prices improving going into next year. And so we hedged at CAD 2.8 per Mcf, the summer months, the summer strip from April to October, which is typically based on the seasonality, the lower gas prices months. In terms of FX, we've hedged in the past our FX exposure for most or 80% of our exposure to the Blackrod Canadian spending. CapEx, we have nothing in -- as for 2026 yet. We may layer in some FX protection swaps next year given the reasonable weakness in Canadian dollar, but that will be the decision will be made between now and year-end. So again, as a recap, a very strong operational performance, which has driven a very strong financial performance in this third quarter, good performance in the first 9 months, where we're going to deliver essentially within the guidance range we provided at our Capital Markets Day in all our material key performances. Thank you for that. And I will let Will conclude this presentation. Thank you very much. William Lundin: Thank you, Christophe. And so with the final slide and the summary slide, investment year-to-date through the first 9 months of the year in 2025 has been USD 281 million, USD 194 million of that has gone towards the Blackrod Phase 1 development. Production, again, for Q3, was very strong at 45,900 barrels of oil equivalent per day. Annual production guidance maintained at 43,000 to 45,000 BOEs PD. Very stable operating cost base of $17.90 for Q3 and maintaining the full year guidance of USD 18 to USD 19 per BOE. Good prices and healthy production, good cost discipline translated into strong cash flow generation for the quarter with $66 million in operating cash flow generated and $36 million in free cash flow for the quarter, excluding Blackrod CapEx there. Balance sheet, again, net debt, we have $435 million as at the end of Q3 and gross cash of $45 million. No material incidents took place in the quarter. And we completed our share repurchase program in the quarter as well. So with that, that concludes the presentation overview and happy to turn it over to the operator for questions. Operator: [Operator Instructions] We'll now take our first question from Teodor Nilsen of SB1 Markets. Teodor Nilsen: Congrats on good Blackrod progress. First question then is on the Blackrod production profile. Can you just give us a reminder of what kind of ramp-up profile you expect there now, assuming first oil in Q3 next year? Second question that is on your leverage. When do you expect the net debt to EBITDA to peak? I assume that will be around or maybe slightly later than first oil at Blackrod. And my third and final question, that is on the LNG Canada project. Could you just discuss the potential price impact on your realized gas prices of that project and time line for the project? William Lundin: I'll take the Blackrod question, and then I'll hand it over to Christophe for the net debt-to-EBITDA and LNG Canada, second and third parts of your question. So as it relates to the Blackrod schedule advancement, what we had originally guided for Blackrod was first oil in late 2026 and 30,000 barrels of oil per day to be achieved in 2028 with the great progress that's been made and the scheduled advancement of around a quarter, and we expect that profile to move a little bit to the left as a result of that. And so more details around the exact profile will be refreshed coming into our CMD presentation in 2026. Christophe Nerguararian: Yes. Thank you very much. On the leverage, you're absolutely right, Teodor. You should expect the leverage to progressively and then a bit faster reduce once we reach the first oil on Blackrod. As for gas prices, I mean, the reality is that the weather forecast is quite cold right now in Alberta, so that's clearly helped. Over the last few days increased the spot AECO price and the whole forward curve moves with it. So that's -- this is more the tactical review, if you wish, where AECO gas price is right now and the impact on the forward curve. Well, the forward curve tends to move altogether with the spot price. But now on the fundamentals, we understand that the ramp-up of the LNG Canada project is progressively increasing the local gas demand and is going to continue to help, hopefully, increase gas prices. Certainly, this is what the market anticipates when you look at the gas forward curve, which is in excess of CAD 3 for the whole year next year. Operator: And we'll now move on to our next question from Rob Mann of RBC Capital. Robert Mann: I'm just curious if you could dig into some of the factors that have allowed you to pull forward the schedule of Blackrod. I imagine it's a combination of things, but just curious if you can provide any further details there. William Lundin: Yes. Thanks Rob. And so further to the explanations provided in the development section in the Blackrod part of the presentation, exceptional progress is made to date here. And with certain milestones achieved such as acceptance of first gas into the plant and commercial gas, firing up our power generation. We have 2 turbines that provide 15 megawatts of power each, so a total of 30. Those have been successfully commissioned and with the overall progressive commissioning and turnover strategy and some of the other milestones that have been achieved, it's given us further confidence to be able to pull forward that schedule. We have water inventoried in tanks now as well. And so everything is being lined out to have a higher degree of certainty around that first steam and then corresponding first oil date. So we feel good at this point in time with not being too far away to provide that update to the market overall. Robert Mann: Yes, that's great. Maybe just shifting gears to one other question, if I could. You've added some hedges on in 2026. So maybe just curious how you're thinking about that program moving forward, just given the commodity price outlook here and as you move toward completion of Blackrod? William Lundin: Yes, that's correct. So we've added some differential hedges in place as well as some gas hedges for the summer period at this point in time. We will monitor forward curves on the flat price as well as further differentials and gas prices and it's potential for us to add on more hedges, provided they're at prices that we deem attractive overall. We do have a significant amount of our CapEx rolling off as a result of Blackrod getting to its final stages before starting up here. And as well with getting the refinancing done, which would have matured in early 2027 previously, that also is a significant factor that's been executed and taken care of by the company. So for next year, I mean, the strip that's pretty flat in the curve as we look at flat price right now as maybe a tiny bit of contango. Still feel prices are relatively low as it relates to Brent and WTI looking forward into 2026. But if there were to be a bit of a spike or a bump, we may look opportunistically to lock in some hedges. Operator: And we'll now take our next question from Christoffer Bachke of Clarksons Securities. Christoffer Bachke: Christoffer from Clarksons is here. First of all, congrats on a strong quarter. So only one question today, and that relates to Blackrod. So given that the Blackrod Phase 1 is now progressing ahead of schedule and also now close to the first steam, could you please elaborate on what specific efficiencies or lessons learned that have driven that outperformance? And also whether any of those gains could translate into cost or timing benefits for potential future Blackrod phases? William Lundin: Given we're still in the midst of the project execution, I mean, it all comes down to the overall planning that the team has put forth before sanctioning this project and putting allowances in place on schedule and cost is always a prudent thing to do. So we set ourselves up for success on the onslaught of sanctioning this project. And with the steady execution that's taken place across all key disciplines, whether it be mechanical, electrical and the construction, on operational hires, and the drilling front, everything has been going very, very well. That's put us into this position to update the overall schedule advancement for Blackrod. As it relates to the overall budget, we are maintaining that overall budget of USD 850 million to first oil at this point in time. And I think once we get this asset fully fired up and producing at plateau production rates, there's undoubtedly going to be positive lessons learned from undergoing this development where, of course, we have 100% working interest and have been the controlling developer in this process. So definitely something that we will add into our toolbox that will be beneficial for unlocking future phase expansions of the asset. Operator: [Operator Instructions] And we'll now move on to our next question from Mark Wilson of Jefferies. Mark Wilson: Excellent progress. You've clearly got a hell of a team up there at Blackrod. We've seen it in-person and on the ground and now you've accelerated that start-up. Now Will, you said you'd update on the ramp-up at the CMD. I'd like to ask about that and then the bigger picture because you've just mentioned on the last question, unlocking future phase expansions. And with Blackrod Phase 1 having a ramp-up potentially towards 2028 and combining that with the improved WTI/WCS situation that you've spoken about with TransCanada, you're in a completely new situation in terms of your outlook. I just want to know how much you want to derisk the production from Phase 1 before you may start thinking about committing to Phase 2? William Lundin: Thanks, Mark. Appreciate the color and the commentary that you provided. That's right, we had a great field visit earlier in Q2 with yourself and many others included there. So no, hats off to the team at site. They've done a tremendous job pushing this project forward. So very pleased with where we're at overall. It is a great situation when you look at the WTI to WCS outlook right now as well with it being very tight and there being excess takeaway capacity relative to the supply for the future years ahead, which matches the ramp-up profile quite nicely with respect to Blackrod, which should also hopefully translate into higher flat prices as well at that point in time to give us good cash flow generation. So I think as we look forward, we remain opportunistic in our capital allocation approach at all times. And so it's going to be a balance of always targeting to maximize shareholder value. So looking at stakeholder returns, organic growth, M&A, it's going to be a balance of all 3 of those. We have to monitor our liquidity position, balance sheet and take into account all the learnings as well from Blackrod. We are very confident, of course, in terms of what to expect for that production ramp-up, given that we have direct analogs at the asset with well -- pilot well pairs that have been successfully producing for many years, specifically -- well pair 3. So it's a bit difficult to give an exact time line in terms of when we would look to do a sanction of the future phase expansion at Blackrod. It's really going to be dependent on oil prices, liquidity, leverage position, and of course, taking into account some of the learnings from Blackrod over the course of the start-up. But what we've said previously is we'd expect sometime, likely end of the decade provided oil prices were healthy. And so this is something that sits within our contingent resources. And until we really go forward and mature that into reserves, it will be something that will keep us upside in the back pocket. Operator: And we'll now take our next question from Jonas Shum of Clarksons. Jonas Shum: Congratulations on the progress on Blackrod. So given that you have kind of progressed very well, can you elaborate a bit on kind of what are the key remaining milestones, and the risks for that. You mentioned that the weather forecast for Alberta was indicating relatively cold weather. Could that have any ramifications on kind of the progress during the winter time here? William Lundin: Yes. Thanks Jon. So as we look forward going into the start-up for Blackrod, weather is for sure a variable that exists for start-up overall, and we have seen some snow take place a little bit earlier than expected. And so things like heat trace are very important at site, which the team is all over and heat trace is largely installed in the key areas and the rest of it will be implemented as well in due course here. As we look to the overall start-up, as I'd mentioned, we have some water inventoried in some tanks. And so it's really getting the downstream equipment of that ready to be fired up with respect to the associated pumps in the boiler feed water system leading up into the steam generation and then going downhole. So -- of which we expect that to be completed and fired up by year-end to give us first steam by year-end and then correspondingly first oil in Q3 of 2026. Operator: We have no further questions in the queue. I'll now hand it over to the company. Rebecca Gordon: Okay. Thank you, operator. So we did have a lot of questions on the sequencing of Phase 1 and Phase 2, which I think you've already covered there, Will. But we also had some questions on potential growth programs in Malaysia and France. Can you give a bit of detail on that? William Lundin: Yes. So as I mentioned in the presentation in the international asset section, we're really pleased with the production boost that we've seen at the Malaysian asset as a result of that step-out drilling campaign and the workover that's been achieved. That this asset, we do hold a couple of wells in our contingent resources, but we don't have any further development wells held within our 2P reserves at Malaysia. In France, there are a number of robust investment opportunities and specifically within a field called Fontaine-au-Bron that looks very attractive and is ultimately ready to be sanctioned at the discretion of the group, which will be largely dictated by oil prices. Rebecca Gordon: Great. And also a couple of questions on Canadian natural gas prices, which I think you've covered, Christophe. But perhaps you could give a bit of color on a question, which is, will Blackrod eventually make you a gas net consumer? If so, when is this point going to be reached? Christophe Nerguararian: Yes, that's correct. Obviously, as we are ramping up the oil production, we're going to ramp up our gas usage as well. And we're expecting at this stage that towards the end of the decade, so 2029 to 2030, we will turn into being -- everything being equal, we will turn into being a net gas consumer. That is the projection at this stage. Rebecca Gordon: Yes. And I think, Will, you've covered off really our sort of capital allocation priorities in the future. There were a couple of questions there about whether we would look to buy back shares in the future, whether it was Blackrod Phase 2. There was actually another question on M&A. So it would be interesting to hear your perspective on the recent M&A activity in the sector, thinking specifically of the big interest in the market for the long-lived assets of MEG. Any thoughts would be appreciated. William Lundin: Yes, it's been very interesting item to monitor in the market with respect to the MEG and Cenovus deal that is likely to close quite soon here, I believe. That type of -- how do you say, the takeover bid that took place or the hostile actions that have taken place on MEG were something that not, I think, a lot of the industry was expecting, quite savvily done in general by the Strathcona company. Obviously, very high-quality asset at Christina Lake and the Tier 1 oil sands deposit that they have within the MEG portfolio that we expected to close and go over to Cenovus very soon here. And so I think overall M&A landscape, I think I'd expect to see further consolidation to take place through time. And we're a company that's executed quite a few acquisitions in our recent history. And so something like growing through M&A is, again, within our DNA, and we're going to be opportunistically looking to assets or companies to grow through and combine with, provided they fit the right criteria for the company. Rebecca Gordon: Okay. Fantastic. I think that most of these other questions have actually been answered through the course of the operator questions. So we'll leave it there. We're out of time. So thanks to everyone. Will, you want to close? Christophe Nerguararian: Thank you. William Lundin: Thanks very much, Rebecca. Appreciate it. And thanks, everyone, for tuning in. And look forward to the next update, which will be our year-end results and Capital Markets Day presentation in early February 2026. Thank you.
Operator: Greetings, and welcome to the Gladstone Commercial Corporation Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, CEO. Thank you. You may begin, sir. David Gladstone: Well, thank you, Latania. Good to hear from you again. That's a nice introduction, and thank you all for calling in this morning. We enjoy this time we have with you and on the phone, and I wish we had more time with you. Now I'll turn it over to Catherine Gerkis, she's our Director of Investor Relations and she will provide a brief overview regarding certain items in this report today. Catherine, go ahead. Catherine Gerkis: Good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements, due to various uncertainties, including risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecommercial.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X at Gladstone Comps as well as Facebook and LinkedIn, Keyword for both is the Gladstone Companies. Today, we'll discuss FFO, which is funds from operations, a non-GAAP accounting term defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets. We may also discuss core FFO, which is generally FFO adjusted for certain other nonrecurring revenues and expenses. We believe these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance. Now let's turn the presentation to Buzz Cooper, Gladstone Commercial's President. Arthur Cooper: Thank you, Catherine, and thank you all for joining today's call. We look forward to updating you on our results for the quarter ending September 30, 2025, our current portfolio and our 2025 outlook. From a macro level, Q3 provided a welcome sense of stability and positivity in the capital markets. The Fed reduced their funds rate by 50 basis points this year and long-term rates trended downward as well with a 10-year treasury making its way back to the 4% range. New acquisition offerings had the typical summer slowdown with an uptick after Labor Day weekend. We also noticed a gradual downward trend in asking cap rates, which we expected as those tend to move in harmony with long-term treasury yields. In spite of the standard summer slowdown, our team achieved several key accomplishments both at the balance sheet and portfolio levels. Dealing with the portfolio first. As we have discussed in the past, we remain steadfast in several key focus areas: growing our industrial concentration, adding value on our existing portfolio through renewals, extensions, strategic capital investments, and disposing of noncore assets and strategically redeploying those proceeds into quality industrial assets. By concentrating on these key focus areas, we expect to achieve increased portfolio WALT, strong occupancy rates and straight-line rental growth across the portfolio. These focus areas drove our activity in Q3. Regarding industrial concentration, we acquired a 6-facility cross-regional industrial manufacturing portfolio via a $54.5 million sale-leaseback transaction. This brings our acquisition total for the year through Q3 to $206 million and brings our industrial concentration to 69% of our annualized straight-line rents compared with industrial concentration of 63% at the start of the year. We're making great progress along those lines. As it relates to our working our existing portfolio, our asset management team continues to effectively manage the existing portfolio, evidenced by 100% collection of cash-based rents in the period, completing leasing activity of 734,000 square feet with remaining lease terms ranging from 0.7 years to 11.4 years at 14 of our properties and provided a total straight-line rental increase of $1.1 million and the disposition of 1 noncore industrial property. These combined efforts as of September 30, the portfolio is 99.1% occupied, which is the highest since Q1 of 2019. The weighted average lease term 7.5 years, is the longest WALT at quarter end since Q1 2020. Same-store lease revenues increased by 3.1% compared to the same period a year ago, and each of these milestones is a testament to the mission-critical nature of the assets in our portfolio, the quality of tenant credit and our underwriting. In short, our relationship with our tenants, the capital market community and our financial capability have allowed us to execute upon our focused areas at a high level. Moving to the balance sheet. I'll allow Gary to share the specifics during his remarks, but we also worked hard on our balance sheet during this quarter. As such, in addition to increasing our equity base through stock issuance throughout the quarter and subsequent to the end of the quarter, we successfully increased our credit facility to $600 million, extending and laddering our debt maturities. We are grateful to our lenders for their continued trust and partnership with us. These long-standing relationships are critical to our continued investment in the current portfolio and the addition of mission-critical industrial real estate going forward. Also looking ahead to the fourth quarter, we remain focused on evaluating opportunities to acquire high-quality industrial assets that are mission-critical to tenants and industries and accretive to our long-term strategy. At the same time, we will work to continue with our existing tenants to extend leases, capture mark-to-market opportunities and support tenant growth through targeted expansions, capital improvement initiatives and build-to-suit opportunities. While we remain aware of the challenging office environment, we will be strategic and intentional in evaluating our specific portfolio, seeking opportune times to dispose of office and noncore industrial as part of our continued capital recycling efforts. With the availability via our increased line of credit and access to private placement bond market, cash on hand and the ability to raise equity at our ATM, although currently we believe our stock price does not reflect the quality of our portfolio, tenant credit and shareholder returns, we are positioned to deploy capital into accretive industrial acquisitions and portfolio improvements. In closing, these last several quarters have seen a lot of activity and the team is focused on continuing their efforts as we head towards 2026. We are pleased with their efforts and their accomplishments. I'll now turn the call over to Gary to review our financial results for the quarter and liquidity position. Gary Gerson: Thank you, Buzz. I'll start my remarks regarding our financial results this morning. by reviewing our operating results for the third quarter of 2025. All per share numbers referenced are based on fully diluted weighted average common shares. FFO and core FFO share available to common stockholders for both $0.35 per share, respectively. FFO and core FFO available to common stockholders during the third quarter of 2024 were both $0.38. FFO and core FFO for the 9 months ended September 30, 2025, were $1.02 and $1.03 per share, respectively. FFO and core FFO for the same period in 2024 were $1.07 and $1.08 per share, respectively. Same-store lease revenue increased by 3.1% in the 9 months ended September 30 over the same period in 2024 due to an increase in recovery revenue from property expenses and an increase in rental rates from leasing activity subsequent to the 9 months ended September 30, 2024, partially offset by a settlement received at 1 of our properties related to deferred maintenance in the prior period. Our third quarter results reflect the total operating revenues of $40.8 million with operating expenses of $26 million as compared to operating revenues of $39.2 million and operating expenses of $28.5 million for the same period in 2024. Operating revenues were higher in 2025 due to increased recovery and higher rental rates, expenses were lower in the third quarter of 2025 versus the same period in 2024, mainly due to an impairment charge in 2024 and crediting back all the incentive fee in 2025 offset by higher depreciation and property operating expenses in 2025. In Q3, we increased net assets from $1.21 billion to $1.265 billion, which was a result of the portfolio acquisition this quarter. During the quarter, we increased our revolver commitment by $30 million to $155 million. Subsequent to the end of the quarter, we extended and upsized our bank credit facility to $400 million in term loans and a $200 million revolver. The revolving credit facility maturity was extended to October 2029 and the maturity dates for Term Loan A and Term Loan B components were extended until October 2029 and February 2030, respectively. The amended credit facility also provides the company with options to extend the maturity dates of the revolving line of credit and term loan C components until October '30 -- October 2030 and February 2029, respectively. The transaction led by KeyBank as joint lead arranger and book manager as well as Bank of America, the Huntington National Bank and Fifth Third Bank National Association as joint leader arrangers, Synovus Bank and S&T also renewed their commitments. In addition, PNC Bank and Webster Bank, both joined as lenders. As of today, we have no remaining 2025 loan maturities and $28 million of loan maturities in 2026. As of the end of the quarter, we had $145.4 million in revolver borrowings outstanding. Looking at our debt profile. As of September 30, 39% was fixed rate, 37% was hedge floating rate and 24% was floating rate, which is the amount drawn on our revolving credit facility and the amounts outstanding on term loans B and D. As of today, all of our term loans are hedged to maturity and only 13% is floating rate. As of September 30, our effective average SOFR was 4.24%. Our outstanding bank term loans are all hedged to maturity with interest rate swaps. We continue to monitor interest rates closely and update our hedging strategy as needed. During the 9 months ended September 30, 2025, we sold 4.4 million shares of common stock under our ATM program, raising net proceeds of $61 million. We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements and new acquisitions. As of today, we have approximately $6 million in cash and $63 million of availability under our line of credit. We encourage you to review our quarterly financial supplement posted on our website which provides more detailed financial and portfolio information for the quarter. Our common stock dividend is $0.30 per share per quarter or $1.20 per year. And now I'll turn the program back to David. David Gladstone: Well, it's a good day today. It is a good one for Buzz and Catherine too. The teams are really performing very well. Overall, a very nice quarter for all of us, I enjoy those dividends, I'm sure you guys do. We acquired a 6-facility industrial portfolio for a total of $54.5 million during the quarter, and we sold 1 industrial property and completed leasing activities on 14 properties comprising of 734,000 square feet. That is an annual increase in our straight-line rents of about $1.1 million, so that's nice to see. Subsequent to the end of the quarter, we extended and increased our bank credit facility, which is now at about $600 million. The commercial team is growing the real estate we own at a nice pace, and we're doing a good job of monitoring properties we own, especially during some of these challenging times that we have. Our team is strong professionals and continue to pursue potential quality properties on the list of acquisitions they are reviewing and our acquisition team is seeking strong credit tenants. Well, that's a good summary, and let's move on now to some good questions from those. So operator, Catania, could you come on and call on these people, and let's hear some questions from them. Operator: [Operator Instructions] The first question comes from Gaurav Mehta with Alliance Global. Gaurav Mehta: I wanted to ask on your industrial allocation, it's running close to 70% target that you've talked about in the past. I wanted to get some more color on what you expect going forward? Do you expect that industrial allocation will keep increasing beyond 70%? Or are you around where you want it to be? Arthur Cooper: Thank you, Gaurav. Yes, we do anticipate that increasing going forward. Obviously, there may be some ups and downs as it relates to dispositions within the portfolio. But our intent is to increase our industrial percentage as it relates to the straight-line rent going forward, certainly for the foreseeable future. Gaurav Mehta: Okay. Second question I want to ask is on your expenses. The same property operating expenses for third quarter and year-to-date are running at more than 20%. I just want to get some more color on the expense increase you're seeing in your portfolio. Arthur Cooper: We had some capital expense items. Gary Gerson: Are you talking about operating expenses? Gaurav Mehta: Yes, same property operating expenses. Gary Gerson: We have -- unfortunately, we've seen increases in expenses mainly due to things like inflation, and that's one of the main drivers. Arthur Cooper: Insurance. Gary Gerson: Yes. And that's -- and those are the -- insurance is -- that's been driven by returns for insurance companies as well as inflation. Arthur Cooper: And as you know, Gaurav, we pass on to the tenant and what we can and charge them back as it relates to the structure of the lease. But as Gary references, we have seen obviously a little effect of inflation and costs rising. Gaurav Mehta: Okay. And then lastly, on the capital expenditure for third quarter at more than $10 million. Can you provide some more color on what drove that higher? Arthur Cooper: What drove that higher was renewals. You noticed we had several renewals both from the second quarter into the third quarter. And so as a result of that, that's positive CapEx accretive to the company as it relates to those dollars put out, obviously are keeping tenants, adding tenants and with increased rents. David Gladstone: Okay. Operator, do you have some more questions? Operator: Next question comes from Barry Oxford with Colliers. Barry Oxford: David, just to build on that CapEx being higher in the quarter. How do you think of that in relation to the dividend? Are you confident in the dividend when you look at your CapEx expenditures going out. Now I realize that that's kind of good CapEx because on the renewals, you're going to be getting higher income going forward. But how do you think about the dividend in relation to the CapEx? Arthur Cooper: The dollars going out are accretive. So I don't see that it has an effect relative to the dividend other than at some point in time increasing. Barry Oxford: Okay. And then switching gears. When you look at the acquisitions pipeline for now and going out into '26, do you feel you can match '25 or just too early? Arthur Cooper: I think it may be a little too early. We obviously plan to and hope to, we have 2 transactions currently that we'd love to see getting the door perhaps by the end of the year, if not into the next. I think 1 may fall into this year. Competition, as we have referenced previously and I think as all of us do, is strong. But again, as we've worked on our balance sheet and look to bring our cost of capital down, we believe we'll be able to be competitive in the marketplace. And again, the team is doing a really strong job uncovering off-market transactions as well as repeat transactions. Operator: The next question comes from Craig Kucera with Lucid. Craig Kucera: I saw in the Q that you had on lease termination. Can you give us some color on the tenant and what type of assets it is? And was that the termination fee? Gary Gerson: No, we didn't have a termination fee. We had 1 lease termination. I believe that was the... Arthur Cooper: [indiscernible]. Craig Kucera: Okay. I thought I saw some accelerated right now. I was just trying to figure out when and how that would be recognized because none of it has been recognized yet year-to-date. Arthur Cooper: We'll look into that. Honestly, I need to -- I'm trying to get a little help here. Okay. We did have 1 small tenant quest that we did terminate and we're rolling into a new lease within that building in Ohio. So the termination was let the tenant out, but a new tenant jumped right in and took more of that space in the building. Craig Kucera: Got it. So with that remaining termination fee be recognized in the future? Or is that not going to be recognized? Arthur Cooper: There was no fee. We just terminated that and rolled right into the new tenancy. Craig Kucera: Okay. That's helpful. Changing gears, you stepped up and certainly added to your automotive exposure here with the portfolio acquisition. I think it's now about 15% of our ABR. Just given the recent bankruptcy news out there, I'd be curious to hear your thoughts on the space and how it relates to what's in your portfolio. Arthur Cooper: One thing, of course, and we have shown this over the years, we do extensive underwriting within our tenancies, as you know, and we have a robust investment committee. We do keep an eye on our concentration. Yes, we have 1 asset you know with GM down in Austin, Texas, that is not, for lack of a better word, concerned from a credit standpoint nor are they a manufacturer, it is an office building and that does mature at the end of next year. So we are currently looking to reposition that property as we get into next year with hopeful additional tenancy or end user. So when you do calculate that, we have to take into consideration the fact that, that's strictly just an office building in a good market, but unfortunately, in Austin, there currently is about $5 million, both industrial and office under construction. So we have heavy competition there. But as I mentioned, that we do underwrite heavily to keep an eye on concentration, but we feel confident with the tenancy that we have. Craig Kucera: Okay. Great. Your leverage has ticked up year-over-year. You've obviously been very active in the acquisition market, issued some equity but mostly debt. I'm curious, are you looking to maybe ramp up your asset sales to maybe bring down leverage or any dispositions on the horizon expected? Gary Gerson: No. I mean we'll continue to, with our capital recycling program, to reinvest into more secondary markets, from tertiary markets, industrial, from office and so forth. But what we will probably be doing is issuing a little more equity and bringing our leverage down upon new acquisitions. So when we acquire a new acquisition, we'll probably put more equity into it to continue to delever the balance sheet. Yes, we got -- we're a little higher than we want to be. But I think the results speak for themselves, and we're going to -- we're not going to go higher on the leverage than we are today. Operator: The next question comes from Dave Storms with Stonegate. David Storms: Just want to start maybe trying to get a read on where you see cap rates at or going? I know it was mentioned in the prepared remarks that you're seeing rates move down with the rate cut, the Fed rate cut. But it looks like between last quarter's acquisitions to this quarter's acquisitions, the weighted average cap rate expanded by like 65 basis points or so. Is this more one-off transactions? Or maybe just any thoughts there around cap rates? Arthur Cooper: We do see cap rates coming down. I think that there was an anticipation of a greater rate cut than what occurred. So that had an effect, obviously, and does at the moment. We'll see what happens, I guess, in December. But we do see cap rates compressing a bit. So we hope to take advantage of that, again, from our capital and the cash that we have on hand. But we are seeing good accretive plus 8.5% on average cap rates for us, and we just hope to find other good solid and you noticed we've moved up as it relates to the size of transaction going forward at the end of this year, but also into '26. David Storms: That's very helpful. And then maybe just circling back to some of your underwriting. Are you seeing any impact from the government shutdown on any of your tenants, maybe you can call up as second order impact, anything like that? Arthur Cooper: We actually have not. And as you know, we have a very robust property management team. One of the foundations of this company is our underwriting and the portfolio management team staying in front of our tenancies and they have not, as they've checked in with them, had expressed great concerns as of this moment as it relates to the shutdown. Operator: The next question comes from John Massocca with B. Riley. John Massocca: Maybe touching on the CapEx -- maybe touching on the CapEx spend during the quarter a little bit more. I mean, is that typical of what we should expect going forward as you kind of address some of the remaining '26 and '27 lease expirations and get in front of them? Or was this quarter just because of the amount of leasing activity may be a little abnormal relative to what you would expect as we look into 2026? Arthur Cooper: Yes, I would say you're correct. Just as we did have great success with a great number of re-leasings as we look forward into '26 and even '27. Several of our tenants, we've been in contact with all of them, and we feel confident on the renewals and the properties involved, honestly we don't see the heavy CapEx we've had this past 9 months, the past 3 quarters. We do see it trailing down. So again, it's good dollars spent, but we are not anticipating as heavy a hit. John Massocca: And now in the spending in the quarter, does that reflect at all the mix of the lease -- leasing activity being between office and industrial? Is it -- I guess it was a heavier office component this quarter? Or just kind of curious if there's another factor involved. Arthur Cooper: No other factor involved as a combination between the 2 with and again, office is more expensive than industrial. So it was more weighted toward office, which, of course, extending those terms will become part of our capital recycling moving out of office. John Massocca: And then on the investment front, just given where kind of cost of capital is moving both on the debt and equity side for you all, how should we think about kind of a return hurdle you're looking at, either in terms of a GAAP cap rate, cash cap rate IRR, I mean, are you still, you think, in a place where your cost of equity capital allows you to be expressive on the acquisition front? And a, kind of how is that looking versus what you're seeing in terms of cap rate movements in the pipeline? Arthur Cooper: And the cap rates within the pipeline, if you will, and what we see is some compression. We do believe we'll have to -- as we analyze our transactions depending on where our cost of capital goes. We're averaging north of 8.5% and I see that going forward. And again, as we move up the chain as it relates to size a little bit, hopefully, we'll have a little better efficiency as it relates to those cap rates. John Massocca: And I guess at 8.5%, if that's where cap rates are today, do you think you're able to kind of -- your cost of capital is at a place where that's essentially you have a green light to acquire assets? Arthur Cooper: Yes. Operator: At this time, I would like to turn the call back over to Mr. David Gladstone for closing comments. David Gladstone: Well, thank you. We've got a good team, and they've done a good job and we continue to grow the assets and pretty soon, we'll catch up with some of those bigger deals out there. But hopefully, this next quarter is going to be just as good as the past quarter. That's the end of this, and we thank you all for calling in. Next time, be more prepared with more questions. We like questions because that tells us where you're thinking and where you're going. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.