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Operator: Welcome to the Seagate Technology Fiscal First Quarter 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chair and Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and detailed supplemental information for our September quarter results on the Investors section of our website. During today's call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements and are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information, all of which may be found on the Investors section of our website. [Operator Instructions] With that, I'll hand the call over to Dave. William Mosley: Thanks, Shanye, and hello, everyone. Seagate delivered a very strong start to fiscal 2026. Revenue grew 21% year-over-year. Non-GAAP gross margin set a new company record at 40.1% and non-GAAP operating margin climbed to 29%, a level last seen in fiscal 2012. Non-GAAP EPS exceeded the high end of our guidance range, underscoring our focus on expanding profitability. Today, we announced an increase to our quarterly dividend of approximately 3%, reflecting confidence in our execution and ongoing sustainability of our cash flow generation capabilities as we leverage our leading HAMR technology and a strengthening demand environment for high-capacity hard drives. Demand strength was led by global cloud service providers, and we also saw meaningful sequential revenue growth from enterprise customers in the September quarter. The data center end market, which is comprised of nearline sales into cloud, enterprise and VIA customers represented 80% of overall revenue. Amid this improving demand backdrop, our high capacity nearline production is largely committed under build-to-order contracts through calendar 2026. Additionally, longer-term agreements that we have with our global data center customers provide clear visibility through calendar 2027, reinforcing our view that these favorable demand conditions will persist. We remain focused on executing our HAMR-based product road map to support our customers' growing exabyte needs and continue working with them to transition to higher capacity drives. There is no question that AI is reshaping hard drive demand by elevating the economic value of data and data storage. This is evident by the growing demand for our high capacity nearline drives as customers continue to ramp investments in AI applications. AI inferencing is set to inflect and scale rapidly, further increasing data's value. Inferencing consumes and generates large volumes of data, which is then stored, monitored, validated and reintegrated into an infinite training loop. We are already seeing the positive impact of this trend as global CSPs deploy large-scale inferencing applications that rely on multimodal inputs such as text, audio and video. Using monthly token consumption as a proxy for inferencing adoption, one major hyperscaler reported a 50-fold increase in the span of a year. This explosive growth is driving a sharp increase in unstructured data generation that creates demand for hard drive storage. Video content is a major contributor of unstructured data and is driving considerable demand for hard drives today from social media platforms to content delivery networks and online marketing. AI-generated videos promise to further fuel demand growth. There are already numerous text-to-video tools that democratize creativity by letting anyone generate professional quality videos from text, images or sketches. We see this trend already taking hold. For example, Google reports over 275 million videos were generated on its Veo platform within the first 5 months. With a 1-minute AI video being up to 20,000x larger than a 1,000 word text file, the data storage implications are clear. The rapid adoption and growing capability of these tools are already having a positive impact on the demand for storage. Beyond the application space, we have discussed new storage use cases from emerging trends around hybrid cloud environments that enhance data security and compliance with data sovereignty regulations. Recently Seagate partnered with a global CSP to develop a sovereign cloud solution for managing massive volumes of sensitive telemetry and sensor data collected from a fleet of autonomous vehicles. These type of data sets are subject to strict requirements and stipulate such data must be processed, stored and managed locally. As in any other data center, hard drives provide the ideal solution by meeting customer requirements for throughput, durability and cost-efficient long-term data retention. As data generation explodes and new use cases emerge, Seagate is answering the call with a clear long-term road map to capture demand. Momentum continues to build for our HAMR-based Mozaic platforms, and we achieved several important milestones in the quarter consistent with what we discussed during our analyst event. We now have 5 global CSPs qualified on Mozaic 3+ terabyte per disk products, which can deliver capacities up to 36 terabytes per drive. We remain on track to qualify the remaining 3 global CSPs within the first half of calendar 2026. Additionally, we shipped over 1 million Mozaic drives in the September quarter. These products are performing well in live production environments, and we are on pace to achieve 50% exabyte crossover on nearline HAMR drives in the second half of calendar 2026, and we started qualification with a second major CSP on the Mozaic 4+ terabyte per disk platform, with initial volume ramp starting in the first half of next calendar year. This platform will offer capacities of up to 44 terabytes. Advancing aerial density is a key competitive advantage, not just for Seagate, but for the hard drive industry overall. We are leveraging our manufacturing expertise and advancements in technologies, including silicon photonics to pave the path to 10 terabytes per disk. Our aerial density road map delivers a superior and sustainable TCO advantage for hard drives compared to alternative technologies well into the future. Customers clearly see the value of transitioning to higher capacity HAMR products as the most efficient way to support their rapidly expanding data storage needs in an AI-driven world. Wrapping up, the Seagate team continues to execute at an exceptional level. We are delivering on our target financial framework supported by a structurally improved business and a strong sustainable demand environment. We are advancing our HAMR led technology road map, which creates significant value for our customers and positions Seagate for long-term success. With the strength of our technology road map and the transformative impact of AI, we believe the best years are still ahead of us. I am proud of how our teams are rising to meet the opportunities ahead as we remain focused on delivering profitable revenue growth and expanding cash flow generation in fiscal '26 and beyond. I'd like to thank our employees, supply partners and customers for their many contributions to our performance and to Seagate's ongoing success. Let me now turn the call over to Gianluca. Gianluca Romano: Thank you, Dave. Our September quarter performance demonstrates strong operational execution and underscores the enhanced structural economics of our business model. We delivered revenue of $2.63 billion, up 8% sequentially and up 21% year-over-year. We achieved a record non-GAAP gross margin of 40.1%, up 220 basis points sequentially. And we expanded non-GAAP operating margin by 280 basis points to 29% sequentially. Our result in non-GAAP EPS was $2.61, exceeding the high end of our guided range. We have continued to execute our technology road map to support ongoing demand momentum for our higher capacity products. In September quarter, we shipped 182 exabytes, up 32% year-over-year, with the vast majority of that volume delivered to global data center customers. As we shared last quarter, we will be discussing the business across 2 key markets: data center, which is comprised of nearline products and system that are sold into cloud, enterprise and VIA customers. And edge IoT, which includes consumer and client-centric markets, along with network attached storage. In the September quarter, data center revenue represented 80% of our total revenue at $2.1 billion, up 13% sequentially and 34% year-on-year. Demand from global cloud customers continue to grow, and we also saw a notable improvement in the enterprise OEM markets. We project these positive trends to continue with cloud growth expected to outpace enterprise demand. Whether data is stored in public cloud, private cloud or on-premises, the shift from AI model training to inferencing is driving the need for large capacity or drive storage. This includes everything from saving checkpoints to maintain model accuracy and integrity to storing the vast data sets required for effective inference results. In the September quarter, we shipped 159 exabytes into data center customers, up from 137 exabytes in the prior period. Cloud exabyte demand increased for the ninth consecutive quarter, resulting in close to 80% of nearline volume on drive capacities at or above 24 terabytes as customers continue to mix up to higher capacity drives. Over the past year, average nearline drive capacity has increased by 26%, which is a primary contributor to our exabyte volume growth. Amid tight supply condition, we are partnering closely with data center customers to support and where possible, accelerate their qualification time line on our high-capacity Mozaic products. As Dave highlighted earlier, a majority of the largest cloud customers in the world are now qualified on our HAMR-based Mozaic drives, and we are continuing to ramp these products to support customer demand. The strong data center growth that I just described more than offset lower sequential sales in the edge IoT market, which made up the remaining 20% of revenue at $515 million. We are expecting some seasonal improvement in Edge IoT revenue in the December quarter from both VIA, Edge and consumer products. Moving on to the rest of the income statement. Non-GAAP gross profit increased to $1.1 billion, up 14% quarter-over-quarter and 46% compared with the prior year period. We expanded non-GAAP gross margin to 40.1%, which represents an incremental margin of nearly 70%. This margin growth reflects the benefit of increased adoption of our latest generation products and ongoing execution of our pricing strategy. Non-GAAP operating expenses were $291 million, up 2% quarter-over-quarter and in line with our expectations. The combination of strong top line growth and significant financial leverage drove a 19% improvement in operating profit to $763 million. Other income and expense were $74 million, and we are currently projecting OI&E to be essentially flat in the December quarter. We grew non-GAAP net income to $583 million with corresponding non-GAAP EPS of $2.61 per share based on tax expenses of $106 million and a diluted share count of approximately 223 million shares, including the net impact of our 2028 convertible notes of approximately 7 million shares. Turning now to cash flow and the balance sheet. We invested $105 million in capital expenditures for the September quarter or roughly 4% of revenue. For fiscal '26, we anticipate capital expenditures to be inside our target range of 4% to 6% of revenue, while we continue maintaining capital discipline. Free cash flow generation was flat quarter-over-quarter at $427 million, including the substantial variable compensation payout we discussed on our July earnings call. Looking ahead, we expect free cash flow generation to expand in the December quarter. We returned $153 million to shareholders through dividend. And as Dave noted earlier, we are increasing our quarterly dividend by approximately 3% to $0.74 per share. We deployed $29 million to repurchase shares of our common stock at an average price of $187 per share. We will continue to opportunistically repurchase shares and anticipate share repurchase activities to vary from quarter-to-quarter. We remain committed to returning at least 75% of free cash flow to shareholders over time. Cash and cash equivalents increased 25% sequentially to close the September quarter with ample liquidity of $2.4 billion, including our undrawn revolving credit facility of $1.3 billion. We exited the quarter with gross debt of approximately $5 billion and net leverage ratio of 1.5x based on adjusted EBITDA of $831 million for the September quarter, up 19% quarter-over-quarter and up 67% year-on-year. We are pleased that our strong execution is being recognized with S&P upgrading our credit rating earlier this month. Looking ahead, we expect net leverage ratio will continue to trend lower as profitability increases in the coming quarters. Additionally, we are exploring opportunities to further reduce debt, supporting the positive leverage ratio trajectory. Turning now to the December quarter outlook. The demand environment remains strong, particularly among global cloud data centers. We expect to increase revenue and expand margins as these customers continue to shift to our next-generation storage solutions to support their increasing demand. We expect December quarter revenue to be in a range of $2.7 billion, plus or minus $100 million, which represents a 16% year-over-year improvement at the midpoint. Non-GAAP operating expenses are expected to remain relatively flat at approximately $290 million. Based on the midpoint of our revenue guidance, non-GAAP operating margin is expected to expand to around 30%. Non-GAAP EPS is expected to be $2.75, plus or minus $0.20 based on a tax rate of about 16% and non-GAAP diluted share count of 227 million shares, including estimated dilution from our 2028 convertible notes of 10 million shares. As demonstrated by our September quarter results, Seagate is delivering on our financial commitments, reinforcing our track record of operational execution. Our performance is underpinned by a strong product road map that offer enterprise exabyte scale storage solutions, enabling them to maximize the potential of their data. This strength positions Seagate to drive meaningful value for both customers and shareholders. Operator, let's open the call up for questions. Operator: [Operator Instructions] Our first question today is from Mark Newman with Bernstein. Mark Newman: Congrats on a great quarter. The question was really, if you look at -- you commented at the beginning at the strong orders and it seems like you have order backlog through to -- I think you mentioned through to 2027. And the supply seems to be quite tight in the market. I just wonder if there is any plans to add capacity, if there's any specific supply chain bottlenecks that may alleviate over time? Obviously, there's pros and cons to that. So I'd just like to see how you're thinking about the whole supply-demand balance and if you're adding any capacity, that would be great if you could comment on that. And then a follow-up on HAMR mix. Congrats on the fifth hyperscaler being qualified, solid execution on HAMR so far. Just wondered what you're hearing from customers so far in terms of adoption for HAMR? Is there any upside or downside to the previous projections you provided for HAMR rollout going forward? William Mosley: Thanks, Mark. Your two questions kind of go hand in glove. What I would say is that our strategy for adding capacity, if you will, is to go through product transitions. We're not really adding unit capacity. Through some of these product transitions, we actually lose a little bit of capacity because the process content is a little higher as we go through, but we add exabyte capacity. And to your question about HAMR, a lot of the reason that customers are engaging with us on these long-term agreements is because we have visibility into higher and higher capacity points. So the demand that most of the hyperscalers certainly are feeling is for more exabytes. More efficient exabytes in their data center allows their space and power and all their other metrics to get the best returns of TCO, if you will. And that's what we're really trying to answer the call for. We're very focused on going through the product transitions, getting our yields up on the product transitions and then ultimately transitioning to the point where we get 40s and 50s and so on and add exabyte capacity that way. Mark Newman: Any update on the HAMR rollout, sorry? William Mosley: Nothing more than what we said in the script, I think the qualification you made reference to. The ramp continues on and part of this is predictability of those transitions that we're going through. We have to make sure we're staged for that so that we get the customers what they need. Mark Newman: Yes, we are happy to have achieved another call during the quarter. So now we have 5 customers qualified on 5 big customers, cloud customers qualified on HAMR. Of course, this is contributing to our delivery in the quarter and how we guided December quarter. So we are achieving those level of revenue and profitability a little bit faster than what we were thinking. And of course, this is related to the transition of the mix to higher capacity drives mainly to HAMR. Operator: The next question is from Erik Woodring with Morgan Stanley. Erik Woodring: And congrats on your results tonight. Gianluca, since your May Analyst Day, you've reported 2 quarters where your incremental margins have been 60% to 70%. Is it fair to say that in the new demand environment that we're in and the need for higher capacity drives, we should be thinking about your incremental margins just being higher, consistently higher than that 50% incremental margin you outlined at your Analyst Day? Or why would we not see these level of incremental margins sustain? I realize not literally every quarter. But generally speaking, why would we not see 60% to 70% incremental margins sustain from here? Gianluca Romano: Thank you, Erik. Well, you're right. No, we are executing a little bit better than what we were expecting. And as I said before, this is mainly due to the move to better mix in terms of profitability. Not every quarter is the same. So of course, now that we are qualifying more customers and moving more customers to the HAMR drives. We have a little bit of a higher support in terms of profitability. I would say this will be different every quarter, even the pricing strategy that we have is very consistent, but not every quarter, we have the same number of new negotiations going on. So it's not easy to estimate exactly what will be the profitability and the mix of a specific quarter. I think in the short term, we are delivering very good results. Longer term, I think the model that we presented at the Analyst Day is a strong model. But you're right, in the short term, we are doing a little bit better. And you have seen how we got in December, it basically implies a higher margin than the 50% incremental from September. Operator: The next question is from Jim Schneider with Goldman Sachs. James Schneider: I was wondering if you could maybe address the level of cost reduction you expect to achieve on a blended basis as we look out into calendar 2026. Is there anything that would kind of prevent you from achieving that kind of mid-teens cost down on a blended basis, even as you ramp HAMR more aggressively, could that actually be better than that? Or is there a reason it would be worse than that? And then just to clarify, the prior statement you made on not adding unit capacity, is there any kind of benefit you get in terms of sort of dual capacity tracking HAMR versus conventional technologies that would add a little bit of unit capacity into the overall mix? Or is that just an overall dilutive event to overall units? William Mosley: I'll take the second part first, and then I'll let Gianluca answer the cost question. So the way I think about it is, and I think I understood your question this way, there's some of our PMR technologies, which are in high volume, and as we transition to HAMR and the newer products, 30, 40 terabytes [indiscernible] then we're going to have to pivot pretty substantially. We don't really think about it as going back and building more of the PMR technology. We think about it as freeing up the PMR technology to ultimately go through the pivot, and that's how we're going to add exabyte capacity. As far as unit capacity, that -- a lot of that comes down to customers that are asking or qualified and what we've planned with them. So those plans are taking a long time to develop. And what Gianluca said earlier, if we get any upside -- marginal upside, it's because we're pulling in the future a little bit. Do you want to answer the question on cost, Gianluca? Gianluca Romano: Yes. On the cost, of course, we don't guide cost for calendar '26. I would say the good improvement in our cost per terabyte is coming from the transition to higher capacity drives. So the mix is very important and every quarter is different. I would say you will see more and more transition to HAMR. We have 2 customers that are qualifying 40-terabyte drive. That , for sure, will be a good boost to our reduction of cost per terabyte during calendar '26. Operator: The next question is from Asiya Merchant with Citi. Asiya Merchant: There was commentary earlier about inference demand. If you could talk a little bit about the visibility of that demand. What gives you confidence that this one continues to grow maybe in terms of applications that you're seeing and that's kind of giving you the confidence of demand through calendar year '27. And how should we think about seasonality here? Typically, March does have a seasonal drop? How should we think about that given AI inferencing demand is pretty strong here? William Mosley: Yes. It's actually very interesting for all of us to watch. Most of what I think has driven our demand over the last couple of years is this move to video where short-form or long-form video, like over 80% of the Internet traffic right now is on -- is video content. And there's just literally tens to hundreds of millions of videos being uploaded every day. I think exactly to your question, the more people can generate, access those videos via inferencing, the faster that happens, the better it probably is for our storage. And so do we see -- how is that going to progress in the next 9 months or 12 months? It's a little hard to tell, but we're pretty excited as we see new applications coming online that allow people to generate the videos. The videos are longer in format. They're richer in content. They've got more embedded video, so on and so forth. But it is really hard to predict. And I think our customers are struggling with this a little bit as well, which is one of the reasons the demand is strong. Gianluca Romano: Yes. On the seasonality in the March quarter, of course, it's a bit early to discuss about March. We just guided December. I would say considering that data center revenue is 80% of our total revenue, the impact of seasonality is probably lower than what you have seen in the past. I think every year will be a little bit lower. But of course, we are not guiding much, but we expect a good quarter. Operator: The next question is from Wamsi Mohan with Bank of America. Wamsi Mohan: Can you talk a little bit about how you're managing pricing in this very constrained environment? How much is contractually locked in going into a quarter? How much flexibility do you have in intra-quarter basis? And when we look at just the reported quarter, right, like the dollars per terabyte decline was consistent with the prior quarter. But obviously, the demand environment is very strong. So hoping you could unpack that a little bit. Is there a differential there between HAMR and non-HAMR that's contributing to that? Or what's causing that dollar per terabyte to be -- decline to be relatively consistent, given just like this very strong demand backdrop? William Mosley: Yes. Thanks, Wamsi. So there's -- a lot of what we're doing right now is very predictable. To our earlier comments, if we can execute a little bit better than planned, we can take cost out or we can pull in products that get qualified faster, but we are supply limited from that perspective. And contractually, we are giving our customers that predictable economics as well. Over time, if we go through these transitions a little bit faster, then the next contract comes up and the next contract comes up, we can actually make sure we get the right economic returns for what the market needs. And I think that's the long-term strategy right now. But kind of near term, everything is happening according to plan to being slightly shifted left. Gianluca Romano: Yes, our pricing strategy is the same since about 10 consecutive quarters. So when we renegotiate a contract, we increased -- slightly increased pricing for the same product. And then when customers move to higher capacity products, they can get a little bit of a lower price per terabyte. That's why with major transition of customers to HAMR product with higher capacity, you can see a slight decrease in the average price per terabyte. But you see in the profitability the impact of the like-for-like price increase and all the cost per terabyte decrease due to the mix. Operator: The next question is from C.J. Muse with Cantor Fitzgerald. Christopher Muse: I want to clarify the March seasonality question earlier. Curious, if you were to assume that consumer were seasonal, could you pivot supply more to the cloud? And then I guess as the main question, your customers are turning to SSDs, given the tremendous tightness on the HDD side. Curious your thoughts around that cannibalization. And I guess what would maybe change your mind in terms of the vision for this sustainably higher demand and then potentially add capacity to support that. William Mosley: Yes. Thanks, C.J. So I don't think that customers are really changing their architectures because of what they're seeing right now. What everybody is driving us to do is getting more predictable over time and if anything, be more aggressive on the product transition. So I don't really think there's any "cannibalization. " As a matter of fact, I don't think it's in anybody's economic benefit to do so. And the architectures are pretty well set going out for a couple of years. Gianluca Romano: Yes. No, we see actually demand -- the gap between supply and demand getting a little bit bigger every quarter, that means demand is shifting more into the future, is not taken by any other technology. William Mosley: And then your comment on seasonality is kind of interesting to think about the -- in some of the edge IoT markets, there is seasonality indeed. We have been taking slowly. We've been taking some supply out of Edge IoT products and putting it into cloud as we can pivot demand. Some of that's happening naturally as a part of these product transitions, which we've been talking about. It's not something we can do very quickly until we get to some of the products like the 4 terabyte per platter where we have commonality all the way through the platforms, but we will think that. So even though the edge IoT is -- the revenue is going down a little bit, the profitability is actually greater because -- those products are being prioritized a totally different way than there was a ton of supply on the market. I do think that will mean a little bit muted seasonality because that market is still fairly strong. I think it was over $0.5 billion last quarter on the Edge IoT. Operator: The next question is Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: I had a question and a clarification. Dave or Gianluca, in the past, you spoke about sharing the cost benefit of HAMR with your customers. But now with cloud becoming a bigger portion in the AI tailwind, I'm wondering if you're rethinking your pricing strategy for HAMR i.e., can you increase it further? And then a clarification, Gianluca, historically, your revenue guide had a range of $150 million, now it's more like $100 million. So is that because better visibility build-to-order helping you tighten that range? William Mosley: Yes. Thanks, Chris. So I think what you said is very true. We are -- as we go through these product transitions, we're being as predictable as we can with the customers. But they -- some of the contracts are quite long as well. And so the market -- as the demand goes up, the market will adjust. Remember, that most of the benefit that the customers are seeing is in that TCO proposition with a higher capacity drives. So the pricing is a factor in that, but also this benefit that they see in their TCO is a factor as well. And so it will adjust very slowly over time as the market develops. Gianluca Romano: On the HAMR pricing, in the past, we discussed only with 1 customer to giving them a slightly lower price, but this customer, of course, help us with the first qualification of the product. And so for a certain volume, they have a lower price than other customers. But of course, this is transitioning fairly quickly. It's just a matter of a few more quarters. Operator: The next question is from Amit Daryanani with Evercore ISI. Amit Daryanani: I guess, Dave, as you see an uptick in video creation, you've been talking about this, but with offerings like OpenAI, Sora. And given your nearline capacity is fairly committed through calendar '26, are you seeing customers looking to potentially fund or co-invest CapEx dollars for Seagate to get access to more units? And is that something you'd be open to? I would love to just understand like if this sort of keeps playing out the way you outlined, is areal density going to be enough? Or would you or your customers have to eventually add some capacity to get more units? I'd love to understand if you'd be open to that co-investing angle. And then if you just qualify this a little bit. When you talked about shipping 1 million-plus Mosaic drives this quarter, does that imply that about 36 exabytes of the total units were HAMR-driven this quarter? Is that fair? William Mosley: I'll let Gianluca answer the question on exabyte because he'll go calculate it, but you're not far off. I mean, what we -- the way we think about it is going through those transitions opens up all these higher capacity points. Yes, from a customer perspective, I think I mentioned earlier, there isn't great visibility on what some of these new tools are going to unlock. But I think there's a lot of optimism around demand, especially in the video properties that exist in the world. And so therefore, nobody wants to be too late to these. I don't think that there's any significant changes to architecture. But I do think what is -- what we see driving or what's driving us is really stability. So it's customers showing up and saying, let's be very predictable as far as what I'm going to get. Some of the numbers about how much demand there is above and beyond what our supply is. Those numbers are contacted by someone else. I don't think it's -- that's the way necessarily each customer looks at it. What customers are starting to see is a temporal shift. So saying, hey, can I pull this in a little bit because we know -- they know we're gaining exabyte capacity over time, especially through the product transitions. That's what you saw contribute a little bit more to last quarter. And as we go as hard as we possibly can through the product transitions, we'll be bringing on more and more exabytes. So getting these qualifications done, getting us up to ramp, it's all priority for the customers as well. That's the way they're going to add capacity. Gianluca Romano: Yes. No. First of all, I think it's very important that we keep the current balance between supply and demand and not taking action to oversupply in the future, the industry. In term of exabyte, it's a nice question. I would say you know that our HAMR product is between 30 and 36 exabyte -- sorry, terabyte per unit. So with 1 million units sold in the quarter, we are into that range. Operator: The next question is from Aaron Rakers with Wells Fargo. Aaron Rakers: Yes, I guess, first on the housekeeping side. I know that new disclosures. I'm curious of how -- or if there's any way we should think about the systems business within -- I guess, it's in the data center piece of it that we kind of just think about what it was over the past many quarters and kind of think about that kind of level going forward? And then on a nearline demand perspective, given the growth that we're seeing, looking back at the Analyst Day, I know you outlined kind of a mid-20% CAGR. Has your thoughts at all changed whether or not that, that's structurally just looking forward just higher relative to what you initially thought back a few months ago? William Mosley: Thanks, Aaron. From the systems business, we -- obviously, we package the drives into the racks to save some customers some work. It's a fairly limited number of customers. They're great customers, and we don't really see the landscape changing too much on that. There's -- the customers that are buying their drives today and having someone else do the integration aren't necessarily pivoting the systems could happen. But -- so I think [ study ] goes on that front relative to nearline, we're all watching demand. And the mid-20 number is something we continue to grapple with, and thus most of the questions we've been asked today about how much supply is there. Again, I'll just say it the way we bring them more exabyte supply is to get the bigger drives out. And so that's what we're all focused on. Gianluca Romano: Yes, Aaron. And we report system as part of data center, and this is very similar to what the rest of the industry is doing. So we try to align, so it's easier to look at the different players in the same way. Operator: The next question is from Thomas O'Malley with Barclays. Thomas O'Malley: I wanted to understand the timing of the crossover between the Mosaic 3 platform and the Mosaic 4 platform. I think you guys have historically talked about the first generation is what takes a long time. That's what was the struggle with your first big customer, but now you're really seeing that adoption kind of accelerate across other global CSPs. So at Mosaic 4, it sounds like it's starting to ramp in volume in the second half fiscal year '26. Could you get to a crossover point in the first half '27? Like should we be thinking about 15% or 20% contribution? I'm just trying to understand how much supply you can actually add to the industry with that transition in the short period of time. William Mosley: Thanks, Tom. Yes, it's a question we're asking as well because as we go up the ramp, then yields and scrap and everything else on the new product is what dictates that. We understand the old product pretty well. There is a lot of commonality and piece parts between the 2 technologies between the 2. So it's not -- this is not a complete unknown on the ramp. But from my perspective, it will be a little bit faster ramp. We have to go execute, and that's what the team is going to be focused on. The qualifications are running well so far. So there's no reason to be disappointed at this point, and I'll be continuing to employ the teams to get the yields up as quickly as we possibly can to accelerate the transition. Operator: The next question is from Karl Ackerman with BNP Paribas. Karl Ackerman: Dave, you spoke about longer-term agreements offering visibility into 2027. Presumably, that visibility is on exabytes for HAMR drives. But since you didn't specify what that visibility is, does exabyte slowdown in the context of that 25% exabyte growth over time? Or do you think expect demand actually accelerates into '27 from what you see today? William Mosley: Well, I think that's a -- so there's a supply question and a demand question. I think, yes, the supply would go up quite a bit because as we go transitioning to the earlier question Tom asked as we transition to the 4+ product family, we get a lot more exabytes out of it. So this will drive that as hard as we possibly can. We are working with customers, major hyperscalers and everything else on the 5 that we've qualified on 3+. Now we get as many qualified on 4+ over the course of the next year, and we get significantly more exabytes out. That's what we're driving. Operator: The next question is from Timothy Arcuri with UBS. Timothy Arcuri: I also had a question about the HAMR crossover. So 5 of the CSPs are qualified now and the other 3 are going to get qualified in the first half of next year. It sounds like it's about high teens of exabytes now, maybe pushing 20%. I would have thought you could get to exabyte crossover before a year from now if more than half the CSPs are called now and everyone is pushing to get these higher cap drives. So why would it take another year to go from 15% to 20% of exabytes to more than half of exabytes? William Mosley: Yes. Thanks, Tim. So there's a lag in the supply chain, obviously. We have -- we've started wafers for various products. We will sell those various products. Just pulling in the qualification does not necessarily mean we turn a light switch from the old product to the new product. We have to actually go through that transition ourselves in our own factories. We're going to do that as aggressively as we can. And I think I asked this back -- I answered this back in Tom's question, there is some commonality between. So we can pivot a little bit, but not as hard as we'd all like. And I think some of this will be dictated by our yield ramp and so on the new products. But things are going well. So we're going to be as aggressive as we can. Gianluca Romano: It takes time to ramp. Now as you know, the cycle time for HAMR is not short. So we need to qualify first and then to ramp the product. So it takes a certain number of quarters to really go up in capacity. Timothy Arcuri: So I guess that's why you'd be buying heads from TDK basically from the outside, right? William Mosley: No, we're not buying heads today from TDK. And I would say TDK is a great partner, has been for a long time. We talked to them about technology all the time, but they don't have HAMR technology. So what we're focused on is how do we get transitioned to the HAMR exabytes as quickly as possible. Timothy Arcuri: Yes. I meant PMO heads, but thanks. Operator: The next question is from Steven Fox with Fox Advisors. Steven Fox: Just listening to all the questions and thinking back to the presentation in May where you lined up sort of the road map and the time it takes. It seems like hard disk drives is going to become more of a bottleneck to some of the expansion plans for the cloud guys as we get into next year. How legitimate is that of a concern? And what else could be done at the cloud guys to just sort of leverage existing capacity to sort of get through that period and keep you guys on track? William Mosley: Yes, Steve, I don't look at it as something that's immediate or going to be solved in a period of 3 months, the industry is not going to bring on more supply in 3 months. It's not -- so really what's coming out of all of this is customers are getting very predictable on long-term plans. And that's what they need to do, and that's that we need them to do as well because we've got long cycle times as we've been saying. So it's building industry health and that's good. We can't react with supply to everyone's wish list, and there's probably wish list that aren't real at some point. But the customers that we're working with are being very predictable for us telling us exactly what they're going to need, and we're answering, call it, to the extent that we can. And if they need more exabytes usually, we're off book. It's a timing problem, a temporal problem. We're up by a few months or 6 months or something like that. And so ultimately, as we go through these transitions, we're going to bring on more exabyte capacity and they're going to be happy with it. Again, we don't see any evidence architectures changing or anything like that. Steven Fox: Understood. And the advanced algebra on how you're upsiding is just different every single quarter depending on -- you mentioned like half a dozen variables between how many exabytes you got out this quarter versus last quarter and the next quarter? William Mosley: Yes. We're executing well, as we said in the script, and we're pulling as hard as we possibly can, but we're executing the plan that we have and pulling in as much as we can as qualifications complete, and we'll continue to do so to the extent that our factories will let us. I mean we're -- it's a fairly long supply chain. Operator: The next question is from Ananda Baruah with Loop Capital. Ananda Baruah: Dave, how should we think about -- well, what's the most useful way to think about velocity, I guess, the pace at which customers going forward will look to mix up to higher capacity points given the shortages and given the areal density is what's going to bring new exabytes to market, do you think that we'll see folks look to mix up faster than historical? And part of this, I get is obvious because when you make a switch to HAMR, there's like a stair step-up in capacity. But even as HAMR normalizes, let's say, once you get past crossover, say, 12 months from now, once HAMR normalizes, do you think we could see an even faster than typical mix up inside of HAMR? And if not, like what would be the gating factors to that? Appreciate it. William Mosley: Thanks, Ananda. It doesn't seem like that long ago that we were talking about 16s going to 18s or 18s going to 20s, diminishing returns, I would say, on PMR products. And then as we've gone 30 to 40, we see an immense pull for 40s. And then -- and I think that will be true with 50s as well as we try to drive that part of the transition because the TCO proposition is so much better if you're building a data center and then you want those products. So I do think that, that's reflective in the customers' behaviors exactly to your point. Back in the day when we were moving from 16 to 18 or 18 to 20, we just weren't seeing that much push. Now on the demand side, on the true end demand side, I think it's also because of what's going on in the world, we pointed out video in the script. Some of the video properties are just exploding right now and the capability to create and diversify the video in the world is great, and people are monetizing it, that's great as well. So human creativity is what's fundamentally driving all of this stuff. And I don't see it slowing down. Operator: The next question is from Tristan Gerra with Baird. Tristan Gerra: Could you elaborate on the duration of the long-term agreements for HAMR? Is there a pricing component to it? And what percentage of total revenue is currently based on those agreements? How does that compare with what the mix of those agreements was last year? Gianluca Romano: Well, every customer has a different [ FTA ] or build to order. So the duration is different, the volume is different, the mix is different. But what we said in the prepared remarks, the vast majority of our nearline exabyte have already been committed for entire calendar '26. So we have a fairly long build to order in place. Tristan Gerra: Okay. And then as you look at the ramp of HAMR and you're not ramping capacity, you're migrating to higher densities. Is your expectation on the basis of that ramp and what you see in terms of demand that lead times are going to remain similar to what they are today? Or would you expect lead times to expand further despite the ramp and migration to higher density HAMR? William Mosley: Yes, it's a good question, Tristan. I think they'll remain like they are today. Getting through the HAMR transition, you have to add a significant amount of content to wafer, in particular, which is one of the longest lead times. But the next generation and the next generation after that, you don't have to go through that amount of transition again. So I do think it's a step up in lead times. We'll work it to get it back down as quickly as we can, but I think there's a substantial amount of process content. So we've gone through that step up, at least on those products. And then after that, we don't have to get to 4 terabytes per platter, 5 terabytes per platter and so on. Operator: The next question is from Mark Miller with the Benchmark Company. Mark Miller: Congratulations on another good quarter. I'm just wondering -- are your margins and yields on your HAMR drives at parity with the legacy PMR drives? If not, when you expect that to occur? William Mosley: Yes, Mark, I would say we don't have ePMR. So we have -- our last generation PMR drive is a great drive. It's fantastic. It's got great yields. I'm very happy with it. We're always going to be working the next generation and the next generation as hard as we possibly can. The 4 terabyte per platter, which is what we're all focused on right now is where we need to get the yields up and it's still early in its lifetime. So we'll continue to put as much muscle as we have in Seagate to get that done this year. Operator: The next question is from Vijay Rakesh with Mizuho. Vijay Rakesh: So just I saw good numbers on the gross margin side, up pretty nicely sequentially. Just wondering with the drop-through on HAMR, would you expect to hit the mid-45%, 45% margins exiting fiscal '26? Or how should we look at that margin progression? And I have a follow-up. Gianluca Romano: Yes. As I said before, from Erik's question, no, we are very pleased with the progression in gross margin and also with the increase in revenue. So we have achieved the $2.6 billion in revenue and the 40% gross margin a little bit earlier than what we were thinking. And we have guided December with an incremental margin that is higher than the 50% that we discussed in our financial model. Every quarter is a little bit different. Right now, we have a fairly quick transition from the PMR drive to HAMR drive. And with higher capacity drive, we get better profitability. So in the short term, we are progressing well. And as I said, every quarter will be a little bit different. I think the model that we presented in May is a strong model for the next 3 years, but it doesn't mean we cannot execute even better. William Mosley: Right, Vijay. And as I reflect on a lot of the questions today, it's about how well do we don't know the demand further out and some of it's predictable, but the demand may keep on coming based on what we see in some of the end applications and then our ability to continue to work the yield issues around the new 4 terabyte per platter and get through that transition as quickly as we can, and that will help the cost side and supply side from an exabyte perspective. So that's what we're all focused on. I appreciate the question. Vijay Rakesh: Got it. And Dave, just on the -- on your follow-up on the video side with the increased traffic, do you -- the longer-term exabyte growth that you guys had laid out on the 20%, 25%, do you see upside to that now given this significant increase in video traffic on storage? William Mosley: Well, this is what we're all still studying, I think. We've seen, especially with some of the new AI generation -- AI content generation, which we talked about in the prepared remarks, we're studying how fast the uptake there is for some of these new creative capabilities that people have. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. William Mosley: Thanks, Gary, and thanks to everyone for joining us today. As you can see, fiscal 2026 is off to a great start. It's marked by strong operational execution and outstanding financial results. I want to once again express my gratitude to our employees, our suppliers, our customers and our shareholders for their contributions to Seagate's ongoing success. Together, we are advancing innovation to serve growing data storage demand and position Seagate for long-term value creation. Thanks for your continued support. We look forward to the significant opportunities ahead. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Frank Maaø: Good morning, and welcome to Telenor's Q3 results call. I'm Frank Maao, Head of Investor Relations here at Telenor. And presenting today are our CEO, Benedicte Schilbred Fasmer here; and our CFO, Torbjorn Wist. Before we get started, just a few quick notes. So unless we say otherwise, all growth rates are organic and made on a constant currency basis. And when we mention EBITDA, we are referring to adjusted EBITDA. [Operator Instructions] And with that, I'll hand it over to Benedicte. Benedicte Fasmer: Thank you, Frank, and good morning, everyone. This quarter, we've seen a challenging external environment. Hybrid warfare, extreme weather and a high level of cyber threats have all impacted power and communications. And these events are a reminder of how crucial robust digital infrastructure is. And at the same time, they give us opportunities to help customers build resilience, thanks to our strong network and technology foundation. Today, we are reporting another solid quarter, mainly driven by strong results in the Nordics. Our commercial strategy and ongoing transformation efforts continue to pay off with EBITDA in the Nordics up 8% and 50,000 new mobile customers added. In Asia, however, we do see a bit of a more mixed picture. On one hand, we grew service revenues and EBITDA by 4% with positive contributions from both Pakistan and Grameenphone in Bangladesh. On the other hand, we continue to expect challenges in the region, as Torbjorn will get back to, including the macro economy and headwinds tied to the cost of supporting data growth, including spectrum. Thanks to the dedication of our employees across the group, we have delivered an EBITDA growth of 5.4% and a free cash flow before M&A of NOK 4.2 billion this quarter. And this represents a 50% year-on-year increase due to higher EBITDA, prudent CapEx and supportive working capital management. And with 3 quarters now behind us, we are reaffirming our expected performance for 2025, and we are tightening our guidance ranges. So let me walk you through the key developments in the Nordics and Asia before Torbjorn takes you through the financials in more detail. The Nordics continued to deliver strong results with momentum across all business units. Organic service revenues in the Nordics rose 2.1% as OpEx declined by the same percentage year-over-year, driving the 8% increase in EBITDA. Breaking it down, gross profit improved, supported by upselling, pricing, product mix and increased wholesale revenues. Ongoing transformation programs helped lower OpEx even though we spent more on sales, marketing and business resilience. And again, Norway remained our top performer with 2.3% service revenue growth and 9.2% EBITDA growth. And that was also supported by the national roaming agreement announced last year. In Sweden, top line growth was flat due to our fixed transformation initiative, but EBITDA grew 7.5%, thanks to improved gross margins and OpEx efficiencies, especially in customer service. We made good progress in the mass market mobile segment, increasing both ARPU and our customer base, though the enterprise segment in Sweden remained very challenging. In Finland, DNA grew service revenues by 2% year-over-year. This was supported by net additions of 28,000 mobile customers and 3,000 fixed customers during the quarter. For this quarter, DNA grew EBITDA by 5% and quite a bit more on an underlying basis. Denmark delivered 5% growth, powered by strong mobile and fixed wireless access. EBITDA was up 4% despite strategic channel shifts and a huge transformation effort. Overall, the Nordics delivered a strong performance. In Asia, we continue to make operational progress despite a tough external backdrop. Grameenphone delivered growth in both service revenues and EBITDA, though the upswing was softer than hoped. The macro context is still fragile and data price competition is intense. During my recent trip there, I could genuinely feel a sense of optimism building up among the people as the election approaches early next year. Telenor Pakistan delivered 17% year-over-year EBITDA growth, which is actually great to see. Nevertheless, a key milestone for us was the competition authority approval for the sale to PTCL. We are now awaiting the last approvals and aiming to close the transaction during the next few months. In Malaysia, we recognized NOK 0.5 billion adjustment to our share of CelcomDigi's second quarter results. This was due to the financial profile of its associated 5G network company, DNB. And Torbjorn will cover that in more detail. In Thailand, True continued to improve profitability and reduce leverage in Q2. Next week, a first ever interim dividend is expected to be proposed with payment in Q4. On October 1, we announced a strategic procurement partnership with Vodafone. And this collaboration brings together the scale and expertise of 2 global leaders serving over 550 million customers across 23 markets. And by combining the strength of our 2 organizations and an annual spend of altogether NOK 300 billion, we can unlock significant value within sourcing. As we gradually phase this in towards the latter part of this decade, we expect this partnership to provide meaningful value creation. And for Telenor, this translates into enhanced competitiveness and improved cost efficiency. It also strengthens our attractiveness to suppliers and partners while bolstering supply chain resilience. A very critical capability in today's evolving geopolitical and technological environment. The partnership is also grounded in a shared sustainability commitment, reinforcing our leadership in responsible sourcing and business practices. Ultimately, this partnership is about creating long-term value for both our customers and shareholders. And with that, I'll hand you over to Torbjorn for more on the financials. Here you go, Torbjorn. Torbjorn Wist: Thank you, Benedicte, and good morning, everyone. Let's dive straight into the Q3 financial highlights. Group service revenues in the quarter reached NOK 16.3 billion, which is up 2.7% year-on-year. The adjusted EBITDA was NOK 9.5 billion, up 5.4%, mainly driven by the strong 8% EBITDA growth in the Nordics. In Q3, adjusted EPS was NOK 1.85, down 3% from last year, mainly due to the NOK 0.5 billion accounting adjustment for CelcomDigi that Benedicte mentioned in her remarks. Without this adjustment, the EPS growth would have been 18%. Now we generated a solid free cash flow before M&A of NOK 4.2 billion during the quarter, which is up 50% year-on-year on the back of our EBITDA growth and slightly reduced CapEx. The group CapEx to sales ratio was 13.3%, 0.7 percentage points lower than in the same period last year. The leverage ratio ended up at 2.3x within our target range, and this was supported by both the free cash flow profile as well as slightly favorable end-of-quarter currency movements as the Norwegian kroner strengthened against pretty much all our currencies. As previously stated, driving return on capital employed over time remains a top priority for us. Return on capital employed came in at 8.6% for the last 12 months, up 0.6 percentage points from last year. If you exclude all our noncontrolled companies, the group return on capital employed would have been close to 14%. Let's zoom in then on the top line. The group service revenue growth of 2.7% year-on-year remained constrained by weak macroeconomic conditions in Bangladesh. The Nordics were the main contributor to group growth with service revenues up 2.1%. If you exclude the NOK 56 million adjustment to the first half service revenues in DNA, underlying growth for the Nordics would have been 2.6%. Nordic Mobile service revenue growth of 3.2% was mainly driven by Norway, Denmark as well as DNA in Finland. Pakistan continued its strong momentum and Grameenphone contributed positively for the first time since the second quarter of 2024. If we turn to OpEx, Telenor Nordics delivered a solid reduction in OpEx in the third quarter, declining 2.1% year-over-year, driven by lower personnel costs and a successful transformation activities with Sweden standing out as a key contributor. FTEs across the region were reduced by 3%. Denmark saw higher OpEx largely attributed to the higher commissions in recent quarters as well as higher costs linked to its ongoing and important IT transformation effort, while Finland benefited from lower personnel costs and positive effects from a minor reclassification. Overall, the rise in sales and marketing expenses was driven by amortization of subscriber costs. For the Nordics, this resulted in a 5% year-over-year increase in sales and marketing spend. OpEx in Asia rose 3.7% year-on-year, mainly due to higher O&M costs as well as personnel costs in Grameenphone as well as Telenor Pakistan. Amp recorded a 21% increase in OpEx, reflecting growth initiatives as well as the transfer of 2 businesses from Telenor Norway, as we mentioned in Q2. Overall, there was a modest uptick of 1.3% in group OpEx in the third quarter, underscoring our progress of transformation activities, cost discipline. Then turning to EBITDA. EBITDA for the group was up 5.4% in Q3. Asia contributed positively, partly offset by group effects similar to the ones we have discussed before. But the main driver this quarter was the performance in the Nordics. And in this business area, EBITDA grew 8% in Q3. And as you can see on the right-hand side of the slide, Telenor Norway was the cornerstone this quarter. The performance in Norway was driven by service revenue growth as well as wholesale revenues, mainly from the national roaming agreement highlighted during our Q2 presentation. On a side note, we still forecast the full year revenues from this contract to be more than NOK 0.5 billion for 2025 as a whole. Together, these factors paved way for a 9.2% year-on-year growth for Norway. Now DNA also had a reported EBITDA increase of 5% despite booking of catch-up items, and this was driven by strong gross profit. Sweden reported an EBITDA growth of 7.5%, supported by growing gross profit and a solid OpEx decline. So with that, let me move to Asia. Our 2 consolidated companies in Asia delivered service revenues of NOK 4.3 billion and EBITDA of NOK 2.5 billion, representing organic growth of more than 4% for both metrics. This was mainly driven by Telenor Pakistan's continued high EBITDA growth, supported by ARPU uplift and lower energy costs. Grameenphone returned to growth in both top line and EBITDA, which is good to see, though the upswing was softer than hoped despite the easier comparables due to the impact of the regime change we saw in Bangladesh in Q3 last year. As you know, the market is gradually transitioning from voice to data, which is challenging as competition in data is quite intense. Grameenphone has had subdued 4G investments with CapEx to sales of 9% over the past 4 quarters due to the macro situation. But given the data demand from our customers, we will eventually need to dial this up a bit again to accommodate for expanded data coverage. Among our associates, True reported 2.6% year-on-year EBITDA growth for its second quarter and continued its deleveraging profile. The company nudged down its full year outlook following a network outage as well as some of the macro headwinds. True has stated plans to propose an interim dividend in conjunction with its Q3 reporting, which is due already next week. In the quarter, we received NOK 350 million in dividends from CelcomDigi as the company increased its dividend per share while also reporting 5G traffic costs. Taken together, Asia's profitability improved during Q3 despite the relatively challenging external backdrop. However, we do see some short to midterm risks and headwinds in Asia. Among the risks we see, we have touched on in the past, I would like to highlight 3 that will affect us. First, in Malaysia, the 5G landscape remains challenging. CelcomDigi's associated company, originally a 5G network for all telcos, is undergoing the final stages of privatization. Its recently reported financials suggest a lack of sustainable long-term financial situation in this associated company. We're working with partners to support restructuring with the aim of helping CelcomDigi ensure a competitive 5G company setup. However, the outcome of this process remains to be seen. The financial profile of the 5G NetCo is also the backdrop for the NOK 530 million adjustment to our share of results from CelcomDigi this quarter, as mentioned earlier. This quarter, we have only 1 year left until a major chunk of our spectrum in Bangladesh needs to be removed. This will entail a step-up in spectrum payments for up to 4 renewed licenses as these spectrum licenses were paid 4 years ago. As always, our spectrum resources web page on telenor.com gives you full details on our spectrum portfolio. In addition, spectrum pricing in the country has historically been 2x the global median despite a much lower GDP per capita in the country, as you can see in the graph in the middle of the page. We're hoping -- finally, competition authority clearance was recently granted to PTCL for the takeover of Telenor Pakistan. Very pleased to see that. We're hoping for a smooth process from here onwards and look forward to closing the transaction soon. Given the recent strong performance, we expect Telenor Pakistan to contribute around NOK 0.5 billion in free cash flow for '25. And note, of course, that this contribution will end once this sale is complete. Then moving back up to the group level, and let's look at the P&L, cash flows and leverage. There are 3 items in the P&L this quarter that I would like to highlight. First, we have the adjustment we've made related to CelcomDigi mentioned earlier. This reduces our share of net income from associated companies. Second, we booked a NOK 269 million reversal of impairment of our shares in True. Note that as we said in Q2, all of our shares in True are now directly owned. Finally, on income tax, we booked a NOK 312 million provision for withholding tax on retained earnings in associated companies. This is the main reason why the effective tax rate increased to 33% from 26% in Q3 last year. All in all, we generated net income to equity holders of NOK 3 billion in Q3 and an adjusted EPS of NOK 1.85 per share. Moving to free cash flows. The free cash flow in Q3 was driven by the strong operational performance in the Nordics. We paid almost NOK 1 billion in income taxes, of which 70% is in Grameenphone. As we have discussed before, we have seasonally lower interest payments in Q1 and Q3. And as usual, spectrum payments are very small in Q3. Net working capital contributed negatively by NOK 0.3 billion, mainly due to high activity in Norway and increased receivables. CapEx paid amounted to NOK 2.6 billion, in line with the quarter's CapEx booked. Other lease payments amounted to a total of NOK 1 billion, a figure slightly below the indicated average for the year. As Grameenphone and Telenor Fiber streamed up interim dividends, we also paid out a total of NOK 600 million to noncontrolling shareholders. On a side note, around NOK 0.1 billion of the Q3 Grameenphone NCI was staggered and is due for payment in Q4. Altogether, this led to the free cash flow coming in at NOK 4.2 billion, a solid 50% increase year-on-year. Then moving to the debt side. Net interest-bearing debt, excluding license obligations, ended the quarter at NOK 85 billion, which is down NOK 5.2 billion quarter-on-quarter, benefiting from a NOK 1.1 billion FX gain as the kroner strengthened against all our key debt currencies. At the end of the quarter, leverage stood at 2.3x, within our 1.8x to 2.3x target range. We maintain a resilient balance sheet and prudent maturity profile, and our dividend policy ensures predictable shareholder remuneration. Then let's move to our outlook update. Heading into Q4 and our upcoming Capital Markets Day on November 11, our full year '25 outlook pillars remain unchanged. We're tightening the ranges based on our solid year-to-date execution and our visibility for the year. For the Nordics, we see 2% to 3% service revenue growth, 8% to 9% EBITDA growth and CapEx to sales is confirmed around 14%. As we stated in Q2, on the decimal side, the CapEx number is more likely than not going to be somewhat on the north side of 14%, considering the investments we announced earlier this year with regards to resilience and fiber in Finland. For the group, outlook for adjusted EBITDA growth is tightened to 5% to 6% from mid-single digit previously. We maintain our view of around NOK 13 billion free cash flow before M&A. We believe that the contribution from Asia will probably be a bit less than 1/3. All in all, the updated outlook reaffirm our overall traction for the full year. And with this, Benedicte, I believe it is time to wrap it all up. Benedicte Fasmer: Thank you so much, Torbjorn. And to sum up, in the third quarter, we delivered consistent execution, strong performance in the Nordics, improving profitability in Asia and a robust cash flow. We also highlighted some expected headwinds in Asia. We are focused on customer experience, service reliability and security with transformation being key for both efficiency and future growth for us. Our financial principles emphasize return on capital, balance sheet strength and a predictable dividend trajectory. We achieved these results, thanks to the ongoing commitment and relentless drive of our great people across Telenor. The updated '25 outlook reaffirms our overall traction, and we are tightening the ranges and maintaining the free cash flow outlook. One final note. We are excited to remind you about our upcoming Capital Markets Day on the 11th of November. We look forward to welcoming you here at our Fornebu office. And please do not forget to register your attendance, whether you'll be just joining us in person or virtually. So with that, thank you all for your attention and continued support. We are now ready to take your questions. Frank Maaø: Thank you, Benedicte. And as a request to the analysts, we would appreciate if you would keep your question to forward-looking topics on 2025 only as the prospect for future periods will be covered at our CMD in less than 2 weeks. [Operator Instructions] So operator, please go ahead. Operator: [Operator Instructions] Our first question will come from Owen McGiveron, Bank of America. Owen McGiveron: So you flagged higher spending on sales and marketing for Q4 in the Nordics. This is a similar commentary to your competitors. I guess what I'm trying to understand is, is this comment in line with seasonally higher spending in Q4? Or do you think that this year is going to be particularly competitive? And where in the Nordics do you think you'll have to deploy this additional spending? Benedicte Fasmer: Thank you for your question. I think -- we have intensified our sales and marketing efforts. And I think that also adds to the quality of the OpEx as we can sustain a solid OpEx reduction while still putting more on the throttle on the marketing spend. And we see also that, that has given us good results. To what extent we intensify or not going forward, I think we will have to come back to. But we see that it's given us quite good results this quarter. Operator: Our next question comes from Ondrej Cabejšek from UBS. Ondrej Cabejšek: I wanted to focus on some of the Asia challenges that you flagged in your presentation and how you plan to approach them. I guess, are there any mitigating factors that you already have in mind? Are there some industry initiatives, for example, that you are taking with respect to like the 5G JV or the spectrum auction that you flag as unusually high in Bangladesh? And do you think that this could, for example, rationalize the markets that you're seeing the headwinds in to kind of promote higher growth to offset some of these headwinds? Benedicte Fasmer: Yes, please Torbjorn. Torbjorn Wist: In Malaysia, if we start with that, we are actively working together with our partners or co-shareholders in the company as well as the other parties that are invested in the 5G NetCo because obviously, this is a situation that is affecting everyone, and we want to make sure that we have a well-functioning 5G company. So these are efforts that are done at multiple levels through the channels where we have influence. But you can be assured that there is a lot of focus on this on the ground in Malaysia as well as with people in Telenor Asia to help resolve the situation. In Bangladesh, clearly, there is a voice to data transition going on, ensuring that we can compete effectively in that is important. And I think what we have been very good at doing in an environment, which has at times been challenging is to ensure that we can throttle and de-throttle also on the investment side to be in line with expected recovery in the market. And of course, we assume that this is a market that will improve post election, but that is obviously something we're watching keenly, and we will gas up or slow down depending on the situation. Ondrej Cabejšek: If I may follow up on the spectrum, you expect to be like not influenced by this election, I guess? Or is this something that you're flagging as potentially signaling a new approach to the sector in both spectrum auctions, but then also we've seen in the past that sometimes the regulators in Bangladesh specifically try to basically, I guess, extract a lot of value from the telecoms industry overall. Torbjorn Wist: Yes. No, I would delink the 2. When I talk about the election, there is an expectation that the market will recover. And I think we touched on this in Q2 that we expected earlier this year a recovery in Bangladesh in the second half of this year, but we don't see that -- we see that now more as a '26 event because the election is slated to take place in February of '26. So that, of course, is an important milestone for the country. With respect to the spectrum portfolio, we always take a prudent approach, and we obviously need to make sure that it makes sense. And we don't sort of talk too loudly about it, but we will, of course, consider our position when it comes to new spectrum, whether it be the renewal of the 4 licenses we're talking about or the low-band spectrum auction, which is expected at some point. Operator: Our next question comes from Christoffer Bjørnsen with DNB Carnegie. Christoffer Bjørnsen: So I just wanted to touch upon on the GlobalConnect transaction that you're now working on. So I appreciate you don't want to spill the juice before the Capital Markets Day. But given that that's already announced, it would be really helpful to kind of hear your high-level thinking around whether that investment is kind of incremental to your current fiber investment plans in Norway or if that's kind of an alternative to the plans you already have in Norway? It just seems like the investments in Norway are kind of slowing down in the fiber space. So just trying to understand your thinking around that, I guess. Benedicte Fasmer: When we hopefully get the approval, I mean, this is subject to authority approval. So we have to have that little caveat. We will increase our market share by around 7 percentage points. And we do see that our ability and our strength in the fiber market is important for us to be able to deliver connectivity in the different ways and forms that the customers actually want. And the reason for doing this by way of an acquisition is twofold. I mean, one is that it's a step-up in market share that kind of gives us a much stronger position in the market. And the second thing is, as you allude to, there is around 50% overbuild in the market that we see, and we have done very careful considerations around those elements as well, but we believe that this will give us very interesting synergies as well as a good market position towards the customers. So it should be good for our shareholders, I guess, that's the summary. Christoffer Bjørnsen: That's great. And just as my follow-up really quickly. Maybe you already mentioned it, I was a bit late on to the call. Just on DNA and that accounting adjustment. Could you just unpack a bit what actually happened there and how we should think about that, that would be helpful. Benedicte Fasmer: Which -- unpacked what in DNA. Christoffer Bjørnsen: Fantastic. I can do it. Benedicte Fasmer: The accounting [indiscernible], yes, please. Torbjorn Wist: Yes, very quickly in -- as we've touched on in previous presentations, in Finland, there has been widespread use of vouchers as an incentive to get people to lock into new subscriptions. Historically, these were taken as OpEx and then amortized on the OpEx over 5 years. But having considered that, we've taken that -- moving that now into a revenue effect, which is taken over 1 year rather than spreading the cost of each voucher over 5 years. So that pulls down the revenue by NOK 56 million in DNA. Benedicte Fasmer: And just to add a little bit to the effects, Christoffer. On a group level, the EBITDA effect was a negative of around 0.8 percentage points. On the Nordic level, minus 1.1%. And on DNA, it was as much as 5.5%. Christoffer Bjørnsen: So not really any changes in the competitive dynamics of Finland. Torbjorn Wist: This was an accounting adjustment. Benedicte Fasmer: This is just accounting adjustment. Operator: Our next question comes from Ajay Soni with JPMorgan. Ajay Soni: Mine just around the Swedish cost base. So you called this out in your remarks as being one of the key drivers behind your lower Nordic OpEx. I just wanted to dig into 2 areas. So firstly, around -- I know you're going through a fixed transition. But do you see -- have you seen any material change in your fiber wholesale costs? And then you also called out your customer service cost benefits. So what have you done here? And could this be rolled out into other Nordic regions? Benedicte Fasmer: Would you like to take this one? Torbjorn Wist: Yes, there were a few questions there. Yes, if we start with some of the sort of cost initiatives, there has been a very strong and focused effort to ensure that one cleans up the fixed portfolio a little bit, which is why you're seeing that service revenues is pretty flat due to that fixed is weighing down, but that is a very conscious choice. If you look at the gross profit and you look at the O&M development in the company as well as cost within customer service, those are, thanks to strong OE initiatives that have been running for a long time. I think in terms of whether this is something that we redeployed in other markets, let's postpone some juice until we come to the CMD in a couple of weeks. But I can, of course, say that we always look at ways to replicate things across markets. So let's just leave it at that for now. Operator: Our next question comes from Andrew Lee from Goldman Sachs. Andrew Lee: I just had a question around your data costs in Asia, which appears to be the key reason for the kind of negative surprise today. So it looks like it's a bit of an incremental negative from your perspective as well in terms of what you are anticipating. So I wonder if you could just talk through what the obstacles to your visibility in terms of your cost base in Asia, particularly around data and I think particularly around Malaysia and Bangladesh? And then how confident are you in your visibility now in your cost outlook for Asia, certainly for the rest of 2025 and 2026. If you could just give us a bit more of an understanding around what's going on and what's kind of precluding your ability to really have the visibility on that cost base, that would be helpful. Benedicte Fasmer: Should I start with Bangladesh and then you can cover CelcomDigi. I actually visited Bangladesh just a couple of weeks ago. And you're right. What we do see in the market is that there is a transition from voice to data, and that segment is highly competitive. But we also realize or very realistic that the number of actual phones and mobile that will have 5G capacity of data -- 4G or 5G capacity that will support this demand is quite limited. So what we're doing is we're doing software upgrades, both in 4G and some 5G in densely populated area. And we do it in a software upgrade manner, if I could call it that, to the extent possible. So it's a very careful development. But we do see that there is a transition from voice to data that is going quite rapidly as of now. And this is just the positioning in the market, answering that change. Would you like to cover the CelcomDigi situation? Torbjorn Wist: Sure. And just to add on to Bangladesh. Of course, the voice to data transition is happening. And of course, we want to make sure that we can get our fair share, of course, making sure that this gives us a good return on investment. And as we have said, there is spectrum renewal and some investments that will be required. But we always measure this in a prudent manner with a focus on return on capital employed. With Malaysia, a slightly different situation because here, as more and more people use 5G, of course, the cost associated with that 5G traffic is increasing. And of course, a concern here is that if you have a 5G NetCo, which at present is not in a good financial situation, that could result in increasing costs being transferred to the ServCos, if you can call it, call the MNOs. So this is something that is driving an extreme focus on making -- with our stakeholders there and partners to ensure that we have a strong, financially viable 5G NetCo following the changes that has been made to the 5G structure where the new company was awarded a license to build a network and was given some of the frequency or the spectrum from our 5G NetCo. So it is a complicated situation, but very much a key focus on the ground. Andrew Lee: And do you think you've got a high degree of visibility on that cost outlook now over the next, say, 12 months? Torbjorn Wist: Yes. I'm not going to guide today for anything beyond '25, as you would appreciate. So of course, this is a key challenge that one looks at addressing going forward, and we will come back to that at later points. Benedicte Fasmer: Andrew, I just wanted to remind you that the MergCos, as we call them, I mean, True and CelcomDigi and Grameenphone are all listed companies in their respective countries. So there is some limitations as to what we can do give of forward-looking statements. Operator: Our next question comes from Keval Khiroya, Deutsche Bank. Keval Khiroya: So one of your competitors flagged a tougher competitive backdrop in Finland during Q3, whilst another has also talked about wanting to stem some of the market share loss in Finland and Norway. Do you feel Finland was more competitive in Q3? And have you noticed any changes across your Nordic markets in Q4 from a competition perspective? Benedicte Fasmer: Yes. I mean that's a short answer, but I'll elaborate a little bit too. We did see -- we also saw an increased competitive -- or a more competitive situation in Finland in Q3, which was highlighted by our competitors when they published their results quite recently. And we believe it will continue to be quite tough in Finland. However, the intensity was more on the low-cost side on the mobile -- in the mobile market. And as I mentioned earlier on, we managed to increase our subscriber base with 28,000 customers on the mobile side. And I think it was 3,000 fixed or something like that. Yes. So -- but we expect it to continue to be tough. Keval Khiroya: And just by way of follow-up, have you noticed any changes in Norway during Q4? I think one of your other competitors flagged them wanting to rebound in Norway as well. Benedicte Fasmer: We've -- it's been actually quite -- I was about to say flattish, but not a significant change. We saw that the churn also has been a little bit up, but also leveling off. So no major changes in this quarter to mention. No. Torbjorn Wist: Short version is that Norway and Sweden are in sort of neutral to somewhat positive territory, whereas Finland and Denmark have a higher degree of competitive intensity, as we have touched on in the past. Operator: Our next question comes from Fredrik Lithell, Handelsbanken. Fredrik Lithell: I thought maybe we could spend some time on the Swedish market and what you feel you can do to improve your situation and get growth going again. It is -- we have seen a little bit of higher competitive pressure, I think. So it would be interesting to hear your description, a little bit more color on the Swedish market. Benedicte Fasmer: As I mentioned, I mean, we are -- if we take mobile first, there is, of course, an intense competition as always. But we are quite pleased with the growth we have in the B2C market. We are cleaning up our fixed portfolio somewhat. And if you look at that, and I think Torbjorn mentioned it as well that there is a little decline in the subs base on fixed. But if you look at the underlying fiber development, it's actually quite positive. And the gross margin is developing well. But what we also mentioned earlier is that the SME market or the corporate market is quite competitive still, quite challenging. Torbjorn Wist: I guess it's worth pointing out that as we see in other markets, calling the -- on the B2B side, there tends to be different developments. I think we see that SME, you can perform strongly because it's closer to the offerings that we do to the B2C side. So we do see some modest growth there as well in Sweden. Operator: [Operator Instructions] Our next question comes from Ulrich Rathe, Bernstein. Ulrich Rathe: I'm afraid, I have a video limitation here, apologies for that. So my question would be about expected proceeds from the Pakistan transaction. Are there any clauses in the agreement that would be related to ongoing operational performance of the asset? And would that potentially change the expected proceeds? That would be my main question. Benedicte Fasmer: I don't think there are any clauses on the performance side. And we've been managing the last 22, 23 months, very carefully the CapEx spend and also the OpEx spend and so on and so forth just to keep the business secured and float with a good quality, but not spending more than we have to in the situation of the sale. When we receive the proceeds from the sale, that would mainly go to diminish debt, right, Torbjorn. And of course, we have seen over the last 12 months that the tax authorities have been quite active, collecting tax claims. If you remember back in -- early in the year, we had to pay NOK 250 million extra in a disputed tax claim. So there is always risks tied to this, but I don't think there is any contractual obligations on that. Torbjorn Wist: The only thing I'd like to clarify is that under the licenses we have there, there are rollout requirements. And of course, since -- it's now been a protracted period since the deal was announced. It's now, what, 22, 23 months. And obviously, in the CapEx releases that we have done, it has always been focused on ensuring that we are in line with the CapEx commit and license obligations so that, that does not become a hurdle to the closing of the transaction. So that, of course, is key. We generally don't tend to -- this is a modest proceeds situation. But I guess to remind everyone, we also have to pay for GlobalConnect once that deal is approved. Benedicte Fasmer: Yes. And then in '25, we expect Pakistan to contribute around NOK 0.5 billion in free cash flow. So that will also fall away when the transaction is executed. Operator: Our next question comes from Siyi He at Citi. Siyi He: I just have a follow-up question on the comments on Bangladesh. I think, Torbjorn, in your comments, you mentioned that you see the CapEx investments in Bangladesh is a bit -- you underspend a little bit over the last 12 months. But it seems when you look at CapEx to sales, it has stayed at 12%, similar to previous quarters. Just wondering if you can comment on the underspending, whether this is the comment against the competitors? And also, I want to ask if there has been any discussions with regulator on potential spectrum payment installments with the upcoming auction renewal? Torbjorn Wist: Yes. The CapEx to sales in Bangladesh has been running at a bit south of that. So I think if you look at the country as a whole, during the macroeconomic and political situation it's been in, that has constrained investments into the country, not just from incumbent players, but also by other actors and other industries. And of course, we have been releasing CapEx in a very prudent manner in the country given this challenging situation to ensure that we get an appropriate return on the investments that we make. So we will not sort of guide specifically on what we'll be doing going forward other than the comments already made that there will be spectrum-related installments once spectrum is renewed. We will, of course, look at that in a prudent manner. And our discussions with regulators and stuff, that's not something that we talk about externally. But needless to say, we talk to regulators all the time as part of our normal course of business. Operator: This concludes the Q&A. Thank you for your participation, and you may now disconnect. Benedicte Fasmer: Thank you very much. Torbjorn Wist: Thank you.
Stefanie Wettberg: Good morning, everyone. Welcome to BASF's conference call for the third quarter of 2025. Today's presentation is being recorded. [Operator Instructions] Today's presentation contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward-looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors. They involve various risks and uncertainties, and they are based on assumptions that may not prove to be accurate. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements. With me on the call today are CEO, Markus Kamieth; and CFO, Dirk Elvermann. Please be aware that we have already posted the speech on our website at basf.com/Q32025. Now I would like to hand over to Markus. Markus Kamieth: Yes. Thank you, Stefie. Good morning, everyone. Dirk and I welcome you to our Q3 conference call. In the third quarter of 2025, market dynamics for the chemical industry continued to be challenging. Upstream margins were still under pressure and customer buying behavior in almost all industries and regions remained cautious. Even in this demanding environment, BASF earnings came in slightly above market expectations and only slightly below the level of the prior year quarter. Let's start with a closer look at the sales performance of BASF Group compared with the prior year quarter. Overall, sales declined slightly on account of strong currency headwinds and lower prices. We were, however, able to achieve slightly higher volumes due to growth in the Surface Technologies, Chemicals and Materials segments. From a regional perspective, we recorded 12% volume growth in China, slightly -- slight volume growth in South America and fairly flat volume development in Europe. In North America, volumes were slightly down. Compared with the prior year quarter, prices declined in 4 out of our 6 segments, particularly in Chemicals. In the Surface Technologies and Nutrition & Care segments, we managed to achieve price increases. Currency effects dampened sales in all divisions and were mainly related to the strong depreciation of the U.S. dollar, Chinese RMB and the Indian rupee. Portfolio effects slightly supported sales growth. Reflecting this underlying sales development, EBITDA before special items came in at over EUR 1.5 billion compared with EUR 1.6 billion in the prior year quarter. Here is a snapshot of how the markets and our segments' volumes and specific margins developed in the third quarter. Due to a continued imbalance between supply and demand and the resulting pressure on margins, the business environment in our upstream segments remained challenging. Despite these market headwinds, the Chemicals segment achieved solid volume growth in both divisions. However, the segment faced significantly lower prices and sharply reduced specific margins. The Materials segment recorded slightly higher volumes despite the difficult market environment due to higher volumes in Monomers and stable volume development in Performance Materials. Prices declined in both divisions. However, our overall margins in the segments were lower driven by the Monomers division. The Industrial Solutions segment operated in a subdued market environment. Volumes declined slightly in both divisions. Specific margins declined considerably, particularly in the Performance Chemicals division. The market environment for Nutrition & Care became considerably more challenging in the third quarter 2025. Both divisions recorded lower volumes, but the segment achieved slightly higher prices. The specific margins in the Nutrition & Care segment declined. Lower fixed costs and improved margins in the Nutrition & Health division were more than offset by lower margins in the Care Chemicals division. Let's now move on to Surface Technologies and its main customer industry, the automotive industry. According to the latest data, global light vehicle production in the third quarter increased by around 4% compared with the prior year quarter, mainly because of considerable growth in China. For the full year 2025, we expect global automotive production to increase by around 2% compared with 2024. In this environment, the Surface Technologies segment recorded volume growth, mainly in the Environmental Catalyst and Metal Solutions Division, or ECMS. Overall, prices were up considerably. Specific margins in the Surface Technologies segment also increased slightly. Finally, let's look at the Agricultural Solutions segment. Crop commodity prices remained below historical averages, and financing costs were still elevated for farmers, resulting in unchanged and challenging economics for them. In this environment, the Agricultural Solutions segment recorded slightly lower volumes and prices compared with the prior year quarter. By contrast, the segment achieved considerably higher specific margins in a seasonally lower quarter. Let's now look at EBITDA before special items by segment. In Q3 2025, considerable earnings growth in the Surface Technologies and Agricultural Solutions segments as well as improved earnings and other were offset by lower earnings in the core businesses. Compared with the prior year quarter, EBITDA before special items in the Surface Technologies segment increased significantly due to Environmental Catalyst and Metal Solutions. The earnings increase in this division was primarily driven by significantly lower fixed cost, a strong precious metal trading business and volume growth. Lower fixed costs resulted from continuous cost improvement measures and U.S. government grants for which ECMS is eligible as a leading recycler of platinum group metals. Let me reiterate what we communicated at the Capital Market Update in Antwerp at the beginning of this month. After the successful carve-out, ECMS has a stronger setup, and we will keep the business for longer. Accordingly, we expect to benefit from strong cash contributions from ECMS amounting to a cumulative cash flow of roughly EUR 4 billion from 2024 to 2030. Turning to Agricultural Solutions. Earnings in this segment rose considerably, mainly due to improved margins, particularly the successful market launch of glufosinate-P-ammonium and lower manufacturing costs contributed to this development. We continue to expect that a slight increase in full year earnings is achievable. The Core business recorded lower earnings mainly due to the previously mentioned lower margins, which were partially offset by lower fixed cost. As the deviations from average analyst expectations were largest in Nutrition & Care, I will give you a few more details on this segment. Compared with the third quarter of 2024, the Nutrition & Care segment generated considerably lower earnings. The Nutrition & Health division increased earnings, mainly due to lower fixed cost, while the Care Chemicals division recorded a decline. The main reasons for this was continued margin pressure, which was particularly pronounced in Personal Care, where Asian competition is strong. I will now give a short update on our Verbund side in South China. Let me begin with what we communicated at the recent Capital Market Update in Antwerp. We will complete this mega project with capital expenditures around EUR 1.3 billion lower than originally planned. We achieved this CapEx reduction through tight budgetary discipline, scope changes and excellence in procurement. As a result of the currently long markets in China, we will have a slower-than-anticipated ramp-up of the overall earnings contributions. In the coming years, we expect most markets and value chains to rebalance. We, therefore, confirm the targeted EBITDA before special items of EUR 1 billion to EUR 1.2 billion by 2030. Now this slide illustrates the impressive progress the Zhanjiang team has achieved since May. This includes the successful mechanical completion of the steam cracker and downstream petrochemical plants. The infrastructure and utility plants are already in steady operation. Additionally, we have safely and successfully started up various downstream plants, including butyl acrylate, 2-ethylhexyl acrylate, formaldehyde, neopentyl glycol and glacial acrylic acids with more start-ups to come. Thus, we are transitioning the project from construction to operational readiness. These achievements mark steady progress towards the site's full operational start-up at the end of 2025. Let's now move on to the binding transaction agreement on BASF's Coatings business, which we announced on October 10. The agreement with Carlyle marks an important milestone in focusing our portfolio and unlocking the value of our Coatings business. It demonstrates our strong commitment to swiftly execute BASF's Winning Ways strategy and create a leading coatings company under Carlyle's operational leadership. The enterprise value of this transaction amounts to EUR 7.7 billion. Subject to customary regulatory approvals, the transaction is expected to close in the second quarter 2026. At closing, BASF will hold a 40% equity stake and will receive pretax cash proceeds of approximately EUR 5.8 billion. We will remain invested with a considerable minority share because we believe in the future, value creation of the Coatings business, and we want to participate in the upside potential. Together with the divestiture of BASF's Decorative Paints business to Sherwin-Williams, which we closed on October 1, BASF's entire Coatings division is valued at an enterprise value of EUR 8.7 billion. The implied 2024 EV to EBITDA multiple before special items of approximately 13x is evidence that we are unlocking value for this division. And with that, I will hand over to Dirk. Dirk Elvermann: Yes. Thank you, Markus, and good morning, everybody. Let me first address the implications of the Coatings transaction agreed with Carlyle in terms of BASF's statement of income and statement of cash flows. As of September 30, 2025, and until closing of the transaction, BASF will report the business in its P&L as discontinued operations. Therefore, sales and earnings of the business are no longer included in sales, EBITDA and EBIT of BASF Group, with retroactive effect as of January 1, 2025. The prior year figures have been restated accordingly. Income after taxes of the business is presented in the income after taxes from discontinued operations. Between signing and closing, depreciation is suspended. Regarding cash flows between September 30, 2025 and closing of the transaction, there is no impact or change. As before, the business will be considered in the respective line items of BASF's statement of cash flows. As of closing, BASF's minority stake of 40% will be accounted for as a financial investment under the equity method and will be reported in EBITDA and EBIT before special items of other. The cash inflow from the transaction will be reported in cash flows from investing activities in the line item payments received from divestitures. After closing of the transaction, dividend payments from the business to BASF Group will be reported in BASF's cash flow from operating activities. Within BASF's cash flows from operating activities, the equity result of the business will be eliminated. Now this table provides a comprehensive overview of the major changes in BASF's reporting following the classification of the automotive OEM coatings, automotive refinish coatings and surface treatment businesses as discontinued operations. In the quarterly statement published today, we provide all relevant financial figures on both a pro forma basis, i.e., with coatings still fully included in the segment result of Surface Technologies as well as excluding the discontinued coatings operations. It should be noted that the Decorative Paints business sold to Sherwin-Williams is not affected by the restatement. It remained part of the Surface Technologies segment until its divestment on October 1, 2025. This means that the figures for the Coatings division in the Q3 segment reporting refer exclusively to the Decorative Paints business, which was already classified as a disposal group in Q1 of this year. Now I would like to turn to BASF's capital allocation framework and explain how we will use the considerable cash proceeds from portfolio measures that we have already generated and are about to generate soon. As you know, we closed the sale of BASF's food and health performance ingredients business to Louis Dreyfus Company on September 30, 2025. This is reflected in the quarterly statement for Q3 2025. The sale of BASF's Brazilian Decorative Paints business to Sherwin-Williams was closed on October 1, 2025. The purchase price amounted to USD 1.15 billion on a cash and debt-free basis. For our Coatings transaction with Carlyle, which is expected to close in Q2 2026, we will receive pretax cash proceeds of around EUR 5.8 billion. At maximum, we assume taxes to be in the mid-triple-digit million euro range. We are also making further progress with the monetization of our oil and gas assets. In 2025, we will receive around EUR 200 million resulting from dividends from Harbour Energy and our participation in Harbour Energy's ongoing share buyback program. As we have stated on several occasions, we consider our participation in Harbour Energy to be a financial investment, and BASF's strategy remains to exit at the right time, being mindful of the value. There's also good momentum on the topic of federal investment guarantees. Wintershall Dea received a first installment from the German federal government in Q3 2025, and we expect a final decision soon. Proceeds will be distributed by Wintershall Dea via dividends and will contribute to BASF Group's operating cash flow in 2025 and 2026. As announced at our Capital Markets Day in 2024 and confirmed at our update earlier this month, we are targeting IPO readiness of BASF's Agricultural Solutions division by 2027 with a potential listing of a minority share as a next step. In other words, this cash event is beyond the 2025, 2026 window. Now, let's move on to the use of cash with a focus on the rest of this year and next year. We are clearly committed to paying an annual dividend of at least EUR 2.25 per share, subject to approval by the AGM. Furthermore, we will use a substantial part of cash proceeds to deleverage the balance sheet and secure our financial strength. The maturity profile of outstanding bonds will allow us considerable deleveraging in 2026. As announced yesterday, we will start buying back shares as of November 2025. This is a considerable acceleration compared with our initial plan to buy back shares from 2027 onwards. I will provide more details on the next slide. Large acquisitions are currently not in focus while smaller to midsized acquisitions remain possible. Capital expenditures will be significantly reduced in 2026 and beyond and will consistently stay below depreciation until at least 2028. Ladies and gentlemen, we are swiftly delivering on our Winning Ways strategy, and we are fully committed to attractive shareholder distributions. Therefore, and in view of our quick progress on the portfolio side, we have announced that we will start a share buyback program with a volume of up to EUR 1.5 billion in November that is scheduled to be executed by the end of June 2026. This is part of the share buyback announced at the Capital Markets Day in September 2024, with a total volume of EUR 4 billion until the end of 2028. The earlier start of the program demonstrates management's confidence in the underlying financial strength of our company. In our view, this is not fully reflected in the current share price. Now is the time to return capital to our shareholders and reduce the number of shares while bringing down debt. Let's now take a brief look at the financial details of BASF Group for the first 9 months of 2025 compared with the same period last year. All these figures still include the discontinued operations. At EUR 5.9 billion, EBITDA before special items declined slightly compared with the first 9 months of 2024. The EBITDA margin before special items, excluding metals, remained almost stable at 13.6%. EBIT before special items reached EUR 3.1 billion compared with EUR 3.4 billion in the same period last year. Special charges were largely incurred for restructuring measures as well as for the sale of BASF equity share in the Nordlicht 1 and 2 wind farms back to Vattenfall in Q1 2025. Special income from the sale of BASF's food and health performance ingredients business had a partially compensating effect. Net income declined by EUR 1 billion to EUR 1.1 billion. In the prior year period, net income from shareholdings included special income in connection with the transfer of Wintershall Dea assets to Harbour Energy. Cash flows from operating activities amounted to EUR 2 billion compared with EUR 3.5 billion in the same period last year. The decline was primarily driven by changes in other operating assets, lower net income and higher cash outflows from changes in net working capital. Compared with the first 9 months of 2024, payments made for property, plant and equipment and intangible assets decreased by EUR 1.1 billion to EUR 2.8 billion. This clearly indicates that we have passed the peak investment phase for our South China Verbund side. Free cash flow was minus EUR 868 million in the first 9 months of 2025. Now this slide shows some more details of our cash flow. I will focus on the development in the third quarter, shown on the right-hand side. In the third quarter of 2025, cash flows from operating activities came in at EUR 1.4 billion. The decline compared with the prior year quarter was mainly due to changes in other operating assets. Payments made for property, plant and equipment and intangible assets decreased by EUR 510 million compared with the third quarter of 2024. Free cash flow amounted to around EUR 400 million. With that, back to you, Markus. Markus Kamieth: Yes. Thanks, Dirk. Our assumptions regarding the global economic environment in 2025 remain unchanged. Likewise, our outlook for 2025 remains unchanged content-wise. Let me repeat this. Likewise, our outlook for 2025 remains unchanged content-wise. As a result of the reclassification of the automotive OEM coatings, automotive refinish coatings and surface treatment business, we have made a necessary technical adjustment. The adjusted outlook range for EBITDA before special items is now EUR 6.7 billion to EUR 7.1 billion. The difference compared with the previous outlook range of EUR 7.3 billion to EUR 7.7 billion reflects the expected full year contribution of the Coatings businesses that are part of the transaction with Carlyle and are reported now as discontinued operations retroactively as of January 1, 2025. So that is the sole reason for the different number in the outlook. The forecast for free cash flow and for CO2 emissions are unaffected by the restatement and thus remain unchanged. And now Dirk and I are glad to answer your questions. Stefanie Wettberg: [Operator Instructions] We will now start with Christian Faitz. We will then have Tom Wrigglesworth and then Tony Jones. But now it's Christian Faitz, Kepler Cheuvreux. Christian Faitz: Congrats on the results. Two questions, please. I guess all of us are fully aware that the current business environment is pretty bad to say the least. Yes, can you share with us some thoughts on current order income with October being the last really relevant month for the year? And also, will some major automotive OEM producers canceling their production on the back of the new chip crisis have an impact, particularly on your emission control business? And then my second question is on Ag. You cite adverse weather conditions impacting European sales in Q3. Can you please elucidate what happened there? Was this largely an inventory effect, i.e., BASF Agricultural Solutions buying back inventory from actually Q2 adverse weather conditions? Markus Kamieth: Thanks, Christian. I will take maybe the first 2 questions. We currently do not see any major changes in the macroeconomic environment and also relates to the dynamics going into Q4. As we have said in our speech, almost all verticals, I mean, everything outside of, let's say, semiconductors, everything around AI, data centers and so forth, everything else in the normal overall industrial sectors that we typically serve are rather slow and moving sideways. So no real negative or positive development right now that is also reflected in the momentum we take into Q4. As we have also said in the speech, the only exception on the volume side is China right now. China is growing quite strongly, overall macro, the chemical market in China is growing healthily. And we have also, I think, with 12% volume growth in Q3 have seen a good volume momentum and that also relates, for example, to the automotive industry. Your second question on automotive OEM, I'd say, shutdown there's, of course, now for a few weeks, I would say, high nervousness again in the OEM landscape, particularly here in Europe, I would say, we have not seen any adverse impact, and we're not expecting any major impacts from this. And please remember that in all of our automotive-related businesses, our source of strength right now and our source of growth is mainly our significant market share in China. And for the Ag question, I might hand it over to Dirk. Dirk Elvermann: Christian, on Ag, you're right, there was extremely dry weather conditions in part of Western European countries that were also impacting us. But I would say, overall, first of all, the third quarter is a seasonally low quarter for Ag. The results came in more or less as we have expected it and checking with the business going forward for the end of the year. I believe that Agricultural Solutions business will hit the forecast for the segment at least maybe a little bit better, but the business is fully on track to deliver the year-end result. Stefanie Wettberg: So we move on to Tom Wrigglesworth, Morgan Stanley. Thomas Wrigglesworth: So firstly, obviously, on the bridge you provided on Slide 5, in Surface Technologies, the EUR 179 million year-on-year improvement in EBITDA. Could you just break out some of the components of that, specifically this comment you've made around gaining subsidies and grants in the U.S. I guess we're keen to know what's an underlying improvement in this business versus what's a kind of onetime factor? And then second question is regarding free cash flow. Can you help us understand the moving parts, excluding EBITDA changes in 2026 that you expect to be influencing free cash flow. So the kind of the CapEx level and how that might drop. Obviously, the sale of coatings, what free cash flow net kind of loss that will be from the divestiture of that. And then obviously, the working capital buildup has been substantial this year in the China Verbund. What -- how should we be thinking about that? Clearly, with the sale of coatings, people are questioning the free cash flow generation of the business. So we're just trying to get a kind of post the divestiture, what that looks like. Dirk Elvermann: Tom, this is Dirk speaking. I'll start with ECMS. So the ECMS -- EBITDA for ECMS was significantly -- was up, and this was due to significantly lower fixed cost as you have rightfully pointed, but also on the back of a strong precious metal trading business and volume growth. So it's a multiple component effect that we have here. And the lower fixed cost, apart from the efficiency measures taken by the business are indeed also due to grants in the U.S. as we have clearly stated. Now what we are seeing in the third quarter is a cumulative effect from -- not only from 2025 but also from the years '23 and '24. And going forward, there will also be a positive effect, and you might think about this effect on a net basis as a low double-digit million euro amount per year that the business is benefiting from. In terms of free cash flow, indeed, we can keep our outlook here for the full year. Markus already mentioned that we are significantly below in CapEx numbers also from the investment in China, but also beyond. And we are now calculating as a company with a CapEx for the year of around about [ EUR 4.5 a little bit more maybe billion ]. So this will significantly alleviate the pressure on free cash flow. Apart from that, all the businesses are super focused on working capital management for the last quarter of the year. As you know, this is the cash collection quarter for BASF and everybody is also super focused on inventory levels. And with regard to the free cash profile of the Coatings business, I would say, so far, it is still a part of the group's cash flow, as outlined a little bit earlier going forward. We will then also show these data differently, but you can be assured with everything that we want to achieve strategically. The underlying cash flow will be sufficient to cater for our capital allocation ambitions. Stefanie Wettberg: So now it will be Tony Jones. We have then in the queue, Georgina Fraser and Chetan. But now Tony Jones, Rothschild & Co. Tony Jones: I have 2. Firstly, on currency and impact to EBITDA. For this quarter, my simple math got me to about a EUR 90 million, EUR 100 million negative to EBITDA. Firstly, is that in the right sort of region? And then secondly, what is now the dollar euro sensitivity. Could you give us an indication for the core businesses? And then my second question refers to the well-known oversupply of chemicals and materials, particularly China. How do you see this developing by region over the next year or so? So for China, do you think there's still going to be net capacity additions? Or will it slow in Europe, capacity closure seem to have paused. So what do you think is happening with that? And then North America, do you see any need for further capacity? And if there is, would you participate? Markus Kamieth: Maybe, Tony, I'll take the second part of the question, and then Dirk will answer the question on currency effects. Generally, I would say the oversupply situation is not changing quarter-by-quarter. So we can only repeat what we have said over the last, let's say, 2, 3 quarters, situation remains unchanged. In China, we have significant overcapacity in most chemical categories, I would say, upstream a little bit stronger than downstream. But for sure, everything is quite well available in China. However, we are seeing already, let's say, a slowdown of investment capacity, and we still see significant domestic demand growth. So overall, we continue to stay in our model that we expect a rebalancing of capacities over the next years, and that certainly will be supported also by the Chinese government in what they call supply-side reforms in -- to what level and to which extent we will have to see. But overall, I would say this is a slow-moving system, but it will re-equilibrate to some extent. That's at least our model as of today. In Europe, I do not necessarily share your view that the capacity adjustments have stopped because I think there is ongoing stream of announcements, and I also expect that over the next years, continued capacity rationalizations are going to be observed in Europe, just be reminded that from announcement to actually closing and shutting down a plant or a site 2 or 3 years can sometimes be necessary. So overall, we expect this to continue because we expect that quite a number of chemical assets in Europe are currently operating at not sustainable profit levels. And the situation in North America is that North American market, we expect to have modest growth also going forward for chemical products. It is a reasonably, let's say, midterm growing market. So capacity additions will certainly be needed in certain products, but we have no major plans now for big capacity additions in North America because also here, we're well invested. We have competitive assets all over the country. And with our latest investment project in the MDI expansion in Geismar, I think we have done the 4 BASF most attractive step right now. So also in the U.S. for the next foreseeable future, we expect a positive development, supply demand overall, and we don't have any major investments planned for the next couple of years. Dirk Elvermann: Tony, on your more technical questions, FX impact on the earnings side, third quarter, your assumption is right, rather EUR 90 million than EUR 100 million negative. And for the sensitivity, mid-double-digit per U.S. dollar cent change. So let's say, roughly EUR 50 million per U.S. cent change compared to the dollar. Tony Jones: That's great. That's very, very helpful. Stefanie Wettberg: So now it's Georgina Fraser, Goldman Sachs. Georgina Iwamoto: I've got 2 questions. One on Care Chemicals. I was a bit surprised to see the negative volumes, but prices up in the segment, and we also saw margins deteriorate a lot. Could you explain a little bit more of what's going on there because it's an unusual dynamic? And then the second question is a follow-up to Tony. So if I take your answer on the overcapacity situation, it sounds like it will be resolved by a growth of demand in China, and capacity rationalization in Europe. Given you've already announced a lot of your own capacity rationalization, could you talk about value chains you think are most likely to see meaningful consolidation that BASF would be able to benefit from on the other side? Markus Kamieth: Yes, Georgina, I will also take the second part, give Dirk some time to think about the first part. It's hard to pick and pinpoint, I would say, certain value chains. But it's sure that if you look at capacity rationalization in Europe, in particular, you're looking at energy-intensive product or energy-intensive value chains where, let's say, the asset base is often also subscale compared to what is -- how things are produced in other areas. And that addresses 2 of the, let's say, sources of uncompetitiveness is, number one, the relatively high raw material costs, especially natural gas, other feedstocks in Europe compared to other regions. And second of all, also the age and certainly, the capacity of some of these assets compared to offshore assets that we have. So I would say in the area of high raw material and energy intensive production upstream, this is where certainly the hotspot of restructuring efforts will be. And if you see the announcements of the last, let's say, 12 to 18 months, a lot of that has been circled around upstream assets, cracker, cracker plus 1, especially in nonintegrated setups where often a lack of integrated value chain is happening at the site. So that's certainly the area where I would expect most. And if you look at the setup of BASF, like we have also discussed at our Capital Markets update. This is often not a setup. We are operating in Europe because we have at least on the commodity side often highly integrated structures in Antwerp and Ludwigshafen, where we have a significant value add beyond, say, the cracker and cracker plus 1 step. So I don't say that our assets are necessarily totally shielded by this, but we, for sure, have a higher resilience compared to other companies when it comes to running these assets because we provide significant value-add downstream. And that if you look at the chemical industry, it is not the case for many of the more isolated and nonintegrated assets that we see. And with this, Dirk, Care Chemicals. Dirk Elvermann: Georgina, I'll take your question on Nutrition & Care. I'd say the entire segment, including Care Chemicals has EBITDA significantly below previous year's quarter, and it is mainly driven by lower contribution margins. And this is mainly on account of high price margin pressure, but also lower volumes. You see that in many areas, it's hard to pick an example here, but you could take, for instance, UV filters. You see here and there higher price developments, but this is not a margin expansion widely, but rather on the back of higher raw material costs. And finally, for Q4 for the outlook, I would not expect a fundamental change in the market dynamics for the rest of the year. It's only 2 months still ahead of us. So I would assume that the current trend is also following us for the rest of the year. Stefanie Wettberg: We will move on to Chetan and then we will have James Hooper, followed by Laurent Favre and Geoff Haire. So now Chetan Udeshi, JPMorgan. Chetan Udeshi: Again, I just wanted to discuss Surface Technologies and maybe in the hindsight, we should have seen some of this metal trading benefit come through because a few of your peers have also indicated the same. But just it would be useful to just remind us how is your business in terms of PGM different from that of Umicore or Johnson Matthey? I think you have a much bigger trading operations rather than refining and recycling. So I think in a nutshell, the question is, are you much more exposed to the trading volumes rather than the pricing? And in that context, is the trading volume uplift that you saw in Q3, more one-off? Or is that something that you think can sustain if prices remain high? That's one. The second question is, just going back to the government grants. You said it's about low double-digit million per annum sort of a benefit that you expect going forward. But because in Q3, you've seen the benefit, which has been accumulated or it's the benefit of a number of years. Are we talking about the benefit in Q3, specifically more closer to EUR 100 million then? Just curious in terms of the magnitude in Q3 from that contribution? Markus Kamieth: Yes, Chetan, Markus here. To the second point, I think Dirk has given you already quite an indication here, I would say. And please also understand that the government grants are also linked to our specific business model that we run and which is slightly also different than maybe what our competitors do. So we would not like to disclose more as Dirk has said, and let me repeat this, that this was an accumulative effect of roughly 3 years. And on an ongoing basis, we expect a low double-digit million euro range. And I think you can do the math and get into the right ballpark here. So with respect to the difference to our competitors. Also here, I would like to not go too much into detail. I do not think that we have a fundamental different setup and business model. Of course, the size, especially of recycling operations are different, especially since one of our competitors or actually both competitors have significantly larger scope in terms of metal recycling, they recycle more metals than just PGM metals. We are focused very much on PGM. However, we have, of course, a leading position in the recycling of actual emission catalysts. So we have a much more integrated loop, if you want, on this side. And on the relative size of the trading business, this is -- I don't actually know this by heart, but I would say this also always depends a bit on the market conditions. So this is also not something that's carved in stone. So I'm not sure that this is a very helpful answer for you, but I would also not like to give much more details on this. And I think if you follow our competitors as well, you will do -- we will be able to do the read across of it. Stefanie Wettberg: So now James Hooper, Bernstein. James Hooper: I've got 2, please. The first one on Nutrition & Care. Can you provide a little bit more color on the kind of care chemicals and the Asian competition margins and whether that's imports, exports or any reason specifically? And how do you expect capacity situations in those markets to change? And also just on Nutrition & Care as well. Can you provide some updates on the dynamics of the vitamin markets and your production ramp-up? And then secondly, on Zhanjiang. On Slide 6, just looking at the -- from next year, the negative ramp-up cost bar seems slightly larger than the blue positive one. Should we be reading this that Zhanjiang will still be a negative contributor in 2026? Or do you have levers to potentially reduce losses here? Markus Kamieth: Yes, Markus here. The second question, I mean, we discussed this already on the Capital Markets Update in Antwerp that there is, of course, now with the ramp-up being late in the year 2025, we will have significant start-up efforts still in 2026 because you can imagine that ramping up a steam cracker plus 20-plus downstream plants is not happening within a couple of weeks. And that, together with, of course, a challenging -- currently challenging margin picture, which could change within a few quarters significantly. It's very difficult to predict now with all these moving parts, an accurate number for 2026. We will try to do our best, giving you this as part of an outlook in February. But we have indicated this so because there is a likelihood that this number will be negative next year and there's a good likelihood that it could be positive next year. And this is the most honest and most transparent indication we can give you right now. And yes, that's basically also our state of knowledge right now. We're compiling all the numbers for '26, but we are expecting this to hover around the 0 range, slightly positive to negative that's why we painted it this way. Dirk, any comments on Nutrition & Care and the moving parts? Dirk Elvermann: So to the moving parts in Nutrition & Care, maybe no particularities here for China to be told. But maybe on the volume picture here, as we have already indicated, volumes decreased in both divisions. And if it comes to vitamins, you also saw here the decrease which was compared to higher than maybe even expected inventory sell-offs for the last previous year's quarter. I would say, position and outlook for Nutrition & Care, very much in line with the other chemicals divisions here. We expect high uncertainty for the fourth quarter. We expect still ongoing weak demand and ongoing price margin pressure to persist globally. And therefore, also in Nutrition & Care, we are very much concentrating on our self-help measures, which for the nutrition part is certainly our efficiency program plus the further ramp-up of our vitamin production. And in the Care Chemicals, we also have a running efficiency program. As you know, so this is currently the main focus point for us and also for the rest of the year. Stefanie Wettberg: Now we move on to Laurent Favre, BNP Paribas Exane. Laurent Favre: Yes. Can you hear me? Stefanie Wettberg: Yes. Laurent Favre: Sorry to go back to Chetan's point on ECMS. But I'd just like to understand, I guess, where the improvements in the trading side are mostly linked to realized gains? Or is there also a component of inventory mark-to-market. So this is more of an accounting, I guess, a question. And I'm wondering whether, therefore, we can assume that if everything stays the same, there might be a further improvement into Q4? And the second question is more about the guidance, I guess, I know that last year, you kept the guidance, Markus, you mentioned that you had a fighting chance of getting there. I'm wondering whether it's something similar this year, i.e., if we have a abnormal seasonality into Q4, you would feel confident with the guidance? Or is there something else that gives you that confidence to reach at least the low point, if not more? Markus Kamieth: Chetan -- sorry, Laurent, I'll take the second one. We are expecting Q4, as I said earlier, to stay more or less similar to Q3 in dynamics plus the normal seasonality that we have in our businesses. So in ag, of course, an uptick in activity in some of our more seasonal businesses that are, for example, construction-related serving downside, and we expect normal year-end behavior of customers. So this is our expectation. And based on this, we feel comfortable with our range. But we all know the volatility in the world is right now is very high in news can change this every day to the positive and to the negative. We know that this week, the U.S. President and the Chinese President are meeting, so who knows what's going to happen. So we are basing this on a rather stable outlook compared to Q3, and this is also what all our customers are telling us is going to happen in Q4. So we feel this is a robust outlook and -- but we certainly cannot exclude any surprises on both sides of this. Dirk Elvermann: Laurent, to your -- to your ECMS question, trading. This is a real trading result. There's also some valuation effects, which are -- but anyway, as you know, largely hedged. So this is a decent trading result we are talking about. Laurent Favre: Okay. And when we -- maybe a follow-up, we now have disclosure for the last 2.5 years. So we can see ECMS -- well, I guess the wider Surface Tech division printing EBITDA between EUR 70 million and EUR 170 million and a big step-up in Q3. If you look at the last 2.5 years, in those 6 quarters prior to Q3, was there any abnormally low result from trading? Or were all those quarters roughly normal and it's just that Q3 is so good this year? Dirk Elvermann: Not that I'm aware of. No. Stefanie Wettberg: Now we have Geoff Haire, UBS and the final speaker will be Sebastian Bray from Berenberg. But now Geoff Haire. Geoffery Haire: I want to ask a slightly longer-term question. Given the volume environment we've had now for what the best part of 3 years in terms of very lackluster volume, are you concerned that the industry is going to start chasing volumes, particularly in more downstream products. You've obviously seen big price declines in upstream. But what is your fear that, that moves into the downstream area and we start to see effectively a price war for volume? Markus Kamieth: That was it? All right. Only one question, Geoff. Thank you very much. Actually, I'm not scared, but I'm conscious that this is already happening. If you look at the commentary of also, let's say, more singular downstream competitors, more in the specialty area. They all will tell you that margins are compressed compared to what we have seen in the past. So competitiveness, race for competitiveness and with this also, let's say, a further competition on who has the best asset setup is also happening downstream. And this is why also we have addressed the Capital Market update also that we have restructuring need also in some of our downstream divisions because in general, the chemical company -- the chemical industry gets more competitive and that's true upstream and it's also true downstream. I would say, in general, downstream, of course, pricing cycles are much slower. There's also a lot of pricing and value components that go beyond the physical product, it is application know-how, it is innovation opportunity. So there's not a direct let's say, correlation between what's going on upstream in commodity areas and in downstream business solution type areas, but the trend that most of the businesses in the chemical industry become more competitive because a number of competitors are increasing and let's say, capabilities are commoditizing. That's certainly true, but that is also part of our outlook for the industry. That's part of our strategy because we bank on all of our businesses, especially also in the core being on top of the -- on top of the pile, so to say, when it comes to competitiveness and innovation capabilities. So we're not afraid of this, but it's a trend that is certainly materializing over the last 10 years, I would say, already. Stefanie Wettberg: So now a final question from Sebastian Bray, Berenberg. Sebastian Bray: Congratulations on a good set of numbers. I have 2, please. The first is on agriculture. The -- how is the company thinking about the pricing moving into '26 because some of this was starting to slip in Q3. I appreciate there's a danger of reading too much into 1 quarter, but I'm curious about the view on this. Can I also ask a secondary question on the terminology that BASF uses for describing its ambitions to IPO the business. Why does the company always use the term partial IPO rather than, let's say, full IPO? Is the ambition to remain indefinitely a long-term shareholder in this business or to divest completely eventually? And related to that, if we are looking at available proceeds, let's say, the German government insurance program pays out, the company has got more than it expected, probably 1.5 years ago for Coatings, is EUR 4 billion a firm number for buyback by '28? Or is it a number that offers some upside if cash proceeds continue to roll in? Dirk Elvermann: Sebastian, I'll take your questions then. First on the Ag business. The Ag business and the agricultural industry altogether is still suffering from low soft commodity prices. There's, as you know, also uncertainty, particularly in the northern hemisphere with the farmers with regard to their purchasing power. So this is the more critical part. On the other hand side, I would say we have a healthy channel inventory. So demand substantially we see for our products. This is also why we are optimistic for the rest of the year that the Ag Solutions segment will deliver on its plans. Going forward, we see the business really in a competitive shape because we have last year taken a lot of measures, the restructuring of the glufosinate ammonium, which is now paying off and other efficiency measures taken in the division, which really give us a good competitive position. So I would say, despite the low price levels that we currently still see in the business, we feel good about the business also going into the next year. But certainly, it will be helpful at one point in time if the soft commodity cycle is then gaining momentum to the upside again. So with regards to the partial IPO, we are saying it's a partial IPO because we have no intention to launch 100% of the shares at the inception. We use the term partial IPO to show and to say that this business also beyond the IPO event will be a business that is consolidated into our group financials, and it's a business that we also like. We have not set any definitive portion of shares that we are going to launch on IPO at this point in time. We will do so at the right moment in time. And then what happens over time remains to be seen. But clearly, at inception, it will be a partial IPO, and this is what we are clearly saying. With regard to your question on proceeds, you are right, we have announced a EUR 4 billion share buyback program. I think we have confirmed it. And at the same time, we are now accelerating a substantial part of it, which I think should be a good sign of strength of the company. And this is it for the time being. I'm not excluding anything, but I'm also not changing anything here. It's the EUR 4 billion until 2028. And we said always this is the minimum. But let me also very clearly say that apart from share buybacks, the company has a job to do next year, particularly to deleverage the debt, and there's a good opportunity next year to do that because next year, we will have maturities of roundabout a little bit more than EUR 2.5 billion, and that will be also a priority for the use of funds that we will significantly deleverage the company in 2026 alongside the share buyback program that we have announced. Stefanie Wettberg: We are now at the end of today's conference call. Let me take this opportunity to draw your attention to a dinner with BASF Board members that we will host in London on Wednesday, December 3, we will send out invitations to investors and analyst next week. Should you have any further questions regarding our Q3 reporting, please do not hesitate to contact a member of the BASF IR team. Thank you very much for joining us today, and goodbye for now.
Operator: Good afternoon, and welcome to Huron Consulting Group's webcast to discuss financial results for the third quarter 2025. [Operator Instructions] As a reminder, this conference call is being recorded. Before we begin, I would like to point all of you to the disclosure at the end of the company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron's website. Please review that information along with the filings with the SEC for a disclosure of factors that may impact subjects discussed in this afternoon's webcast. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers. And now I would like to turn the call over to Mark Hussey, Chief Executive Officer and President of Huron Consulting Group. Mr. Hussey, please go ahead. C. Hussey: Good afternoon, and welcome to Huron Consulting Group's Third Quarter 2025 Earnings Call. With me today are John Kelly, our Chief Financial Officer; and Ronnie Dail, our Chief Operating Officer. Our third quarter performance was strong, driven by growth across all 3 operating segments. Company-wide revenues before reimbursable expenses, or RBR, grew 17% in the third quarter, including 10% organic growth, reflecting a robust demand environment for our services and strong execution by our teams. We're also pleased with our continued margin expansion and earnings per share growth in the third quarter, consistent with our financial goals. The combination of our deep industry expertise and breadth of capabilities has positioned us as a partner of choice for our clients as they continue to face persistent financial challenges and regulatory disruption. We believe strong demand across our core end markets positions us well to achieve our full year 2025 RBR and the earnings guidance while establishing a solid base for continued growth in 2026. I'll now share some additional insights into our third quarter performance. In the Healthcare segment, we achieved record RBR during the third quarter, growing 20% over the third quarter of 2024. Organic Healthcare segment RBR grew 19% over the third quarter of 2024, excluding the results of our recent acquisition of Eclipse Insights, as well as the Studer Education business, which was divested at the end of 2024. The increase in RBR in the quarter was driven by broad-based demand across the entire segment, including our performance improvement, financial advisory, revenue cycle managed services, strategy and innovation and digital offerings. Third quarter RBR for our health care consulting and managed services capability grew 27% over the third quarter of 2024. Demand for our performance improvement offerings remains robust across the market, and we believe this is the strongest environment for our performance improvement offerings we have seen. In addition to record revenue growth, we've also seen continued strong pipeline and sales conversion, continuing at high levels in the third quarter and through the first month of the fourth quarter. Primary driver of demand for our health care offerings is continued margin pressure for our health care provider clients. Our proven track record of delivering demonstrable ROI for our clients sets us apart from our competitors and positions Huron as a go-to trusted partner for organizations experiencing financial strain. Our performance improvement solutions have consistently delivered improved revenue and cash flow yield, reduced operating costs, and improved patient experience among key operating and financial metrics in addition to those. Increasingly, our performance improvement engagements have a broader scope, integrating our strategy, financial advisory and digital offerings to better and more uniquely address our clients' challenges. And this has led to an increase in the average size of our health care engagements. Hospitals and health systems continue to prepare for reduced funding and decreases in insured patient volumes, driven by shifts in the Medicaid reimbursement model. At the same time, pressures persist to improve access and evolve care delivery models in the face of workforce shortages. The combination of these factors creates an unsustainable operating environment for many organizations. And with the combination of these factors, health care providers are increasingly turning to Huron to evaluate their strategic, financial and operational options to strengthen their competitive positions. We continue to expand the use of AI and automation across our offerings to drive value creation for our clients and increase the efficiency of our service delivery. We're increasingly advising our clients on how to govern and deploy the rapidly expanding array of AI and automation solutions available to them while partnering with them to deploy solutions that will yield demonstrable results and value. We highlight an example within our revenue cycle managed services business, which has delivered 20% RBR growth in the first 3 quarters of 2025 compared to the year-to-date Q3 period last year. Revenue cycle managed services can be delivered in conjunction with our consulting offerings or sold as a stand-alone offering, depending on the clients' needs. Revenue cycle managed services drive improved revenue cycle yield and cost savings for our clients and they are complementary to our revenue cycle consulting capability. Among many other AI and automation use cases, we've established and deployed machine learning models that have helped us lower our costs while boosting collections for clients. The breadth of our offerings and our strong reputation in the market and along with our ability to deliver tangible results to our clients positions us well to capitalize on robust market demand as our clients address the ongoing financial pressures on margins and the changing regulatory and technology landscape. Turning to Education. Segment RBR also achieved a record growing 7% in the third quarter of 2025 over the prior year quarter. The increase in RBR in the quarter was driven by strong demand for our strategy and operations, research and digital offerings. Our education team has done a terrific job supporting our clients and sustaining our growth trajectory during this unprecedented time in the higher education industry. Many colleges and universities are managing the impact of declines in research funding and lower enrollment of both domestic and international students as well as overall policy uncertainty. Net tuition pricing pressures persist as students and parents seek affordable education and job training alternatives. And similar to our health care clients, our education clients are navigating through disruption and a strained financial environment. As a result, we're turning to Huron for health. Our comprehensive set of offerings, including performance improvement, spans the entire university, making Huron a trusted partner of choice for clients looking for a partner who can comprehensively address these issues. We continue to see robust demand for digital transformation projects and have been very pleased with our team's win rate in this area throughout the year. Our clients' investments in digital transformation are driven by the need to modernize their data and technology foundations and take advantage of newer technologies, including AI and automation. One area that's particularly light for AI and automation is research administration. We've seen this validated by the success of the solutions we've developed to date that enable administrative staff to focus on greater value-added activities, such as research compliance or managing more awards. Let me share an example. We developed an AI offering to automate the input and processing of data across thousands of grants, drastically reducing the setup time and freeing up research and administration capacity. While we're actively delivering these AI solutions to our clients directly, we can also incorporate the functionality into our research managed services offerings to optimize our delivery and support growth. Improving credentials, breadth of offerings and deep client relationships have positioned us very well to serve our education and research clients as they navigate this period of heightened disruption. We believe our strong positioning and competitive advantage in this industry will drive continued growth, consistent with the goals that we discussed at our Investor Day earlier this year. Now let me turn to the Commercial segment. In the third quarter of 2025, we also achieved record RBR. Commercial segment RBR grew 27% over the prior year quarter. The increase in RBR was driven by our acquisitions of AXIA and Treliant as well as continued organic growth from our commercial digital business. This growth was partially offset by lower demand for our strategy and financial advisory offerings during the quarter. I will note that for both our strategy and financial advisory offerings, we've seen an inflection point in market demand and saw improved sales conversion over the course of the third quarter and into October. Our commercial digital business has continued to grow despite a more challenging demand environment. And we further integrated our strategy and operations expertise across our consulting and digital capabilities, which has strengthened our competitive advantage and positioned us to drive above-average growth during the quarter. During the quarter, we acquired Wilson Perumal & Company, a leading strategy and operations consulting firm serving the commercial markets. We believe the combination of Innosight's long-term strategy and innovation offerings and Wilson Perumal's strategic execution and operations-focused offerings creates a more comprehensive platform for our clients to realize more immediate financial savings that can help drive transformation while they refine their strategies to deliver sustainable growth. As we shared at our Investor Day, another pillar of our commercial strategy was to further integrate our commercial offerings to enhance our go-to-market strategy. We've seen significant advancement in this area, including several key wins that demonstrate our competitive advantage. For example, we're one of the leading partners focused on helping CFOs transform their finance organizations to become more impactful strategic partners in their businesses, through our advanced enterprise performance management capabilities. We built upon these competencies by aligning our strategy consulting, data, AI and automation expertise with our cloud EPM offerings to compete and win against some formidable incumbents and competitors. We're also leveraging AI and advanced analytics to further enhance our competitive advantage while delivering increased value to our clients. For example, we're combining our deep manufacturing expertise with our data, AI and broader technology capabilities to leverage predictive modeling for preventive maintenance which has resulted in significant savings for one of our manufacturing clients. While we remain at the early stages of execution of our integrated commercial strategy, our industry and capability strengths are already proving to be differentiated in our key end markets and offerings of focus. Now let me turn to our outlook for the year. Today, we're updating our annual guidance by narrowing our RBR guidance to a range of $1.65 billion to $1.67 billion, affirming our adjusted EBITDA guidance range of 14% to 14.5% of RBR and increasing our adjusted non-GAAP EPS to a range of $7.50 to $7.70 Midpoint of our RBR guidance reflects strong year-over-year growth in the fourth quarter, as we expect the underlying demand for our offerings across all segments will continue. In 2025, we demonstrated our ability to sustain accelerated RBR growth and margin expansion despite a more challenging macroeconomic and regulatory environments. Our market-tested strategy and durable balanced portfolio of offerings, coupled with disciplined execution continues to deliver strong financial performance for our business and our shareholders. Now let me turn it over to John for a more detailed discussion of our financial results. John? John Kelly: Thank you, Mark, and good afternoon, everyone. Before I begin, please note that I will be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS and free cash flow. Our press release, 10-Q and Investor Relations page on the Huron website have reconciliations of these non-GAAP measures to the most comparable GAAP measures, along with the discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results. Before discussing our financial results for the quarter, I'd like to discuss several housekeeping items. First, our third quarter 2025 results in the Healthcare segment exclude the operating results from the Studer Education business, which was divested on December 31, 2024. Our Healthcare segment results do include a full quarter of operating results from our acquisition of Eclipse Insights, which had closed in June of this year. And finally, we closed on the acquisitions of Treliant and Wilson Perumal in July and September of 2025, respectively. Commercial segment results for the third quarter of 2025, do include the results of Treliant and Wilson Perumal starting from the dates of their respective acquisitions. Now I will share some of the key financial results from the third quarter. RBR for the third quarter of 2025 was a record $432.4 million, up 16.8% from $370 million in the same quarter of 2024. Organic RBR which excludes the RBR generated by all acquisitions completed subsequent to the third quarter of 2024 and the RBR generated by the Studer Education business in the third quarter of 2024 grew 10.2% over the prior year quarter, led by 18.6% organic RBR growth in our Healthcare segment. As Mark mentioned, we achieved another quarter of record RBR, reflects robust market demand for our offerings and is a testament to our highly talented and dedicated teams and their ability to deliver high-quality, innovative offerings to our clients. Net income for the third quarter of 2025 was $30.4 million or $1.71 per diluted share compared to net income of $27.1 million or $1.47 per diluted share in the third quarter of 2024. As a percentage of total revenues, net income decreased to 6.9% in the third quarter of 2025 compared to 7.2% in the third quarter of 2024. Our effective income tax rate in the third quarter of 2025 was 28.7%, was higher than the statutory rate, inclusive of state income taxes, primarily due to certain nondeductible expense items. We now expect an effective tax rate in the range of 23% to 25% for the full year. Adjusted EBITDA was $67.4 million in Q3 2025 or 15.6% of RBR compared to $54.9 million or 14.8% of RBR in Q3 2024. The increase in adjusted EBITDA for the quarter was primarily due to increases in Healthcare and Education segment operating income, excluding the impact of segment depreciation and amortization and segment restructuring charges, partially offset by an increase in unallocated corporate expenses, excluding the impact of the change in the market value of our deferred compensation liability and transaction-related expenses and decreased commercial segment operating income. Adjusted net income was $37.4 million, $2.10 per diluted share in Q3 2025 compared to $31.1 million or $1.68 per diluted share in the third quarter of 2024, resulting in a 25% increase in adjusted diluted earnings per share over Q3 2024. Now I'll discuss the performance of each of our operating segments. The Healthcare segment generated 51% of total company RBR during the third quarter of 2025. This segment posted record RBR of $219.5 million, up $36.4 million or 19.9% from the third quarter of 2024. Third quarter of 2025 included an inorganic contribution of $6.5 million of RBR from our acquisitions, while 2024 included $3.4 million of RBR from the Studer Education business, which was divested in 2024. Excluding the impact of these items, our organic growth rate in the Healthcare segment was 18.6% in the third quarter of 2025 compared to the same period in the prior year. Increase in RBR in the quarter was driven by broad-based demand across all of our offerings in this segment, and led by strong growth in our performance improvement, financial advisory and revenue cycle managed services offerings. Operating income margin for health care was 30.9% in Q3 2025 compared to 27.1% in Q3 2024. The increase in margin was primarily due to revenue growth that outpaced an increase in salaries and related expenses for our revenue-generating professionals and a decrease in salaries and related expenses for our support personnel. We now expect full year operating income margin for the Healthcare segment to be in the 29% to 31% range. The Education segment generated 30% of total company RBR during the third quarter of 2025. The Education segment posted record RBR of $129.4 million, up $8.4 million or 6.9% from the third quarter of 2024. The increase in RBR in the quarter was driven by strong demand for our strategy and operations, research and digital offerings. The inorganic RBR contribution from our acquisitions was $2.2 million in the third quarter of 2025. The operating income margin for Education was 25.7% for Q3 2025 compared to 24.1% for the same quarter in 2024. The increase in margin was primarily due to revenue growth that outpaced an increase in compensation costs for our revenue-generating professionals. The Commercial segment generated 19% of total company RBR during the third quarter of 2025, and posted record RBR of $83.4 million, up $17.5 million or 26.6% from the third quarter of 2024. The increase in RBR was driven by $19.6 million of incremental RBR from our acquisitions of AXIA, Treliant and Wilson Perumal. Operating income margin for the Commercial segment was 15.4% for Q3 2025 compared to 24.5% for the same quarter in 2024. Decline in margin in the quarter was primarily driven by increases in salaries and related expenses for our revenue-generating professionals, and contractor expenses as percentages of RBR. The decline in margin is reflective of an increased mix shift toward our digital offerings during the quarter as well as the transition period for certain acquisitions that we expect to become accretive in 2026. We expect our operating margins in this segment to be in a range of approximately 16% to 18% for full year 2025, reflecting these factors. As Mark mentioned, for both our strategy and financial advisory offerings, we've seen an inflection point and saw improved sales conversion over the course of the third quarter and into October. Corporate expenses not allocated at the segment level and excluding corporate restructuring charges were $56.5 million in Q3 2025 compared to $46.8 million in Q3 2024. Unallocated corporate expenses in the third quarter of 2025 included $2.7 million of expense related to the increase in the liability of our deferred compensation plan, compared to $2.3 million of expense in the third quarter of 2024. These amounts are offset by the change in market value of the investment assets used to fund that plan, which is reflected in other income. Excluding the impact of the deferred compensation plan and restructuring expense in both periods, unallocated corporate expenses increased $9.3 million in the third quarter of 2025, primarily driven by increases in salaries and related expenses for our support personnel, software and data hosting expenses and legal and third-party professional expenses related to our programmatic acquisition activity during the quarter. Now turning to the balance sheet and cash flows. Cash flow from operations in the third quarter of 2025 was $93.8 million. During the quarter, we used $8.5 million to invest in capital expenditures, inclusive of internally developed software costs, resulting in free cash flow of $85.3 million. We expect full year free cash flow to be in a range of $165 million to $185 million, net of cash taxes and interest and excluding noncash stock compensation. DSO came in at 76 days for the third quarter of 2025 compared to 78 days for the second quarter of 2025, and compared to 86 days for the third quarter of 2024. The decrease in DSO reflects the impact of collections on certain larger health care and education projects alignment with our contractual payment schedules. Total debt as of September 30, 2025, was $611 million, consisting entirely of our senior bank debt. We finished the quarter with cash of $23.9 million for net debt of $587.1 million. This was a $9.7 million decrease in net debt compared to Q2 2025, which incorporates the share repurchases and acquisition payments made during the quarter. Our leverage ratio as defined in our senior bank agreement, was 2.3x adjusted EBITDA as of September 30, 2025, compared to 1.9x adjusted EBITDA as of September 30, 2024. We continue to expect our year-end leverage ratio to be approximately 2.0x full year adjusted EBITDA. In the third quarter, we used $18.6 million to repurchase approximately 147,000 shares, bringing our total year-to-date share repurchases to $152.5 million and approximately 1,085,000 shares, representing 6.1% of our common stock outstanding as of December 31, 2024. As of September 30, 2025, $112.6 million remained available for share repurchases under the current share repurchase authorization from our Board of Directors. Finally, let me turn to our guidance for the full year 2025. As Mark mentioned, today, we are updating our annual guidance by narrowing our RBR guidance to a range of $1.65 billion to $1.67 billion, affirming our adjusted EBITDA guidance range of 14% to 14.5% of RBR and increasing our adjusted non-GAAP EPS to a range of $7.50 to $7.70. Thanks, everyone. I would now like to open the call to questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Andrew Nicholas of William Blair. Andrew Nicholas: I wanted to just start on performance improvement and really consulting within the Healthcare segment this quarter, really seems to have popped quarter-over-quarter. So I know you hit on it a little bit in your prepared remarks, but just a little bit more color on all that's going on in that business, what's driving it, how the pipeline looks, how you're hiring there? And maybe somewhat relatedly, if there's anything onetime in nature or unsustainable in the quarterly print. I think you mentioned larger-sized engagements, but just more insight into just how well that business did in this quarter? C. Hussey: Yes. Andrew, this is Mark. I'll start and then John can provide some additional color commentary. The comment I made was that this is perhaps the strongest market that we've ever seen, and it is really broad as well. And what we've seen is really just a reaction to collective margin pressures. If you take a step back to the macro, what's driving that is very simply and a continuing trend, reimbursements from the government and from commercial payers are not keeping pace with cost increases and challenges. And that is hard to fix on a sustainable basis without some pretty deep transformation of your business and your operations. And at the same time, finding ways to continue to grow because you can't cost reuse your way out of that. And so that leads us to for Huron, because we are so integrated in terms of how we go to market across the full scope of our offerings, we are finding that we resonate very well with clients of many sizes in many markets from AMCs to regional national systems. It's giving us just kind of a time to shine for the integration that's happened over the last several years. And it's all founded in, as I said before, demonstrable ROI. So if you don't get real results for clients, you're not going to get rehired. And in this market, everyone talks to one another. So it is very important to have a very strong reputation, and that's also propelling us is that we've been able to deliver on behalf of our clients. We have a team of people who are incredibly passionate about serving clients and care deeply about health care and the culture all plays into that as well. So I think right now has been a time that you've seen the best of what we could ever have hoped to see out of our health care team, and it continues not only in just the performance improvement area, but you're seeing that in managed services as well, where that offering continues to grow and resonate within the market. So it's -- as I said before, there's a pretty significant broad-based support and demand with that. John, do you want to add some color? John Kelly: Yes, Mark, I'll add, Andrew, some commentary just on the pipeline as well as its head count within health care. So from a pipeline perspective, even after some of the sales activity that we've seen so far this year and the strengthening revenue run rate, the pipeline still sits at record high levels at this point, which is really encouraging to us. We had a third quarter that reflected really strong sales conversions. I'd say, as we start the fourth quarter here, that trend has definitely continued during the first month of the fourth quarter. Digging a little deeper on that pipeline, consistent with Mark said, I think it's a mix of clients that are both going through current financial strain as well as clients that are looking at some of their recent regulatory actions, some of the pressure that may be coming as it relates to Medicaid or research funding and trying to get ahead of it before we get a year or 2 down the road and they feel increased pressures related to those things. Increasingly, we're seeing -- and Mark alluded to this as well, but increasingly, we're seeing scopes of projects that are larger than what we've seen in the past. And part of that reason is, not only is the performance improvement, but there's a strategy element, there's a financial advisory element, there's a digital element. More and more, we're seeing pull-through of really the entire set of capabilities that we have in health care. And Mark mentioned our revenue cycle managed services business. That's an area that also is really standing out as a bright spot, both in terms of new sales to new clients in that area, but also the opportunity to expand at existing clients based on really good performance by our teams on those projects. So all those things together give us a lot of encouragement in the health care segment. On the head count side, you do absolutely see us leaning into this demand in terms of our head count additions. Excluding the managed services head count, saw some significant head count adds in the health care segment. That's really building out the capacity that we need to have in order to not only deliver on closing out this year, but also based on our expectations that we're off to a strong start for 2026 as well. And then you do see the continued managed services head count build. A lot of that is our India head count for that part of the business, and that's really related to some of the opportunities that we're seeing there as well. Andrew Nicholas: Perfect. John, maybe I'll pick up on the last kind of comments there. Just in terms of setting up for next year. Health care obviously has very good momentum. You have some deals that you've closed throughout this year that should help growth as well. Any comments that you'd make on '26 broadly? I know you gave kind of a multiyear target at your Investor Day earlier this year. Just wondering if we should expect anything meaningfully different from that framework next year or maybe puts and takes for us to consider as we think about '26. John Kelly: Yes. Andrew, obviously, we're still going through our planning process and considering next year. So we're not in a position to really guide to that yet, which I know isn't what you're asking. But generally speaking, I think I'd go back to that Investor Day and the framework that we put out there. And I'd say a factor that we've now talked about for a couple of calls is that we have seen increased demand over the past couple of quarters related to the areas that we discussed. So that's certainly a favorable item and gives us confidence in that model that we put out there at Investor Day. And if you think about the range of outcomes for next year, continued execution on those types of projects might be the type of thing that would put you towards the higher end of that range. But I think the best thing we do would be to go back to that multiyear model that we discussed in March. Andrew Nicholas: Great. And if I could just squeeze one more in. On commercial, you talked about seeing an inflection point in demand over the course of third quarter or at least as third quarter progressed and then into October. Anything else that you could add there? Like what is driving that improved conversion? Is there anything in kind of the end markets where you participate that has made that -- is driving that, I guess, is the question. C. Hussey: Andrew, I'll take that one. I think if you look at what we said was the strategy in financial advisory. I'll take financial advisory first. So I think it's pretty clear if you look at the broader market, you've seen competitors who have seen an uptick in their demand and the restructuring and turnaround arena, and that's trickling into our business now as well. That gives us a very strong confidence. The sales conversion on those types of opportunities are really short between when they come in the door and when we actually start executing. So that's certainly a momentum factor coming into Q4 that we were alluding to. And then even on the strategy side, where we've seen this combination of going to market with -- in the earliest days of Wilson Perumal's some nice, continued momentum there that has shifted perhaps what we have seen for some softness early in the year. We feel like that's certainly in a good trajectory as well. Operator: Our next question comes from the line of Tobey Sommer of Truist. Tobey Sommer: I want to start with a broad question. How is your hiring capability in the company's infrastructure from your perspective ahead of what looks like it could be a decently long period of rapid growth? John Kelly: Tobey, this is John. I can start. Mark can provide any color commentary. We feel really good about that. I think you hear us talk a lot, Tobey, about the culture that we've been able to build here at Huron. There's 2 tangible things that, that does for us. It leads to lower attrition rates than you see across the industry, a lot of other places, and it also makes it a really attractive platform to attract people into. And so you've seen in that increase in head count numbers over the past couple of quarters, our ability to find the talent that we need and to add that talent. And there's nothing that really gives us pause about being able to continue to do that and really leaning into the demand that we're seeing right now. C. Hussey: Yes. I think it's well said. The only thing I'd just -- maybe just put stop on that comment is a strong culture for us is one of the most important things that we focus on. We start with that. It's why people join us. It's why if they try some other areas, they rejoin us. And for us, it is -- we think one of our most important strategic advantages in the market is just having a great place that people choose to come to work. Tobey Sommer: Terrific. In education, how would you describe customer decision-making? Do your customers feel like they're through the worst of the turbulence and volatility around sort of policy tax, et cetera, which seemed at least based on media flow to peak in late 2Q, early 3Q? C. Hussey: Tobey, I believe you're seeing, I would call it, an equilibrium right now. You're seeing decisions made for the long term relative to like the comments we made about the digital transformation projects. You're also seeing not a gut reaction to some of the more short-term challenges, taking a much more thoughtful way of evaluating what the options are going forward. And as a result, when you look over the course of the year relative to the disruptions that were potentially at the beginning of the year, we've really demonstrated our ability to kind of weather through this time. And we feel like the outlook is pretty stable at this point. Tobey Sommer: And on managed services, where head count growth is very, very high. Can you talk about how you're going to fully absorb those people, how investors should have confidence that it's attached to projects and revenue that should ramp and maybe what your outlook is for long-term utilization among those folks? John Kelly: Yes. Tobey, we have very high utilization. It's one of the highest areas of utilization in the firm for our managed resources teams. There is not a lot of space between conversion of sales and the hiring of resources there. So there's a tight correlation there. It's not one of those situations where we're doing a lot of hiring in advance of anticipated demand. The sales cycle for a lot of these types of projects tend to be a little bit longer. So that gives us the ability to, during that period, make sure that we've got the resources that we need in the right geographies that we need to be able to serve the client and what their particular needs are. But so far, we've been able to manage that in a measured way despite the big number of head count add that you see. C. Hussey: Tobey, I'll add there in India. The culture is just as strong as it is in the U.S. And it's a wonderful team. It translates into low turnover among that team. And so when people join us, we're just getting them that stay a lot longer. It takes pressure off hiring when you need to. And so that's one of the key reasons that culture is such an important asset for us. Tobey Sommer: Just 2 other small ones, if I could get them in. In restructuring, we saw some good wins in the news. How is the team winning bigger jobs? C. Hussey: We've always had opportunities to win at larger engagements. I'd say, while our size is more of a boutique, the reputation of quality that we have in delivery, particularly on restructuring assignments where we're representing at the clients on the debtor side has been very, very strong. And it's pretty broad across a number of different industries. So it's really that reputation and just getting into the market and having the relationships, not only the referral sources, whether the law firms or private equity, private debt. It's been a good consistent source of demand for us because of the reputation we built. Tobey Sommer: And then last one for me. With respect to health care, what's the outlook for performance fees typically when demand is accelerating and very strong. There's a favorable mix in that direction. What's the outlook there? John Kelly: Tobey, that's a good question. And as you know, but just as a reminder, we're -- we work with our clients on whatever type of arrangement that they're most comfortable with. That's what's important to us. So there can be some variability around that over time. In fact, despite the growth that you see this year, from a revenue perspective, from a margin perspective in our health care business, we've actually had a lower percent of contingent-based fees in 2025 than we did in 2024. And that's just reflective of clients this year that had more of a preference for fixed fee type work. With all that said, based on some of the sales activity in the back half of the year, I think we have seen more clients interested, to your point, in performance-based fee arrangements. So if I were to play that forward likely in 2026, my expectation is that, that percent of revenue that's tied to performance-based fees may go back up again to the level it was at in 2024. Operator: Our next question comes from the line of Bill Sutherland of Benchmark. William Sutherland: Mark, I think in your prepared comments, I think I caught this correctly, you said there's increasing competition in the commercial side in digital. Did I hear that right? C. Hussey: No, I don't think it was exactly that, Bill. I'd just say we have been performing well in that market. I don't think there's any real change in the competitive environment there. William Sutherland: Okay. I mishear. I'm glad you clarified. In the Education group, I know that you guys have talked in terms of the other 2 groups as far as the pipeline still being very active and the sales conversion is strong coming through the third quarter. Does that also apply to education? I don't remember you specifically saying that? John Kelly: Yes, Bill, it's John. The -- we had record sales conversions in the second quarter of this year. We didn't get the record status during the third quarter, but it was still strong sales conversions during the quarter. And we're a month into the fourth quarter now, and we're off to a really good start from the fourth quarter perspective, too. So we continue to see strength there as well. William Sutherland: And John, when you were talking about the segments and the expected margin range for the year, did you give education? Or did I miss it? John Kelly: I didn't -- the reason I did, there was no change in it. So that's consistent with where we're at before, which is 23% to 25% the year. William Sutherland: Okay. That makes sense. And then the last one, I mean, obviously, like everybody else in the world, thinking more about the AI side of things. And I'm curious about the percentage of your book that you're seeing that has at least somewhat of an AI focus. And with that, are you finding yourself able to build the resources internally sufficient to meet demand? Or could that be -- could that be an area where a small acquisition would be helpful? C. Hussey: Yes, Bill, before John jumps in and gives you more of the color, let me just say that we view the opportunity related to AI and automation as a positive for our business. And hopefully, that came through in the remarks. Because we're not a large scale [indiscernible] and using scale and infrastructure to lower the cost or we're not a generalist firm, we're a trusted implementation partner. And so when we're working shoulder to shoulder with our clients, it creates opportunities to work with them because we understand their business processes, their industries. And so we can easily work hand-in-hand with them. So we think that we actually see this as very much a net positive for our business over time. So John, do you want to maybe provide some color on how that's finding its way into the numbers? John Kelly: Yes. Bill, if you think about our -- the digital business, which is a little bit north of 40% of our total revenue, somewhere in the 15% to 20% range of that total revenue is work that's directly related to AI type projects. I would say though, as time goes on, I think that, that line gets even blurrier because there's -- increasingly, there's some aspect of automation or AI involved in many, many of the digital projects that we're working on and a much higher percent of the revenue. I'd say too, it extends even beyond digital. When you look at some of our performance improvement consulting, for example, I'd say the managed services part of our business, which is another one that Mark alluded to, I'd say, automated solutions, use of AI in order to help our clients drive the types of outcomes that they're looking for. That's becoming a bigger part of the equation. In terms of our talent, I think we're in a really good starting place. If you think again about for us, our starting point is 40% of our revenue out of the gate is coming from consultants with a specialization in technology, specialization in digital. So the evolution here to some of the more advanced technology is an easier leap for those consultants. And it's really just part of the evolution of the tools that they already have expertise deploying. So I think we're taking advantage of that kind of high digital fluency that we have at Huron. Operator: [Operator Instructions] Our next question comes from the line of Kevin Steinke of Barrington Research. Kevin Steinke: So you talked about the strong demand in education that you're seeing for digital transformation projects. Just wondering about the mix in terms of the type of projects there. I know in the past, you've talked about really the potential of student life cycle systems and the growth opportunity that offered there for you versus implementation of traditional ERP systems. So just kind of wondering a little bit more about any color on the types of implementations you're seeing in the mix there? C. Hussey: Yes. Right now, Kevin, it's been really, I would call it, in core ERP financials, HCM, kind of full suite type implementations, a little bit lighter on the student side. So I'd say our comments are targeted more toward core ERP. John Kelly: And Kevin, as I was thinking about your question, another -- another good point to make, I think this is very true in some of these education ERP projects that we're seeing. In order for our clients to be able to unlock some of the benefits of automation and AI, having a solid data structure, a solid technology infrastructure is critical. You actually can't do it at any sort of scale unless you've made some of those investments in the underlying foundation. And so I think that's part of the reason we're seeing such good demand right now for those types of offerings as clients who are not only on trying to reset the foundation because they're on dated tools now that they need to get on to the more modern platforms, but also because they know that sets the stage for the next round of investments in AI-based functionality. Kevin Steinke: Right. Okay. That's helpful. I just want to ask about the utilization rate on the consulting side in the quarter. A step down sequentially from the second quarter. I'm assuming that's related to some of the ramped-up hiring you did there. And just maybe you could talk about the opportunity for utilization to improve going forward as more projects ramp up and how that can contribute to your margin expansion going forward? John Kelly: You got it exactly right, Kevin. That lower utilization that you see during the quarter was related to the head count additions that we made to really support demand. So we're in a little bit of investment mode here. I'd say in the back half of the year to build out the team to not only deliver on the opportunity we see in the back half of this year, but also set the stage for next year as well. So I think from a long-term perspective, we'd expect ourselves to be able to get back up to the upper 70% range overall that you've seen us hit in other quarters. But I think you may see -- you saw it this quarter, you may see for another quarter or 2, a little bit of pressure on that metric as we're building out the team, getting ready to continue to grow the business. Kevin Steinke: Okay. Great. I think most of my other questions have been answered, so I'll turn it back over. Operator: Thank you. Seeing no more questions in the queue. I'd like to turn the call back to Mr. Hussey. Sir? C. Hussey: Thanks for spending time with us this afternoon, and we look forward to speaking with you again in February when we announce our fourth quarter results. Have a good evening. Operator: That concludes today's conference call. Thank you, everyone, for your participation.
Hakon Volldal: Good morning from Oslo. We are ready to announce Nel's Third Quarter 2025 Results Presentation. My name is Hakon Volldal. Sorry, the microphone is on Wilhelm. My name is Hakon Volldal. I am the CEO of Nel. With me today, I have our CFO, Kjell Christian Bjornsen; and also Wilhelm Flinder, our Head of IR, Communication and Marketing. We have the following agenda. Nel in brief, highlights from the third quarter, a short commercial update, a short political update and a short technology update. And we will, as always, end the session with questions and hopefully answers. Nel is a fully dedicated electrolyzer technology company. We have been listed on the Oslo Stock Exchange since 2014. We have sold more than 7,000 electrolyzer stacks across the world. I think if we do the count, it's now moved to more than 80 countries and we have been in business since 1927. We have 1.5 gigawatts of manufacturing capacity, 1 gigawatt here in Norway and 0.5 gigawatt in the U.S. for PEM. We are about 350 employees. At the moment, we are investing heavily in R&D to develop next-generation platforms. We have a global sales and office network. We have become a preferred partner with industry leaders such as Samsung, Reliance and General Motors, and we have NOK 1.8 billion in cash reserves. Our value proposition is based on our long track record, what we call an unrivaled track record. As I just mentioned, we can trace our history back to 1927 that gives us decades of experience, more than any other electrolyzer OEM today. We also have a large installed base that we can learn from in terms of performance and energy consumption and degradation and all the important things that customers want to know. We claim technology leadership. We have multiple technology platforms, both what we call the alkaline platform and the PEM platform. We have guaranteed and proven performance and we have game-changing next-generation solutions. That brings me to the third leg of our value proposition, cost and scale leadership. We have been frontrunners in cost reductions, starting with automated manufacturing and also full-scale plants together with partners to bring down the total cost of ownership. And we have market-leading production capabilities, including one of the most advanced and fully automated assembly plants for electrolyzers here in Norway and now also in the U.S. The finance department has aggregated the numbers and here are the results. On top line, revenue from contracts with customers, NOK 303 million. EBITDA, minus NOK 37 million. Order intake in the quarter, NOK 57 million. Order backlog, NOK 984 million. And we ended the quarter with a cash balance of NOK 1.757 billion. Not a lot of press releases or news in the quarter among the highlights and subsequent events. We can mention a follow-on equipment order from a customer in Switzerland called H2 Energy for a containerized 2.5 megawatt electrolyzer. We signed a FEED study for a 100-plus megawatt project in Northern Europe and we also signed a pre-FEED contract for a 100-megawatt-plus project in Southern Europe. Let's study the group financials a bit more carefully. The revenue from contracts with customers, NOK 303 million. That's a decrease of 17% compared to last year, while it's up 74% quarter-on-quarter. Compared to the second quarter, a strong rebound. Total revenue and income, NOK 349 million versus NOK 391 million last year. That brings the year-to-date to NOK 633 million versus NOK 974 million in '24. So obviously, a bit tougher market in '25 than in '24. We have done what we can to improve performance by managing our cost base and also improving execution capabilities and margin on deliveries. You can see some of the results here. EBITDA in the quarter, minus NOK 37 million compared to minus NOK 90 million last year. Also improvement when it comes to EBIT, pretax income and net income. Just one remark regarding the cash flow from operating activities, which is weaker than in the third quarter of 2024 despite the higher EBITDA and that has to do with the payment milestones. We had recognized or we had not recognized, we had collected cash from customers on some of the work that we recognize as revenues in the third quarter prior to doing the work. So cash, we try to stay cash positive on projects. And that meant that in the third quarter of '25, although the results are good, we have been prepaid for the work that we did, hence, cash flow from operating activities a bit weaker than the EBITDA should signal. still a healthy cash balance at the end of the quarter. Turning our attention to the alkaline financials. We can see that the third quarter represented a strong rebound from a slow first quarter and second quarter. And you can also see that in quarters where we have solid revenue, the alkaline business is EBITDA positive. We have proven that on multiple occasions, but we need the revenue to be around NOK 200 million plus in order to balance the books. With high utilization of our factories and with high revenues, we also had a profitable business, i.e., the business model for the alkaline segment works. The challenge is to fill the factory. For PEM, it's slightly different. We still lack the top line to turn a profitable or to have a positive EBITDA. We reported a 15% decrease in revenue compared to last year. And a lot of the revenue in the quarter was driven by containerized electrolyzers, delivery of containerized electrolyzers. EBITDA fairly flat in the first quarter, second quarter and third quarter. In general, we would say that product and project margins are up due to better project execution, but we also have some heavy investments going into the next development or next-generation development of stacks. Order intake in the quarter, NOK 57 million. And that meant that a lot of the revenues we recognized in the quarter came from our order backlog, which now stands at NOK 984 million. The breakdown of the NOK 984 million, roughly NOK 600 million on the alkaline side and NOK 400 million for PEM. And again, the order backlog is subject to risks such as delays and/or cancellations, and we have given further information on that in the notes to the quarterly report. Cash burn rate is important. What this slide tells you is that we have a cash burn rate, which is coming down. We spend less money on operations and on investments than we did in the past. It's -- we're still talking negative numbers. But compared to '22, '23 and '24, the cash burn is significantly down. And that's important in a market which has been slightly slower than we anticipated and expected to control the expenses. We are down from a peak staffing of 430 1 year ago to down to 354 at the end of the third quarter this year. And it will continue to go gradually down. Personnel expenses down year-to-date, almost NOK 60 million. The slight uptick in the third quarter is due to periodization and payment of vacation money in Norway. So the trend is that the number of employees is coming down, and we do that in order to, of course, reduce the burn rate and extend our runway. We still set up to conduct significant R&D work. We are working on very exciting developments, both in alkaline and PEM. I'll get back to some of that later. This is predominantly adjusting our manufacturing capacity and also project execution capacity in the wake of a slower market. On the commercial side, the pipeline is indeed large and increasing. We try to keep our pipeline up to date by canceling or removing all the projects that will not move forward. But actually, the pipeline is growing. However, final investment decisions continue to be pushed out in time. Several target projects in the 20 to 150 megawatt range are expected to take final investment decision during the next quarters. And we are currently involved in more than 500 megawatts of paid FEED studies for large-scale systems and our EPC partners are involved in additional studies. Two examples. In the quarter, we signed a FEED study with a reputable European company for a 100-plus megawatt Northern European project. We also signed a pre-FEED contract for a 100-plus megawatt project in Southern Europe with a reputable company. So the quality of the FEED studies or our FEED study partners is very high. I would be surprised if none of these projects would materialize. And for a lot of the FEED studies, Nel is conducting exclusive work. That means if the project takes FID, Nel will be the partner that will receive the purchase order. One highlight after the close of the third quarter was an additional purchase order for a containerized PEM system, what we call it MC500. And this actually represents the third purchase from H2 Energy in Switzerland. What you see on the picture is the second installation we delivered to them. It's under a beautiful bridge and the electrolyzer is in the middle of the picture. It's hard to see it, and that's good because it proves that the footprint isn't that big to produce hydrogen. It's a rather neat compact installation. The third unit that H2 Energy will buy will be installed in Switzerland and supply hydrogen for mobility and industrial applications. And we're proud of this order because it's a repeat order and it proves that Nel's customer satisfaction is high and it also I think documents our track record when it comes to delivering working electrolyzers around the world. Short political update. We have sent a letter together with other leading European OEMs to the European Commission. And we asked or urged the European Commission to adjust the hydrogen regulations. Less than 1 gigawatt of capacity has been deployed in Europe compared to the 6 gigawatt target that was initially set for 2025. The industry promised to establish annual manufacturing capacity close to 10 gigawatts. We have done that, but demand is still not strong enough. And we believe part of the reason is that the current rules and regulations are delaying project realizations and also undermining demand. We need a more pragmatic way of regulating the market. We need to extend exemptions for the frontrunners and also more flexibility in how hydrogen plants are regulated. We believe it's possible to do this within the context of the legal framework that has been established. And we remain hopeful that by changing some of the rules and regulations in the current framework, it's possible to speed up hydrogen adoption across Europe. It's a broad push for this. And I think the EU has also, in the past, shown that through the Omnibus process, they can indeed work with existing frameworks and speed up and simplify, remove some of the red tape in those quite fast. Moving on to the technology update. One of the more important things we are working on is the next generation pressurized alkaline system. I have presented this many times in the past, but just to highlight sort of the key selling points of this, why are we spending a lot of time perfecting this and why are we bringing this to market shortly? It is because we reduced the footprint by up to 80% compared to our existing system. And that's important, because in Europe, which is indeed a very important market for clean hydrogen these days, you don't always have the space to do whatever you want. You don't -- you're constrained by existing land plots, properties. You have brownfield sites where you don't have the opportunity to just expand your hydrogen plants in all sorts of directions, you need to limit the footprint of the system. This is a very compact footprint. It's less than 230 square meters for 25 megawatts of capacity. Along with that comes a significant reduction in investment cost and not just for the Nel part, but for the entire system. We're talking about a total system CapEx reduction up to 60%. And it will be more energy efficient than anything available in the market today, we believe. The system energy consumption will be less than 50 kilowatt hours per kilogram of hydrogen, which is a significant improvement versus what is available today. That's why this is important. What you see on the right-hand side is a real picture. It's not a PowerPoint. It's a picture from Heroya, where we are building half of what you saw on the previous page. It's pilot or prototype. The mechanical installation is done. The cold commissioning is done. We're entering hot commissioning, meaning we will produce molecules very shortly. We hope to do that in November. We hope to take FID on a new production line before year-end 2025. We hope to validate this as a running installation, producing gas hour after hour, day after day in 2026 and we hope to also commercially launch it in 2026 and deliver at scale, meaning hundreds of megawatts in 2027. So this is not a PowerPoint concept anymore, it's real. And we remain very positive that this will be a way for our customers to actually move their respective projects along at a faster pace and with much more attractive financials behind them. Unless we can enable our customers to have positive business cases, we cannot sell our equipment And I think with this, we have looked at all the different aspects of building a hydrogen plant and how you can do that in the most cost competitive way, taking the customers' point of view and not only focusing on the hardware cost, but focusing on the total project cost where things are modularized, standardized, brought to site, it's quick to assemble it and it involves limited engineering and limited construction time. So more on that in the coming quarter. We will also, in the coming quarter, give a more detailed update on our next-generation PEM stack. But that's what we have for today. And I will be joined now by Kjell Christian Bjornsen, our CFO, to answer any questions you might have. Wilhelm, you have the usual text you need to read before we start. Wilhelm Flinder: Thank you, Hakon. Some general information before we kick off the Q&A session. [Operator Instructions] If we have time, we will also take written questions submitted through the Q&A function. And if there are questions we don't have time to answer, please reach out to us on ir@nelhydrogen.com. And a reminder, we will not comment on outlook specific targets, detailed terms and conditions on specific contracts as well as questions on specific markets. Modeling questions, we will also appreciate is taken offline. So let's kick off. First question comes from Elliott Geoffrey Peter Jones [indiscernible]. Elliott Geoffrey Jones: Congrats on the numbers. Just a quick question on the backlog. Obviously, you had a nice customer milestone payment this quarter. Could you give us any kind of insight as to how the backlog looks going forward? And if maybe you're expecting similar payments in the coming quarters or is the backlog now looking a bit more kind of longer term in terms of milestone payments? Any kind of color on that would be very helpful. Hakon Volldal: So thank you for the question. We would then point to the notes to the report where we split out what is currently planned for delivery in the rest of '25 and what's planned for '26 and later. And finally, what is at significant risk of delay or cancellation. And they will have some of those details. I would really want to point out that what is planned for the rest of the year should not be seen as guidance. There are huge shifts from sometimes month-to-month, week-to-week where something might just not come in one quarter and then skip into the next one. And we will not give an update during the quarter on what is in that table when it comes to the rest of the year, but I hope that answers your question. Wilhelm Flinder: Next question comes from Arthur Sitbon. Arthur Sitbon: Just trying to think about revenues for the next quarters and next year. What I realized is that in that table that you just talked about actually, the amount for potential cancellations has not changed for several quarters in a row I think. So I was wondering, if on that, you think the worst is now behind you? And also related to that, you talked about potential FID in next quarters for projects. I was wondering, at the earliest, when do you think you can get order intake linked to those potential FIDs just to try to better understand the sequence of revenues for coming quarters and years. Kjell Bjørnsen: So if I could start with the past and then Hakon can take the future. So you are correct, we have had a backlog of large projects signed a couple of years ago that have been delayed and/or canceled and some of them are still in the process of negotiating basically a workout with the customer. And that's why the risk figure there has been unchanged for some time. And I would highlight that there is significant risk with those. But based on the current contractual situation, there is an obligation for the customer to take that. We believe the worst there is past us also because we have delivered so much of what was not on that list. There's always some minor risk on the PEM side, but that's typically smaller orders on the, what we call, the industrial areas. And then Hakon? Hakon Volldal: Yes. And it's notoriously difficult to predict when FIDs will be taken and what the time gap will be between an FID and a purchase order. I would say our current pipeline is spread out from, I would say, today until the end of '26, we have opportunities that could materialize and result in equipment orders for Nel in the fourth quarter, in the first quarter, in the second quarter, in the third quarter and the fourth quarter. But I would say, all of the 500 megawatts that we signaled that we're doing FEED work on will not happen in the same quarter, they will be spread out. Some of them might not lead to any equipment orders. But I would also like to say that the FEED phase is prior to reaching FID. And that means the FEED what we have said, 500 megawatts in FEED work, will potentially lead to FIDs and equipment orders in '26. Some of that might drag into '27. The FEED work we have already done in '25 and also in '24 might lead to equipment orders from today and throughout '26. So I think it's super hard to say something generic about this. But based on our current pipeline and what we can say or see about the maturity of these different projects, we can have equipment orders -- significant equipment orders in every single quarter going forward. Wilhelm Flinder: Next question comes from Skye Landon. Skye Landon: I was just wondering, on the FEED projects that you're working on in this 500 megawatts, are you able to comment whether this is basically based on the new alkaline technology or is this more around the old alkaline technology? And if it's on the old stuff, when do you think the new stuff will kind of start flowing into your pipeline? Hakon Volldal: The FEED work we're currently conducting is for what you referred to as the old or the current alkaline technology, and that's important because we have an inventory of equipment that we need to sell and this is what is available. When I refer to possible equipment orders every single quarter from now on until the end of '26, it will most likely be for what we already have. The new equipment will not -- we will launch that commercially next year, but we haven't started to take orders for that equipment. We have a soft launch towards certain customers that would like to know what we can offer in '27, '28, '29, but we will not launch it commercially until next year and start building the order backlog for that new equipment in '26. Skye Landon: And then maybe you could maybe give a comment or an update on partnerships with General Motors and updates on kind of like the push forward you're making with the PEM product and then also collaborations with Samsung and Saipem and so on and so forth. It would be good to get an update on that. Hakon Volldal: We should almost have included an additional slide, Wilhelm. But I would say we have a handful of strategic partners. Reliance Industries, India's largest private company, I think announced during their annual meeting that they will build a huge electrolyzer factory in India, 1 gigawatt initially and then moving that to 3 gigawatts and that will be based on Nel's technology. So that's according to the previously announced technology licensing agreement, which will be very beneficial for Nel. It will give us a revenue stream from the Indian market when Reliance starts to produce electrolyzers in India. And I think the time line indicated for that is that towards the end of '26 they want to have that 1 gigawatt line in India up and running. We are working closely with Reliance to make that happen. It's a team from Nel working with a big team from Reliance. Samsung, very important strategic partner. They handle some of the large projects in part of the world where it's difficult for Nel to have local representation. They're especially strong in the Middle East, in Asia, but they also have projects in Europe and in the U.S. It's a global partner that gives us credibility and can provide turnkey plant solutions. They deliver a full working hydrogen plant with performance guarantees on system level. The same goes for Saipem. They've also developed a turnkey solution package they can deliver with Nel inside, as we call it, and are involved -- both of them are involved in multiple potential projects around the world and working closely with Nel to win those potential contracts. They're not included in the 500 megawatt of FEED studies that we refer to. What they are doing with their clients will come on top, just to say that. And with General Motors, we have had a joint development agreement in place for several years where we have benefited from General Motors' decades of experience with fuel cell technology. We've taken their learnings and know-how and applied that on the electrolyzer side to make a PEM electrolyzer that will revolutionize how PEM electrolysis is done. And we -- just to sort of give that away, we are now building a short stack in full size of that electrolyzer. It's very exciting. CapEx targets and OpEx targets are extremely attractive. And we will finalize that work and continue to work on that in '26, but it's slightly behind what we call the pressurized alkaline platform. It will take more time to mature that. But there's still a relationship with GM. Although as we move forward, we will gradually have to take over and do the industrialization ourselves or with other partners. Wilhelm Flinder: We have received one written question as well. [Operator Instructions] So there's a question from [ Nicolas Legrand ]. What do you consider to be the main regulatory barriers in Europe that are currently hindering the development of hydrogen production solutions? How is the company addressing these challenges? Hakon Volldal: Yes. I think that was what I referred to as the letter that Nel together with major other electrolyzer OEMs, including thyssenkrupp Nucera and Siemens Energy, John Cockerill and others sent to the European Commission that the legislative framework that we have in Europe is actually not bad. It's quite good, but it's very strict. It makes it hard to start up projects because the grace period until you need to comply with quite strict rules on how you source your energy, where you source your energy and how that energy is made up to give you the full benefit of producing clean hydrogen is very difficult to deal with. And the first movers need a bit more flexibility. Maybe they need a grid connection. They can't get 100% wind or solar. And what the current regulation says is that every single hour that you use energy, it has to be renewable. So I think to give them a bit more flexibility on what kind of energy they can source, where they can source it, does it have to be local or can it be come from somewhere else, can they sell surplus energy back to the grid. All of that needs to be relaxed in order to make the business cases fly for the early movers. As we approach 2030 and halfway into the next decade, it's possible and I think reasonable to comply with the EU regulations. It's just that it's very strict for the first movers. It's a framework that is almost taking for granted that we will be successful. But we need to create success before we introduce all the rules and regulations that they have. So for the ones that are familiar with the regulations, it's what we call, the 3 pillars of -- what's it called again? Help me out. Kjell Bjørnsen: Additionality... Hakon Volldal: Additionality. The 3 additionality principles and temporal correlation and geographic correlation and whatnot. There are very sort of specific rules that we would like to be relaxed for the next 2, 3, 4 years. The delegated act is what I wanted to say, the 3 pillars of the delegated act, they should be relaxed. Wilhelm Flinder: Very good. It seems we are -- there's no further questions. So I think we'll end the Q&A session there. I'll give the word back to management for any final remarks. Hakon Volldal: Yes. Thank you for joining us. I think the numbers in the quarter were promising or at least satisfactory compared to first quarter and second quarter. It was a nice rebound on the revenue side and also good EBITDA performance. It's not positive EBITDA, which we ultimately want, but it was a step in the right direction. We have said that we remain cautiously optimistic about equipment orders in the coming quarters. There are opportunities out there. The opportunities have a higher quality than in the past. They are with reputable companies. We have good partners that we're benefiting from. And I think when we meet next in February, we will give a more detailed update, both on the markets and on the technology plans we have for the pressurized alkaline and the next-generation PEM. So hope to see you back then also with some interesting events to talk more about that.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cheesecake Factory, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn today's conference over to Etienne Marcus, Vice President of Finance and Investor Relations. Please go ahead. Etienne Marcus: Good afternoon, and welcome to our third quarter fiscal 2025 earnings call. On the call with me today are David Overton, our Chairman and Chief Executive Officer; David Gordon, our President; and Matt Clark, our Executive Vice President and Chief Financial Officer. Before we begin, let me quickly remind you that during this call, items will be discussed that are not based on historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could be materially different from those stated or implied in forward-looking statements as a result of the factors detailed in today's press release, which is available on our website at investors.thecheesecakefactory.com, and in our filings with the Securities and Exchange Commission. All forward-looking statements made on this call speak only as of today's date. The company undertakes no duty to update any forward-looking statements. In addition, during this conference call, we will be presenting results on an adjusted basis, which exclude acquisition-related items and impairment of assets and lease termination expenses. Explanations of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our press release on our website as previously described. David Overton will begin today's call with some opening remarks. David Gordon will provide an operational update. Matt will then review our third quarter financial results and provide commentary on our financial outlook before opening up the call to questions. With that, I'll turn the call over to David Overton. David Overton: Thank you, Etienne. Our third quarter results were solid with consolidated revenues within our guidance range and earnings and profitability finishing above the high end of our expectations. Our performance was led by the Cheesecake Factory restaurants delivering positive comparable sales results amid a more challenging and competitive environment, underscoring the strength and resilience of our brands. While we, along with the broader restaurant industry, are navigating a softer macro and consumer environment, our overall performance remained stable, in line with expectations. These results highlight the healthy demand for our high-quality concepts, the strength of our operators and the durability of our business model. Specifically, comparable sales at the Cheesecake Factory restaurants increased 0.3% for the third quarter with annualized unit volumes averaging over $12 million. We believe our strategic focus on menu innovation remains a key point of differentiation, supporting our broad consumer appeal and strong relevance with guests. Our new menu offerings are resonating well, reflecting the success of our culinary innovation. We will continue to lean into this core strength to keep our menu highly relevant while providing exceptional value without relying on discounting. Supported by improved retention, our operators once again executed at a high level, driving year-over-year improvements in labor productivity and wage management, resulting in meaningful profitability growth. The Cheesecake Factory's restaurant-level profit margin increased 60 basis points year-over-year to 16.3%, with margin improvement also realized at North Italia and Flower Child. Turning to development. In the third quarter, we opened 2 FRC restaurants and 2 Cheesecake restaurants opened in Mexico under a licensing agreement. Subsequent to quarter end, we opened 1 additional FRC restaurant. With 19 restaurant openings so far this year, we're well positioned to meet our objective of opening as many as 25 new restaurants in 2025. Looking ahead to 2026, we plan to further accelerate development with as many as 26 new restaurant openings across our portfolio of concepts. As we move forward, we will remain focused on delivering exceptional food, service and hospitality, the hallmarks of our success while continuing to execute against our long-term growth strategy. With that, I will now turn the call over to David Gordon to provide an operational update. David Gordon: Thank you, David. Our teams once again demonstrated strong leadership and operational discipline this quarter, delivering improvements across multiple areas of the business while maintaining consistently high levels of guest satisfaction. Their efforts were instrumental in driving profitability and ensuring our guests continue to receive the exceptional service and hospitality that sets us apart. These results are a direct outcome of our sustained investment in our people. We remain committed to developing and supporting our managers and staff members, and that focus has yielded meaningful results. Over the past several quarters, we have achieved notable year-over-year improvements in both manager and hourly staff retention. In addition, our already strong team engagement scores have remained at historically high levels, underscoring the strength of our culture and the effectiveness of our people-first approach. As part of this ongoing commitment, we hosted our General Manager conference last month, where we emphasized culinary excellence, focusing on elevating the quality of the food we serve every day and further optimizing our kitchen systems to ensure consistent execution of our broad and complex menu. Speaking of our menu, as David noted earlier, our recent additions are resonating strongly with guests. The new bites have driven higher appetizer attachment rates, while the new bowls are among some of the most frequently ordered new items we've introduced in recent years. Together, these new offerings have contributed to an improvement in check mix and demonstrated the success of our menu innovation efforts. Turning to Cheesecake Rewards. We remain highly encouraged by the program's positive momentum. Membership growth remains strong and member satisfaction continues to over-index. In a recent internal survey, members shared positive feedback, noting that the program is easy to use, delivers clear value and encourages them to dine with us more often. This validation reinforces our confidence that we are on the right path in delivering meaningful value to our most loyal guests. Earlier this year, we shifted to a more personalized strategy and the results have been promising with a notable uptick in member engagement. Looking ahead, we will continue refining offers to improve their effectiveness and look for ways to enhance the overall guest experience, including how we engage with our members. To that end, we're currently developing a dedicated rewards app, which we believe will provide a more seamless and impactful way to engage with our guests. Turning to North Italia. Third quarter annualized AUVs reached $7.3 million. Comparable sales declined 3%, reflecting sales trends in the broader industry, which softened in the quarter and continued pressure from some sales transfer from recently opened restaurants as well as the lingering impact of the Los Angeles fires. That said, our strong manager and staff retention enables us to execute at a high level, and we remain confident in our ability to compete effectively in a more challenging and competitive environment. Restaurant level profit margin for the adjusted mature North Italia locations improved 70 basis points from the prior year to 15.7%. The margin expansion was driven by operational improvements as well as more favorable commodity inflation. Flower Child continues to perform exceptionally well with third quarter comparable sales increasing 7%, significantly outpacing the fast casual segment. This strong sales performance translated into annualized AUVs of $4.6 million. The combination of robust top line growth and disciplined operational execution drove restaurant-level profit margins for adjusted mature Flower Child locations to 17.4% in the third quarter, an improvement of 140 basis points year-over-year. And lastly, we expanded our FRC portfolio with the openings of Culinary Dropout in Franklin, Tennessee, and The Henry in Carlsbad, California. Both restaurants opened to strong demand and early sales momentum with average weekly sales surpassing $200,000. And with that, let me turn the call over to Matt for our financial review. Matthew Clark: Thank you, David. Let me first provide a high-level recap of our third quarter results versus our expectations I outlined last quarter. Total revenues of $907 million finished near the midpoint of the range we provided. Adjusted net income margin of 3.7% exceeded the high end of the guidance we provided, and we returned $13.8 million to our shareholders in the form of dividends and stock repurchases. Now turning to some more specific details around the quarter. Third quarter total sales at The Cheesecake Factory restaurants were $651.4 million, up 1% from the prior year. Comparable sales increased 0.3% versus the prior year. Total sales for North Italia were $83.5 million, up 16% from the prior year period. Other FRC sales totaled $78 million, up 16% from the prior year, and sales per operating week were $115,600. Flower Child sales totaled $48.1 million, up 31% from the prior year, and sales per operating week were $88,200. And external bakery sales were $18 million, up 20% from the prior year period. Now moving to year-over-year expense variance commentary. In the third quarter, we continued to realize some year-over-year improvement across several key line items in the P&L. Specifically, cost of sales decreased 80 basis points, primarily driven by favorable commodity costs. Labor as a percent of sales declined 30 basis points, primarily driven by the continued improvement in retention, supporting labor productivity gains and wage leverage. Other operating expenses increased 50 basis points, primarily driven by higher facility-related costs. G&A remained relatively flat as a percent of sales. Depreciation increased 10 basis points from the prior year. Preopening costs were $6.6 million in the quarter compared to $7 million in the prior year period. We opened 2 restaurants during the third quarter versus 4 restaurants in the third quarter of 2024. And in the third quarter, we recorded a pretax net expense of $0.8 million, primarily related to FRC acquisition-related expenses. Third quarter GAAP diluted net income per share was $0.66. Adjusted diluted net income per share was $0.68. Now turning to our balance sheet and capital allocation. The company ended the quarter with total available liquidity of approximately $556.5 million, including a cash balance of $190 million and approximately $366.5 million available on our revolving credit facility. Total principal amount of debt outstanding was $644 million, including $69 million in principal amount of convertible notes due 2026 and $575 million in principal amount of convertible notes due 2030. CapEx totaled approximately $37 million during the third quarter for new unit development and maintenance. During the quarter, we completed approximately $1.2 million in share repurchases and returned $12.6 million to shareholders via our dividend. Now let me turn to our outlook. While we will not be providing specific comparable sales and earnings guidance, we will provide our updated thoughts on our underlying assumptions for Q4 2025 and full year 2026. Our assumptions factor in everything we know as of today, including net restaurant counts, quarter-to-date trends, our expectations for the weeks ahead, anticipated impacts associated with holiday shifts and the recent softness in industry sales trends and a more cautious consumer environment. Specifically, for Q4, we anticipate total revenues to be between $940 million and $955 million, representing an approximate 1% step down from the Q3 sales trend. Next, at this time, we expect effective commodity inflation of low single digits for Q4. We are modeling net total labor inflation of low to mid-single digits when factoring in the latest trends in wage rates and minimum wage increases as well as other components of labor. G&A is estimated to be about $60 million. Depreciation is estimated to be approximately $28 million. We are estimating preopening expenses to be approximately $8 million to $9 million to support the 7 planned openings in the quarter and early Q1 openings. Based on these assumptions, we would anticipate adjusted net income margin to be about 5.1% at the midpoint of the sales range provided. And importantly, even with the current top line headwinds, our full year outlook for 4.9% net income margin remains intact, underpinned by prudent financial management and operational efficiency. For modeling purposes, we are assuming a tax rate of approximately 12% and weighted average shares outstanding of 49 million. With regard to development, as David stated earlier, we expect to open as many as 25 new restaurants in 2025. This includes as many as 4 Cheesecake Factories, 6 North Italias, 6 Flower Childs and 9 FRC restaurants. And we continue to anticipate approximately $190 million to $200 million in cash CapEx to support this year's and some of next year's unit development as well as required maintenance on our restaurants. Turning to fiscal 2026. This reflects our initial outlook based on what we know today. And given the dynamic macro backdrop, we'll continue to update our assumptions as conditions evolve. First, with regard to development, as David stated earlier, we plan to continue accelerating unit growth next year. At this time, we expect to open as many as 26 new restaurants in 2026, with roughly 3/4 of those openings planned for the second half of the year. Next, based on our estimates for net operating week growth and depending on the length of the current softer consumer environment, we are targeting total revenue growth of approximately 4% to 5% for 2026 over full year 2025, with sales trends expected to improve as the year progresses. We currently estimate total inflation across our commodity basket, labor and other operating expenses to be in the low to mid-single-digit range and fairly consistent across the quarters. And we expect G&A, depreciation and preopening expenses to remain essentially flat as a percent of sales compared to 2025. Based on these assumptions, we would expect full year net income margin to be approximately 5% at the midpoint of the sales range provided. For modeling purposes, we are assuming a tax rate of approximately 12% and weighted average shares outstanding relatively flat to 2025. And we would anticipate approximately $200 million to $210 million in cash CapEx to support unit development as well as required maintenance on our restaurants. Note that the total CapEx estimated range assumes a similar mix of new restaurant openings by concept as 2025. In closing, we delivered another quarter of stable performance and strong profitability despite a more cautious consumer backdrop. Our operators executed at a high level. Our portfolio of high-quality concepts remains well positioned and our balance sheet and cash flow provide a solid foundation for growth. We remain confident in our ability to navigate a dynamic macro environment as we have successfully done so in the past. And we believe our strong execution and resilient business model will enable us to emerge even stronger. With our scale and financial strength, we are well positioned to continue creating meaningful long-term shareholder value. With that said, we'll take your questions. Operator: [Operator Instructions] Our first question comes from the line of Andy Barish with Jefferies. Andrew Barish: Just kind of wondering what you're seeing in terms of consumer behavior that's driving a little bit more caution in the current environment? Is it regional? Is it check management? Or is it just kind of been a little bit of a drop-off in the traffic trends? Matthew Clark: Andy, it's Matt. Thanks for the question. Really, it's the last piece. It's mostly in the traffic. I think we've seen pretty stable As David Gordon noted too, the bites and bowls are going well, and we're getting good attachment there. And I would say, really, the more cautionary tone is associated with the fourth quarter. And I think, frankly, there's probably been an impact from the government shutdown and we're looking forward to having that resolved. And overall, things remain pretty predictable, just slightly below where we have been. Operator: Our next question comes from the line of Brian Vaccaro with Raymond James. Brian Vaccaro: Just a bookkeeping question to start, if I could. Could you just provide the breakdown of comps for both Cheesecake Factory and North Italia traffic price mix? Matthew Clark: Sure. This is Matt, Brian. So for Cheesecake, pricing was about 4% as it has been. Traffic was a negative 2.5% and then obviously, mix was the difference there. Etienne, do you have North? Etienne Marcus: Yes, Brian. For North, price was 4%, mix was negative 1% and traffic rounded to negative 6%. Brian Vaccaro: Okay. Great. And as you think about the margin outlook just here in the near term in the fourth quarter, and sorry if I missed it, Matt, but what was the commodity inflation in the third quarter? And how do you see the fourth quarter playing out from a commodity inflation perspective? And then if you could just kind of round out some of the store margin dynamics, obviously, a little bit of sales deleverage. But beyond sales deleverage, is there anything worth calling out in the fourth quarter margin outlook? Matthew Clark: Yes, Brian, that's a really important question. So thank you for asking that. This is Matt. So when we think about commodities, obviously, beef has moved up another step. So we wouldn't expect to see the same degree of year-over-year favorability that we did certainly in the third quarter. It was about flattish in the third quarter, and I would think it would be more like a full 2%, really all of that delta coming from beef and so thinking about those margin line items, you can do the math there that the favorability will be cut in half or something like that on the cost of sales. On the labor piece, the really important thing to note here is about group medical in the fourth quarter comparison. So we still believe, based on the best-in-class retention and improving year-over-year in the third quarter that we will continue to garner some productivity improvements, some great wage management from our operations. But there's about a 50 basis point impact on just the comparison of group Medical. A lot of that is just timing, as you know, it depends on when some of the big claims hit last year, we had a credit. So if you think about that piece alone, on the true operational labor side, we still think it will be 10 to 20 basis points favorable. On the last major piece there of the 4-wall, really on the other OpEx, some of that was also timing, but we do continue to see a little bit of negativity related to facility, maybe 20 basis points negative in other OpEx for the fourth quarter. So really pretty stable outside of group medical and the beef. Really operationally, we have a really firm hold on the business. Operator: Our next question comes from the line of Jon Tower with Citigroup. Jon Tower: Maybe just two. You're speaking to a softer consumer right now showing up in the business and Lord knows the factors that are causing it. But -- and you're speaking to guests with bowls and bites, lower price points than what you traditionally have in your menu. How are you thinking about, one, promoting that next year more or are you considering promoting that more so into next year than you have been currently? And then two, how are you thinking about pricing at the core Cheesecake Factory into 2026? David Gordon: Jon, this is David Gordon. Maybe I'll take the first half, and then I'll turn it over to Matt. I think we're executing on the bites and bowls really well. I think the increased awareness through our social media channels and all of our marketing campaigns, along with our strategy to have the bites and bowls on the separate menu card has paid off really well. We're seeing strong attachment rates, and we're not really seeing the check impact. So that's a very positive sign. It's what we were expecting to have happened, and it has played out that way. As we move into our winter menu change beginning of next year, we would anticipate using the card again and using the same methodology to make guests aware along with the Cheesecake Rewards program, which is a great way to make guests aware of those new items and those new price points. And I think you can anticipate a few new items in maybe both of those sections, along with other new items as well. We're going to continue to lean into menu innovation wherever we can come up with delicious new menu items that are craveable. And we think that's how we'll continue to win in the long run. Matthew Clark: And Jon, this is Matt. Just speaking to the pricing. So in Q4, it's already going to be down to about 3.5%. We would continue to expect that to moderate into next year. And keep in mind, because of the lower price points and the adoption rate, the effectiveness is about 100 basis points less than that. So if we're at 2.5% effectively to the consumer, and we're going to maybe a 2% in the first half of next year, that's really well below the food-away-from-home inflation that's been reported in the mid-3s. So we feel very competitive about that while still keeping the brand where it should be. Jon Tower: Okay. And then just looking to North Italia, I appreciate the headwinds for the industry and the hit on traffic. But can you speak to the cannibalization impact or the sales transfer you spoke to hitting their comps in the period? And when thinking about development for 2026, are you building out a schedule such that you're not going to see the same level of sales transfer next year as perhaps we've seen this year? Matthew Clark: Yes, Jon, this is Matt. I think as we've said, it could be a little bit bumpy because as we think about sites, it's always about getting the best site. And whether there could be some near-term pressure on existing regional performance is not really what's going to define the investment returns that we're looking for. That being said, really is kind of what we had said previously is about 1 point from the L.A. fires and maybe about 2 points from the cannibalization. Really, the difference that we've seen is more in North quarter-to-quarter is a little bit more in the macro environment. I think you saw more in the higher end, slightly higher price point and a little bit in the midweek lunch is where we can attribute. And we know from 5 decades of history of managing in this space, that's the first place that when you see consumers pull back, you get a little bit of pressure there. So I think from an execution standpoint, we're doing a great job. And we'll keep everybody informed. If we think there's going to be a material shift in those patterns around the transfer, we'll try to let you know in advance to build that into your models. Operator: Our next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia: I guess I wanted to build on the commentary around the government shutdown. Did you just start to see the softness in October? Or did you start to see some waning in the latter part of the third quarter? Matthew Clark: We saw, I would say, a little bit of choppiness, Sharon, sorry, this is Matt. We saw a little bit of choppiness in September, but there was a little bit of movement relative to some of the rewards programs that we had done the year before. So it wasn't really meaningful. I would honestly say that the bigger shift has come in October. I think we saw this in the industry in the start of 2019 during the last shutdown. I went back and looked at some of the old data there. There appeared to be a 1% to 2% shift down for a month there. So it sort of correlates to what I think some of the data is and the indices that are out there seems to corroborate that. Sharon Zackfia: And then the thought process on sales getting better as '26 progresses, is that related to any specific initiatives or marketing plans or is that just a function of expecting to have easier comparisons in the back half? Matthew Clark: Sharon, I think it's a little bit of both. I mean, certainly, by the time we get to, say, the middle of the second quarter, will have gone through 3 pretty significant menu changes, right, all enhancing the value proposition. We'll have a materially lower effective price point. So those things certainly will benefit us, we believe, in terms of traffic as well as the mix side of things. So I think those will help. And then frankly, that will lap around kind of the beginning of some of the consumer noise this year that started in early April. And assuming the shutdown ends and we get some trade deals, at least the reports that I've been reading have been much more constructive on the consumer outlook for next year. So I think it's a combination of both. Operator: Our next question comes from the line of David Tarantino with Baird. David Tarantino: My question is on some of the labor productivity benefits you've been getting. I think you mentioned maybe lower turnover is part of that. But I just wanted to ask, I mean, it's a little unusual to see such improvement in the margins when you have slightly negative traffic. So I guess, could you just maybe talk about the sustainability of that? And how much more room you think you have as you move into next year to achieve productivity savings even in the face of maybe a soft industry environment? Matthew Clark: Sure, David. This is Matt. I would say we definitely take credit for the benefits that we've seen related to the retention, and those do ripple through in productivity. And some of that is also in more stable wage environment. I think that's probably a balance between the internal efforts and the external job hugging, if you will, in this situation where you're just seeing some lower turnover there. And the fewer people turn over, the fewer -- the less pressure there is to sort of adjust wages for the existing base. So I think that's part of it as well. But whether that's sustainable or not, I mean I think at this point in time, our goal every quarter is really just to hold the line, but we've gotten better year-over-year each quarter. So there's still a tailwind going into next year, given that even through the third quarter, we were better year-over-year on retention. And we continue to invest in cross-training during these times as well. So I feel pretty good about being able to manage the margins even in a slightly softer environment. I think it's kind of an overall important point for the investors, right? You can -- traders will trade on 100 basis points of sales, and that's what they do. But I think for the long-term investors, the P&L has the potential to be much more resilient in this environment because of the stable labor environment and the relatively stable and lower commodities. And so I think we're well positioned to manage into next year, and that's the guidance that we gave. Operator: Our next question comes from the line of Christine Cho with Goldman Sachs. Hyun Jin Cho: So very impressed by the resilient comp trends at Flower Child. And with many of the fast casual brands experiencing a broad-based deceleration, could you provide some insights into what might be driving Flower Child's relative strength and how the trends are tracking so far in fourth quarter? David Gordon: Sure, Christine. This is David Gordon. I think we continue to believe that Flower Child is very differentiated from those other fast casuals and guests are appreciating everything from the menu variety to the very strong price points. Our ability to not have to take the type of price that many in the fast casual space have had to take, which perhaps has impacted them a bit over the past 12 months and the higher level of hospitality and food quality. And as we move Flower Child into new markets or existing markets, we continue to see an affinity for the brand being very, very strong and we would anticipate that continuing into the future. So we're really, really pleased. We're looking forward to continuing the growth of Flower Child, getting more restaurants open next year and bringing it across the country. Hyun Jin Cho: Great. Just a follow-up. So I think you mentioned earlier that bowls and bites are doing its job at Cheesecake Factory. But how do you think about the value proposition at North Italia? Any additional plans to communicate value differently amid the current backdrop and the increasing focus on kind of that lower fixed dollar prices and entry-level price points? David Gordon: Yes, that's a great question, Christine. I think Matt mentioned that North plays a little bit more in that polished casual sort of space with the higher check average. But that doesn't mean we can't find ways to continue to leverage the menu. As an example, currently, we have a promotion in North that is a small plate and a pasta at lunch for $25. So that's a great price point for somebody to get those two menu items with some great variety, made fresh from scratch. And we're using all of our internal marketing avenues to be able to share that with guests and make them aware. And so those are the type of things we will continue to do along with menu innovation like we've done at Cheesecake Factory. We actually have our new seasonal menu for North rolling out tomorrow across the country with a couple of new menu items and a lot of the seasonal changes that we make on a regular basis. And we know that, that's very effective, and it gives us some good marketing to talk about with our current guests and to attract new guests. Operator: Our next question comes from the line of Sara Senatore with Bank of America. Sara Senatore: I guess I wanted to ask maybe a little broader macro. You mentioned North, which, as you said, plays kind of more polish. I guess the higher income customer has been more insulated. So to the extent that your business is a read on that, are you seeing some of this weakness kind of percolating higher up on income? Because up until now, it's primarily been lower and maybe middle. So that was one question on the macro. And then the other piece is, I think you talked about more competition. Is that coming from other polished casual chains? Is it more from independents? We seem to be getting kind of a mixed read on kind of how some of the smaller operators are doing. Matthew Clark: Sure, Sara. This is Matt. I think it's -- every environment is going to be a little bit different, but some of the things we can carry from our past experiences. Obviously, North, like I said, has a little bit of an idiosyncratic situation, but there may be a little bit more pressure at that midweek lunch. And whether that's an insight on to the higher-end consumer, I mean, sometimes what we've seen in these environments is you do get trade down even from those that are being insulated based on sentiment. They may still have the job and a good income. But for whatever the reasons are that things are going down. They're still going out to eat and still spending, which would give you a positive read on their overall spend profile, but they may be taking it down a notch to a slightly lower price point experience, right? So that might be one of those opportunities. I think in terms of competition, really, the competitive environment today is twofold. Number one, that's surrounding the deals, right? So you think about the competitive environment isn't just a number of competitors, but the extent to which every restaurant is offering some sort of BOGO or discount or whatnot. And I think I've seen some research that says this is -- it's at an all-time high. So that, I think, one defines a competitive environment. And I think the second part is that it's a little bit of a harder read today. I think probably the independents are having a harder time. But for the chains, whether it's casual dining or fast casual or any of the different layers, the capacity is very different to measure today because of the off-premise, right? And so much has moved from on-premise to off-premise that has actually expanded capacity. So it's not necessarily a number of competitors, but it's the way that the consumers use them that has made the environment also, I would just as we discussed it, more competitive in general. So hopefully, that helps. Operator: Our next question comes from the line of Brian Bittner with Oppenheimer. Brian Bittner: Just as it relates to the new menu, I know you anticipated some pressure on mix a little bit from the bites and bowls, just given those are more affordable options and you talked about how the customer is navigating those nicely. So is that playing out exactly how you thought from a mix perspective? And if so, how should we anticipate mix to impact the comp moving forward in 2026? Matthew Clark: Yes, Brian, this is Matt. I think so, to be honest, it's pretty -- been pretty much in line with our forecast and actually in the initial read has been a benefit to mix, which has come into the low 1 percentages so far. But we would anticipate kind of holding that line. There is still economic pressure out there for the consumer. You still might see some trade down. So we're really pleased with the first round. And as David Gordon mentioned, we'll probably lean in more to it next year as well. So I would just think about around a negative 1% for next year, just as an ease of modeling. Operator: Our next question comes from the line of Brian Harbour with Morgan Stanley. Brian Harbour: Maybe just a couple of clarification questions. In North, I thought in the past, we had sort of talked about some honeymoon effects in these restaurants. I think your comment was more about sales transfer. Is it both? Is it more one or the other? Matthew Clark: Brian, this is Matt. We're definitely talking about sales transfer in this environment. Now that's driven in some instances by both phenomenon. If the newer restaurants in the market has a substantially higher opening rate than we thought, then that can drive the sales transfer in that market, right, if that makes sense. Brian Harbour: Okay. Understood. Your comment, I think, about point step down in growth. Was that just overall top line growth? Or was that also roughly what you'd expect from same-store sales? I know sometimes there's also just revenue dynamics from how many stores you're opening and what brands you're opening, but could you comment on that? Matthew Clark: For sure. I would say it's total revenue, but it's predicated on traffic, right? So we would just anticipate in the fourth quarter based on sort of the impact, as we've noted more recently and likely relative to the shutdown amongst other economic factors that we would be about 1% less in traffic than third quarter. Operator: Our next question comes from the line of Jeffrey Bernstein with Barclays. Jeffrey Bernstein: Matt, just curious, the sequential trends through the third quarter and thus far into October from a comp perspective, I mean, I think we're all assuming maybe a deceleration that maybe ramped up through the third quarter and maybe continued in the fourth quarter. Just curious at your core casual dining brands of late, how you're thinking about that sequential trend and maybe what your assumption is for closing out 2025. I know you mentioned maybe one less point of traffic in the fourth quarter, but are you assuming trends stabilize from here? Or are you assuming the trend continues to ease? Just curious because we're sitting at what appears to be an inflection point of slowing trends? Matthew Clark: Yes. Like I said, Jeff, this is Matt, I mean, I think the first 2 periods were pretty consistent in Q3. We did see a little bit of choppiness. I mean, in hindsight, maybe 0.5 point of that was already some easing of the consumer, but we're also lapping a bigger rewards program. And it's always in the moment, hard to tell. I definitely said and would reiterate that in the fourth quarter, we would anticipate a 1% lower traffic run rate. Generally, we are continuing to be predictable and steady and have the ability to manage the P&L. So we feel good about the guidance we're giving. And again, historically, looking at some of the trends these types of events tend to be based more on a macro component and not that long-lived. So I think we're confident in our ability to manage the business in this near-term environment. Jeffrey Bernstein: Got it. And just following up, I appreciate the color you gave on 2026. I'm guessing most of your peers probably wouldn't give that level of granularity, so it's encouraging. I think you mentioned for commodities or for commodities and labor, you kind of talked about low single digit to mid-single digit, which is somewhat of a broad range. But I know you talked about beef being on the rise. How should we think about commodities as we think about 2026 more broadly? I mean, do you have any insights into where that could fall out relative to that range you suggested or where maybe beef is headed? Matthew Clark: Sure. And don't think that we're not giving a little bit of a broader range on purpose, Jeff, just to be clear. But the reality is that we are booking more commodities and feel better about it than some years, right? So we've seen the dairy complex really look positive on a year-over-year basis based on the capitulation of butter in late summer. And we have a much broader market basket than most. So beef will likely continue to be a pressure point. It's just not as big of a component for us. I think some of the crop yields came in very, very strong. And so that supports some of the other proteins like chicken, right, which is really driven off the feeder corn piece of it. It supports some of the grocery and oil complexes with soybeans where they're at and bread. So overall, it feels pretty good. I don't know that I would go back to the teen years where it was negative or 0, but certainly a 1% to 2% feels achievable at this point in time and labor being maybe a little bit above that. Operator: Our next question comes from the line of Lauren Silberman with Deutsche Bank. Lauren Silberman: I want to start with following up on the comp side. Are you seeing the deceleration broad-based across geographies or certain markets weaker, which is kind of informing your view on the impact from government shutdowns? And I guess are you assuming these similar trends continue at least into the first half of '26? Matthew Clark: Yes. I mean, generally, Lauren, this is Matt. Geographically, Cheesecake is usually pretty stable. There are certainly outliers. I mean, the closer you get to D.C., the more prone, I think anyone is to pressure in this, but that's kind of like an anomaly. Generally speaking, we think this will potentially continue into the first quarter. I think a lot of it depends on the ability for government to get back to work and trade deals to get done to give businesses and consumers more certainty, right? Everybody wants to be able to plan their lives and add jobs to the economy and all of those attributes that help drive restaurant sales. But I think that we're going to be cautious until we see that turn. I would say maybe the closest analogy to go back and track, I referenced the last shutdown. But really, if you look at 2017, we saw a very, very similar trend in the industry. And it was about a 6-month -- 6- to 8-month period of time. So we're sort of planning on that without any better information, and we'll manage the business appropriately. Lauren Silberman: Got it. Helpful. And then on the restaurant margin side, you guys have obviously seen really strong 4-wall performance in the last couple of years. A 2-part question. One, as you think to '26, what are you embedding in 4-wall restaurant margin? And then two, Cheesecake Factory 4-wall is now exceeding 2019 levels. As we think ahead, is the future RLM expansion more driven by improvements in margin from North and other concepts or do you still see room for Cheesecake? Matthew Clark: Sure. Yes. I mean I think what we've been talking about all along for like the last 6 to 9 months for next year is that we'd like to get 25 basis points of 4-wall margin. And based on the tax rate and the G&A and all the other pieces, you can pretty much back into that in the guidance. And I do think that Cheesecake really will focus on margin stability and that we have opportunities to improve margins across some of the more early-stage concepts for sure, and longer term, that would absolutely be the case. Operator: Our next question comes from the line of John Ivankoe with JPMorgan. John Ivankoe: Two questions, if I may. First, on the labor side. Obviously, I know you guys use E-Verify, and I understand that your turnover remains low, but it's kind of an industry or maybe a market-specific question in terms of just maybe demand for labor and kitchen labor specifically that you're seeing going up. Obviously, the industry has -- the broad industry has a decent amount of undocumented workers that are in it, not a Cheesecake Factory, but are in it broadly. And I was just curious if there was any tightening of this important labor segment that you're seeing in any various markets? David Gordon: Yes. Thanks for the question, John. This is David Gordon. We really haven't seen any change by geography. We have continued terrific applicant flow across the country. We have a couple of openings coming up for Cheesecake Factory, where we've had over 1,000 applicants for those restaurants. So the marketplace really has not changed for us in the kitchen nor in the front. And our continued best-in-class retention has helped us to not need as many staff members as others may have had now or historically. So the marketplace seems very steady and very stable. It's allowed us to keep our wage inflation in line with expectations. And as Matt said, we'll continue to build on this momentum moving into next year. And the stable environment, we think will sustain itself because of the employer of choice that we are. John Ivankoe: And secondly, I think I heard in your prepared remarks an app at Cheesecake Factory, which at least for what I can find, just still doesn't exist. So remind us why you haven't had an app in the past? I mean, what kind of functionality that you might be able to do with it, how the loyalty program might change and if you think it's a potentially big idea for you or more evolutionary in nature? David Gordon: Thanks, John. I think it's evolutionary. You're right. We don't have one. And I know you're a Cheesecake fan, and so you would know before anyone else when that app launches. But we are currently today in scope of trying to get an app launched in the first half of next year, and I think we're going to meet that goal. And it's sort of an evolutionary part of the rewards program, which will allow guests to make reservations and see their history in an easier way. It will certainly allow guests to order off-premise in an easier way, repeat their orders from previous orders in a more seamless way and track their history of rewards and redemption. So we think there's good benefits to it. We want to create a program that really works for casual dining and guests will find a lot of value in. And we think we're on the right path to do that, and we'll hopefully get it launched here next year. John Ivankoe: And can I ask what was the sticking point in the past several years of having one? Why are we waiting until '26 for this? David Gordon: I think without a rewards program, it became a little more challenging to find the value proposition for the consumer, right? So we really wanted to make sure that it made sense for somebody to take up that real estate on their phone when your average guest is coming 4 to 6 times a year. And we think with the reward -- amount of rewards members we have today and their high frequency that we will really find the benefit in downloading the app and using it on a regular basis. Operator: Our next question comes from the line of Dennis Geiger with UBS. Dennis Geiger: One more on loyalty there following up. As it relates to the app and just kind of the momentum that you talked about with the membership growth and the customer satisfaction with the program. As we think about -- or you think about benefits to '26, is it -- does it look similar to maybe what we saw in '25? Or again, based on your response to the last question, do we build on that? I think you guys have talked maybe about 100 basis points from a contribution perspective. Is that still the right level to be thinking about from loyalty? Matthew Clark: Dennis, this is Matt. I think we're continuing to evolve the program. We definitely know that we're getting incremental contribution from it. But certainly, in the very near term, when you've got a little bit more of a bumpy consumer, just making sure that we're not overstating where we're at with that. I think as David Gordon mentioned with the app, we want to really reduce friction and improve kind of if you think about it, the holistic guest experience, not just within the 4 walls, and we think that there is a lot of opportunity. We're only now about 6 months into the more refined, more specific analyses that will help us develop the cohorts that we believe will drive even more incrementality. So again, we think it's a long-term proposition. And yes, there is some benefit today. We would expect to continue to build on that next year, but I don't think we're specifying that yet. Dennis Geiger: Great. And then just a quick one. Just anything on delivery, where that shook out in the quarter? Was that stable similar to off-prem? Or any changes sequentially on the delivery performance side of things? Matthew Clark: Yes, Dennis, off-premise continues to stay very, very stable. Total off-premise was 21% of sales, right in line with Q2 and last year. Of that, delivery was about 10% and the rest of it was made up of 5% of online ordering and a little over 5% of phone and walk-up still. So very, very stable business. We continue to think Cheesecake is a great value in the off-premise channel, and we'll continue that way. Operator: Our next question comes from the line of Jeff Farmer with Gordon Haskett. Jeffrey Farmer: You guys largely answered the question with a 1-point step down in traffic. But what is the implied Q4 Cheesecake same-store sales range with that $940 million to $955 million revenue guidance? Matthew Clark: It's about a negative 1 to 0, right? I mean that's kind of in the range if you look at where the comp was in the third quarter, roughly. Jeffrey Farmer: Okay. And then just more macro -- one more macro question. So a lot of discussion, obviously, about lower income cohorts for the last really 18 months or so. But over the last couple of quarters, a little bit more discussion about that sort of younger demo or that 35 and under consumer cohort. Have you seen that consumer behavior or that consumer see a change in behavior across your portfolio of concepts? Matthew Clark: I don't know if we would parse it down to that. I mean I read an analyst report recently that said the challenged groups were the lower income, the Hispanic, the liberal, the younger, the tourists. So I don't know who was left. Operator: Our final question comes from the line of Tyler Prause with Stephens Inc. William Prause: Two questions from my end. Regarding media and advertising, what are you seeing in terms of consumer engagement per ad spend? I appreciate the color around flat G&A as a percent of sales in '26. But given the more competitive environment, could there be a need for more marketing dollars in '26? Matthew Clark: Tyler, that's a super interesting question. This is Matt. I mean I think we have continued to spend more, but really just in the rewards program, right? So we're not going to try to do national TV advertising, but we are increasing the amount that we are doing with rewards. So I think that's the on-brand way. And I think it's a fair point goes back to the question about how do you let guests know about the value proposition. And so I think social media also is where we would probably dedicate more funding rather than really ad placement. William Prause: Great. That's super helpful. And you kind of touched on this just now, but although you're a different occasion, some fast casual concepts have called out a headwind from the Hispanic consumer, just given the tighter immigration policies in recent months. Just curious if you've seen any noticeable step change within that particular cohort? Matthew Clark: I don't know that we -- again, we would parse it out. I think it's just -- what it says to us is that it's more broad-based, right? It's what you've seen in the back half of the year, and if I can claim this, back in April, we said that we thought the environment would soften in the back half of the year based on just macroeconomic factors, right? Tariffs cause lower discretionary income. There's been fewer jobs created and consumer sentiment is at a low point. And so I don't know that I would say we're pointing out one cohort or another. I think it's an accumulation of those factors. But we also don't think it's permanent, right? I mean this is -- we operate in what's called the consumer discretionary category, which tends to be cyclical. And while it has stabilized much more over the past 10 to 15 years to become a little bit more stable, there tends to be a little bit of movement, like I said, 100 basis points here or there, but we're confident that with our execution and best-in-class operators and concepts that it will normalize in the next 3, 4, 5 months. Operator: Thank you. And with no further questions in queue, this does conclude today's conference call. You may now disconnect.
Sophie Arnius: Hello, everyone. Welcome to this call focusing on our performance in Q3 2025. Also this quarter, we improved our margin in a challenging market, and that was thanks to commercial execution and cost control. And this was definitely evident for our Industrial business area. My name is Sophie Arnius, I'm heading up Investor Relations, and I will also be joined by our CEO and President, Rickard Gustafson; and our CFO, Susanne Larsson. And there will be, of course, opportunities to ask questions before or after their presentations. And there are 2 ways to do that. [Operator Instructions] With that, let's get started. It's a great pleasure to hand over to you, Rickard. Rickard Gustafson: Thank you so much, Sophie, and good morning, everyone, to this earnings call. And as you heard from Sophie, yet again, we are able to present a resilient and somewhat improved adjusted operating margin despite a rather challenging market conditions. And also, as you can see on this chart, after 8 consecutive quarters of negative organic growth, we are actually back to organic growth in the quarter. Actually, it's primarily driven by our Industrial business, where we have seen growth across our geographies, while Automotive is still more volatile and a more negative demand environment. This performance was actually slightly better than we anticipated walking into this quarter. However, though, the underlying market conditions has not significantly changed in this quarter versus the second quarter. And to some extent, we are also helped by favorable comparison figures compared to Q3 last year. When it comes to our strategic initiatives, we are making good progress. Our Automotive separation is progressing at a very high pace, and I will share some more lights on that today, but I will refer also to our upcoming Capital Markets Day in a few weeks' time on November 11 in Stockholm, where we will be able to share more lights on this. When it comes to our Industrial rightsizing initiative that we announced last quarter, it's also progressing according to plan at high pace. As we said when we announced it, we do not anticipate significant savings in this quarter, in the fourth quarter this year. The majority will come in 2026 and into '27. And then we continue on our strategic journey to invest in our capabilities and effectiveness. And this quarter, I would like to put the spotlight on an initiative that we have developed in Italy, where we inaugurated a new global Super-precision bearing center that we are pretty excited about, and I will share some more details around that shortly. But if we move on and start taking a look at the high-level numbers. Net sales ended at SEK 22.4 billion, representing an organic growth of 2%, as I mentioned before. The adjusted operating margin improved slightly to 12.3% in the quarter despite significant headwinds from FX and rather challenging market conditions. I refer them primarily to the tariff situation. The main reasons why we have been able to further enhance and make -- retain the resilience in our earnings is our ability to drive commercial capabilities and execution on commercial activities. It's our good cost control and also that we benefit from previous investments that we've done in regionalization and in world-class manufacturing. Turning to cash flow. Coming in short of the same quarter last year, primarily driven by higher items affecting comparability, where Automotive is the main -- or the Automotive separation is the main driver behind that. And you will hear more of this by Susanne very shortly. But if we then turn to our different regions. And as I mentioned in my opening remarks, I'm very pleased to say that we have growth -- organic growth in our Industrial business across the regions where we have some more variation on the Automotive side. But let's pick them one by one. Starting with EMEA, our largest region, where we have an organic growth of 1%. It's driven by our Industrial business, where some industrial verticals stand out and had very significant growth. I refer to Aerospace and Magnetics. While in general, demand in Europe is still at a fairly low level, industrial demand is fairly low level, but has clearly stabilized in the quarter, but it's not yet taking off. When it comes to Automotive, we're still in a negative growth territory. However, though, less so if you compare to the same quarter last year, and that is primarily due to a stronger rebounds in our commercial vehicles section. Turning to Americas. Also a low single-digit organic growth, again, driven by Industrial. And of course, in this region, the price/mix activities to manage tariffs is part of the organic growth journey. But also some industrial verticals are also standing out. And here, I'd like to mention marine and aerospace. Turning to Automotive, a weak underlying demand that we have seen and especially true for commercial vehicles in this region. China and Northeast Asia, mid-single-digit organic growth. And here, we see growth both in Industrial and Automotive. On the Industrial side, it's primarily our industrial distribution that is growing and also our renewable energy business. Here, I need to make the same comment as I did in Q2 last year. Some of the renewable energy growth is somewhat inflated for prebuys or policy-driven prebuys in China. On Automotive, the growth there is pretty stable. And again, we report and see very positive development when it comes to EVs in this region. India and Southeast Asia, also a region where we have growth both in Industrial and Automotive, where we see very good activity levels in India and Vietnam, as examples. And from an industrial point of view, agriculture and material handling stand out in a positive way in the quarter, while Automotive has a good development, both when it comes to vehicle aftermarket and commercial vehicles in this region. If we then focus in on our segments and start with Industrial that this quarter represents roughly 70% of our net sales and 90% of our adjusted operating profit. As I mentioned, we're back to growth here and we have an organic growth just shy of 4%. But in absolute terms, as you can see from the chart, we are actually declining some 3% this quarter versus same quarter last year, and this is driven by FX. However, though, the adjusted operating margin continues to improve and now reaches 15.5% despite significant headwinds from currency and also we've been able to manage a volatile environment and the tariff situation. And the main drivers here are the same as I repeat for the group. But again, our commercial capabilities have played a significant role here. We have very good cost control. We benefit from investments in regionalization and world-class manufacturing, as I mentioned. And then we have a small but not very sizable also contribution from the rightsizing program. But as I mentioned, most of the value from that program or benefit from that program will come later as we move into 2026. Turning to Automotive. This quarter, roughly 30% of sales and 10% of adjusted operating profit. As I mentioned, still in the negative growth territory, but somewhat different across the regions. The negative growth, as you heard me say, is driven by Americas and Europe or EMEA primarily. We have talked about the tariffs a number of times. And we said at the group level, we do believe that we will be able to largely compensate for the tariff impact, and that has been the case also in this quarter. We also said that the majority of the net negative impact from tariffs will be found in Automotive, and that is also the case. So with that in mind and also the fact that FX had a really significant impact on the earnings in this quarter, I do believe that the adjusted operating margin performance, not just shy of the same level as last year is a rather good delivery. The main thing, the positive thing I'd like to put your focus on here is the fact that we continue to see a lower material cost that enables us to offset some of those headwinds and maintain the margin. And this is not a onetime event. It continues to be driven by very solid procurement activities and also a better material mix in our production that is helping to reduce material cost. So that is something really positive. If we then turn our focus to our ongoing separation initiative. So it's progressing well and at a very high pace. It's still a large program and a lot of work to do. But in this quarter, we have some significant milestones that we have achieved. We have actually concluded a number of very important IT cutovers during the quarter, and they actually turned out fully in line with our plan and no negative surprises came out of those. Another key thing is what's happening in India, where you may know that we have -- our business there is listed also on the Indian Stock Exchange. And there, we have been able to complete the separation, and we are ready to list the new entity in India before year-end, another significant milestone. But to give you some flavor on why we talk about that this is a very tight schedule, and there are -- I mentioned a couple of times that there are always risks with this massive project like this or a program like this and a number of activities are on the critical path, and that has not changed. I don't have any red flags to report today. But to give you some color on this, we're talking about some more than 1,000 IT applications that we need to cut over. We're talking about more than 9,000 intellectual property rights that needs to be split. We're talking about more than 60 manufacturing lines that need to be transferred around in our footprint. So it is a sizable project. But as we said before, we believe we still stand for that we should be operational ready to list Automotive by mid-2026. Then turning to another item. And as I mentioned in my opening remarks, that we are investing in a product line that is named Super-precision bearings that we are pretty excited about. Today, it represents some 2% of our Industrial net sales, but this is a product line that goes into a number of important industrial verticals like robotics, advanced machine tools and compressors, all of them that also benefit significantly from some key megatrends such as electrification and automation. And why are these products? What value do they bring in these type of applications? Well, clearly, it's about accuracy and speed with minimal friction and exceptional running accuracy. And they also provide better stiffness and power density for these type of applications, enabling increased energy efficiency. Just to mention a few of the value creation that we have from these products. So what we have done and what we inaugurated in earlier in the quarter that we have now built a new global cross-functional Super-precision bearing center. It's based in Italy, in Airasca, close to our normal operation there, where we have been able to co-locate our R&D, our engineering capabilities and our production teams in under one roof. We have invested in a highly automated and digitized manufacturing capacity there that can be able to very, very short turnaround times and also increase throughput significantly. And the benefits that we get from this by getting this under one roof is clear that can drive cross-functional synergies. But more importantly, we can then co-create with our customers and help solve their needs in very critical applications. And I have the joy myself to be part of the inauguration ceremony. And I must say that was very rewarding to see the excitement among many of our customers when they saw our new capabilities in this field and what that could do for their business. So we do believe that this is an exciting opportunity where we will benefit from good growth and profitable growth also driven by electrification and automation, as I mentioned. So with that, I end my part of this presentation and hand over to Susanne to take you through the numbers in detail. Susanne Larsson: Thank you, Rickard. Good morning, everyone. So now we will really talk about the financial implications and some of them you have also heard Rickard commenting upon. But let me first start with the financial summary and an overview of the quarter itself then. So starting off with the net sales, it was down 5.1 percentage points. It was explained first by an organic growth of 2%, more than offset by a significant FX headwind. Our gross margin was down 0.5 percentage point. However, if we put the one-off cost, the IACs aside, we saw an improvement of 0.4 percentage points. Our adjusted operating margin strengthened compared to last year from 11.9% to 12.3%. This in spite of FX headwind of minus 1 percentage point. Quarter 3 one-off cost IACs amounted to SEK 755 million, with the main areas being the automotive separation costs representing SEK 362 million. We had SEK 230 million related to impairment charges of fixed assets and finally, SEK 141 million on ongoing restructuring activities. So net-net, we had an operating profit of SEK 2 billion compared to SEK 2.5 billion last year, where the main difference is explained by the increased one-off charges. So if we look at the bridge here, analyzing the operating margin from 11.9% to 12.3%, I start with the organic dimension. So as I said, sales growth amounted to plus 2% with Industrial contributing to the growth. Negative production volumes were more than well compensated by price mix. And talking about price mix, the key initiatives is pricing, portfolio management, but also managing the tariffs mainly through price adjustments. The organic impact on the adjusted operating margin was 1.5 percentage points. Cost management was good with the development almost flat in the quarter, and this in spite of negative impacts of inflation, volume-related inefficiencies and tariff costs. In the quarter, as Rickard said, we managed to largely compensate for tariffs and expect to do so also continuing into quarter 4. Currency remained significant with a headwind, taking down sales by 6.9 percentage points and had an impact on the adjusted operating margin, as I said, minus 1 percentage points. The main currencies remain the same. It's U.S. dollar, it's Chinese yen and it's Turkish lira with the main effects vis-a-vis the Swedish krona. And finally, the structure is a small one. It's a net effect of the divestment we did in Aerospace in Hanover and the last year's acquisition of John Sample Group. So let me try to explain the cash flow performance in the quarter. Cash flow from operating activities ended at SEK 1.8 billion, and there are some reasons for that relative weak cash flow, and it comes from what I will address now then. So first of all, we had one-off IAC costs with a relatively immediate cash flow impact, and that is particularly related to the Automotive separation costs that is converting to cash flow relatively immediately together with ongoing restructuring programs. And this explains SEK 500 million in the quarter. In the bar other, we have SEK 300 million negative explained by realized FX effects. Taxes paid in the quarter amounted to SEK 700 million, which is higher than last year, SEK 200 million. However, last year was low, so this is on a normalized level. And then finally, the net working capital, we had the change there of minus SEK 400 million. And this was partly explained by accounts receivable and the timing within the quarter and accounts payable being low due to seasonality, typically in our quarter 3. Inventories, we are pleased to see decreasing in the quarter, where we saw reductions in both Automotive and Industrial. And before leaving this, I just want us to remember that last year, we had the change in the net working capital where we changed the reporting of consignment stock. So we had both increase in inventory and accounts payable of SEK 1.5 billion each. So let's take a look at the balance sheet and the return on capital employed. SKF has a strong capital structure. And at the end of September, we had a net debt of SEK 14.5 billion. And if we put the pensions aside, it ended at SEK 7.5 billion. Cash and cash equivalents ended at SEK 7.6 billion and were reduced as a consequence of a bond repayment of SEK 3.3 billion in the end of September. The SKF liquidity remains strong. Net debt, excluding pensions in relation to equity ended at 13.3% while net debt excluding pensions in relation to adjusted EBITDA ended at 0.6x. Finally, adjusted ROCE remained on a similar level as previous quarter, and that is 14%. So coming to my last slide with the outlook then. The global economic development remains uncertain. So the outlook expected is that the market demand remains similar as the one we just left in quarter 3. By that, we mean that we expect an organic sales to be relatively unchanged quarter 4 year-over-year. The currency impact on the operating profit remains high, and we estimate that to be minus SEK 650 million, applying the rates as per the end of September. The full year tax rate guidance is adjusted to 28%, which is 2 percentage points higher than the previous guidance, fully driven by FX. And finally, then, the CapEx guidance for the full year, we have taken down somewhat from SEK 4.5 billion to SEK 4 billion. And by that, Rickard, I hand back to you. Rickard Gustafson: Thank you so much, Susanne. And if we wrap this up then, as you heard us say, the market conditions continues to be challenging with a lot of volatility and geopolitical uncertainty, which puts a negative push or downward push on demand. But with that said, though, we are very pleased that we, after 8 consecutive quarters of negative organic growth now are back into organic growth. And as you heard us talk about, primarily driven by our Industrial business. Also pleased that we continue our margin resilience story, where we see that we are managing in this rather volatile environment and managing headwinds in a decent way and holding up our operating margin. And this is due to that we actually execute on what we said that we're going to do. We are driving commercial capabilities. We are standing firm on cost management, and we are continuing to invest in our business in terms of automation and in terms of regionalization. I'm also pleased to report that we're making strong progress, as I mentioned, in our Automotive separation. It's a lot of work still to be done. It's too early to claim full victory. But so far, we are driving this fully according to plan. And as I mentioned, we have achieved some significant milestones in the quarter. And I'd like to again put some spotlight on the upcoming event in Stockholm in a couple of weeks in November 11, where we look forward to see you all and share more details on how we see our future Industrial business, some key highlights on our future Automotive business and provide some more transparency on the cost also related to the separation. So with this, I'm going to hand over to Sophie that will then initiate the Q&A session. Sophie Arnius: Thank you, Rickard. And yes, we hope that many of you can join us in Stockholm for the Capital Markets Day, but there is also an option to join us online. Nevertheless, you need to register and the registration closes on Friday, and you find the link to register on our website. So let's now open up for Q&A. [Operator Instructions] We will start with a question from the telephone line and from Rory Smith at Oxcap. Rory Smith: It's Rory from Oxcap. I'll stick to one as instructed, Sophie. And that is just if you could unpack that North America and particularly the U.S. performance and even put a number to the volume versus price impact in the quarter. I'm just trying to separate out those tariff price increases from any underlying improvement or otherwise there, that would be great. Sophie Arnius: Rickard is happy to respond to that question. Rickard Gustafson: Yes. We will not disclose how much is volume and how much is price mix as such. But when it comes to Americas, it is price mix that drives the growth, and we are actually still in negative volume territory in Americas. So that's as far as I can go. Sophie Arnius: And let's continue with a question from the line of Alex Jones at Bank of America. Alexander Jones: Just on the guidance that you've given for Q4, are you pointing for a sequential deceleration in organic growth given you're talking about relatively unchanged? Or I think you talked about unchanged into this quarter and then delivered plus 2%. So is that still in the range of possibilities? And if it's more the former and you are talking about deceleration, can you just explain the moving parts for us, given I'd imagine that the pricing gets sequentially higher as you continue to recoup the tariffs? Sophie Arnius: Let's hear from Ms. Susanne on this topic. Susanne Larsson: So what we are really saying is that we do not see a significant change in the market environment quarter 4 over quarter 3. So since quarter 2, I think we are seeing signs of bottoming out. So from the sequential question you asked, we have to remind ourselves that quarter 4 last year, we came in strong, and that we have in mind when we compare quarter-over-quarter, and that is the reason for us to guide flat. Sophie Arnius: And let's continue with a question from Erik Golrang at SEB. Erik Pettersson-Golrang: A question on Automotive just for some perspective. I mean, currency, as you say, continues to be a heavy headwind for you from a profitability perspective and the relative impact on Automotive is quite significant. So I mean, it's a sub-5% margin business on an adjusted basis. Are you -- is this sufficient for the company to be stand-alone? Or is currency dramatically changing the outlook for Automotive? Sophie Arnius: Rickard, do you want to take this one? Rickard Gustafson: Of course. Erik, as we have said also when we announced our ambition to do this separation, we have higher ambitions for automotive than the current performance. And yes, we have entered up in a more volatile environment maybe than we anticipated before, but we are managing through this. And in our internal plans, when we look forward, we're still very confident that we will create a solid and profitable Automotive business as we move forward. But more details to come in a couple of weeks' time in Stockholm. Sophie Arnius: And we will continue with a question from Daniela Costa at Goldman Sachs. Daniela Costa: My question relates to tariff impacts in Section 232. But first, I guess, a clarification sort of on the bridge on the cost, you have SEK 23 million headwind, which I guess sounds quite small. Is it because you've been selling out of inventory? And then is that repeatable in Q4? How do you size the direct and the indirect inflation coming from Section 232 going forward? Sophie Arnius: This is a CFO type of question. So Susanne, please. Susanne Larsson: Daniela, I think we are very pleased to see that we have a cost development, which is only SEK 23 million negative, really flat. And I think what you see is a lot of effort coming in from managing the cost variability, looking into what we have done with automating our manufacturing operation and really driving a lot of cost initiatives, which is necessary from a long time in a negative decline. So I think that is something that we see will continue to be a leverage that we can utilize going forward. Talking about 232, I think what we are guiding now is to say that we anticipate that the majority of the tariffs and also including 232 will be compensated and not ending up in our P&L. Daniela Costa: Including suppliers indirect impact from... Susanne Larsson: Including that, yes. Sophie Arnius: And we will continue with a question from Andreas Koski at BNP Paribas. Andreas Koski: Just a short one on the prebuy effect in China. What was the impact? How many percentage points did it support the organic growth in this region? Sophie Arnius: Rickard, please. Rickard Gustafson: Yes. As you know, we normally don't disclose that many details around these things for a number of good reasons, and I'm going to stick to that also today. So I'm not going to give you a percentage as such, but it is -- we do see that some of the organic growth that we report on the Industrial side in the China region is somewhat inflated in the quarter due to this prebuy impact that we don't expect to see in the fourth quarter. Sophie Arnius: And let's continue with a question from Rizk Maidi at Jefferies. Rizk Maidi: I just wanted -- for you, Rickard, maybe just to draw a picture on the demand. I think even if I look at China, it does seem that industrial distribution has had maybe perhaps a little bit better performance. And then moving on to Europe, I think earlier this year, you talked about some green shoots. Just maybe if you could just give us an update, it looks like from today's commentary that things are stabilizing, not picking up. And maybe if you could have a comment as well on Americas, just to draw sort of an overall picture. Rickard Gustafson: All right. I will try to do that then. Starting with EMEA then, if we go down that path. As I mentioned, we do see some growth on the Industrial side, especially in a few verticals as such in aerospace and marine. While I do sense that in general terms, we haven't seen a significant uptick in demand in EMEA yet. We're still waiting for that to come. We do feel more confident though that it has truly bottomed out, but activity levels are not yet picking up from that level. Turning to Americas. Again, as I mentioned on the previous question, the growth there is primarily tariff related, less so on volumes. Aerospace and marine are some green shoots in that particular region. And also industrial distribution is holding up okay. It's not growing, but it's holding up okay, which is also important from a profitability point of view and a mix point of view. So that's positive. Turning to China, where we do have a mid-single-digit organic growth for the group. Where the Industrial business, as I mentioned, industrial distribution is contributing to that. But I need to remind you that it's also a reclassification that would happen. So that's why the numbers may look more stronger than they actually are. But even if I compare like-for-like, it's a solid and somewhat growing performance also in distribution. So we see that in China. And I already commented on the renewable energy area. And for Automotive, if I just touch on that briefly, we are very pleased to see that we continue at a very solid growth rate when it comes to EVs in that particular region. And India and Southeast Asia, primarily driven by very good activity levels in economies such as India itself, which is the majority and also like Vietnam, which is a smaller contributor to us where India is it's the most important market for us in that particular region. And in general, good demand levels across Industrial. And I mentioned 2 that stands out a little bit more than others, that is agriculture and materials handling. Again, I do believe that the tariff situation, the uncertainty is having a negative impact on global demand. We do see where some signs of bottoming out, as I mentioned, but we still wait for the uptick to come back. And as you also heard Susanne, when we guided for Q4, we sense that the underlying kind of dynamics of the business in Q3 was roughly the same as in Q2. And we -- our best estimate is that, that will be also the case for Q4. Sophie Arnius: Let's continue with a question from John Kim at Deutsche Bank. John-B Kim: I'm wondering if you could give us a little bit more color on the planned listing of your Indian asset. Any color there would be helpful. Sophie Arnius: Rickard, do you want to bring some color on that? Rickard Gustafson: I'd be happy to. It's a massive achievement in such, but it's not so much to say, it's a kind of odd comment. I hear that myself. But it is a complicated effort to split that business in India, both from a legal point of view and also to get all the authority permits and tax permits. So that has been a rather sizable effort. And now we have concluded that. Everything is set and done. So now we have a new entity that we are ready then to also put forward to the Indian Stock Exchange, and that's going to happen sometime between now and year-end. So I think that as much as I can say. Sophie Arnius: We will continue with a question from Tim Lee at Barclays. Timothy Lee: So maybe a bit follow-up on the Section 232. Do you have any estimate on the cost impact from Section 232 alone, both directly and indirectly? And have you already made any price hike because of Section 232? And is there any pushback from customers in terms of further price increase? I just want to see whether there will be any comments on the further effectiveness on pricing activities going forward? Sophie Arnius: Let's have Susanne answering this question. Susanne Larsson: Talking about the tariff environment, I think that is really one of the uncertainties that makes the demand still not really picking up. So I think the biggest impact of the tariff is the lack of recovery that we see. But generally speaking then, we have been successful in managing the tariff cost. We have worked through the 232 implications for SKF, and we anticipate to be able to take that through with the majority also to our customers. We, of course, have a close relationship with our customers in this, and we are normally applying surcharges while this situation remains. Rickard Gustafson: And if I may add a few more comments. Of course, we are having intense discussions with our customers on these items. And we're not just using price as the only mechanism to compensate for this. We're also pushing forward activities to drive more of our assortment to become USMCA compliance as an example, that's another key component in this. And when it comes to general price increases, the market is not -- cannot absorb more general price increases, but we will continue to do selective price increases. That has nothing to do with tariffs, but more where we see that we can drive price and especially when we come with new innovation and then we work together and co-create with our customers, we make sure that we also take our fair share of the value that's being created, and that will continue. Sophie Arnius: We will continue with a question from James Moore at Rothschild & Redburn. James Moore: Could I ask a question on the new Specialized Industrial Solutions business, which you basically renamed Independent and Emerging and brought in Hans Landin. Just -- it's going to be like not a third, but coming towards that the future industrial company. And I wondered if you could say 2 things, really, what are you changing to improve the profitability of Specialized? And as Specialized is mostly field lubrication and aerospace, could you say where your confidence is the greatest amongst those 3 for profitability uplift and potentially what you're doing to drive that? Sophie Arnius: I will ask Rickard to address this one. Rickard Gustafson: And I will give you a cliffhanger. You're right. We are excited about the -- what we then call the new name of this entity. And there are very important and exciting business units that makes up -- makes this up and with very solid growth. And some of them are further down the road and have already done some to reestablish the profitability levels are now in full gear growth and others are still doing some kind of work to further enhance profitability before ramping up their growth. This is a key component in our future industrial story and growth journey that we foresee. And it's going to be a part and something that we will share in more detail when we're going to put more color to our future Industrial business in November 11. So that's the cliffhanger. So you will see more there. But clearly, we drive them now much more as fully owned subsidiaries of this company than what they were before and without no overhead anymore. Sophie Arnius: And we should also just clarify what is included in Specialized Industrial Solutions for those of you that have not seen the press release that we had out a few weeks ago. So it's aerospace, it's seals, lubrication and our magnetic business. But as Rickard said, we will come back more on that topic, the interesting topic of Specialized Industrial Solutions at the Capital Markets Day. We will now continue with a question from Anders Idborg at ABG Sundal Collier. Anders Idborg: So you're guiding CapEx to come down, but you're guiding extraordinary items or items affecting comparability to come up. So I was just wondering, could you give us an early look how we should think about those 2 items trending in 2026? Sophie Arnius: Susanne, can you please respond to this question? Susanne Larsson: I almost repeat what Rickard had said around cliffhanger. But you're right, the CapEx, we took down that outlook for the full year from SEK 4.5 billion to around SEK 4 billion. And we also say that we sequentially increased the one-off cost into quarter 4. So when we meet at the Capital Markets Day, we will provide some further clarity on how we look upon CapEx moving forward, but also how we look upon the one-off costs and the rightsizing that we are doing, including the spin of Automotive. Sophie Arnius: We are marketing our Capital Markets Day, as you can hear. So we hope that you all can be there or tune in. We will continue with a question from Andre Kukhnin at UBS. Andre Kukhnin: Can I just start with a quick clarification first on the change of accounting for consignment stock, could you just explain to us what that is and whether that took place in this quarter? Or is that the quarter a year ago and the impact of it? Sophie Arnius: Susanne, can you add some light here? Susanne Larsson: Sorry, I was obviously not clear previously. When you compare the cash flow this quarter 3 compared to last quarter 3 line by line, I just wanted to remind everyone that last year, we did a classification, which is not impacting the change of net working capital as such, but line by line. So we changed the reporting of consignment stock last year and by that, increased our inventories with SEK 1.5 billion, and we also increased our accounts payable with SEK 1.5 billion. So the net-net was 0, but line by line makes it more difficult to compare this year's line by line in the net working capital. Thank you for the question. Sophie Arnius: And Andre, you have another question as well? Andre Kukhnin: Yes. Sorry to try to squeeze in. But really, I wanted to actually understand the cadence of profitability into Q4 versus Q3 a bit better. Just thinking about obviously normal seasonality, I think you see sort of 70, 80 bps decline normally in Q4 versus Q3. But then we've got, I guess, savings stepping up from the program that you launched last quarter. But then I also note FX of SEK 650 million, I think, guidance versus less than SEK 500 million in Q3. And then the tariff pass-through, is that margin neutral? Or are you passing through the actual cost increase and hence, there is a bit of a margin headwind. I just wanted to understand whether Q4 will be a normal seasonality or whether the combination of these factors will be it one way or the other. Sophie Arnius: Rickard, do you want to address this one? Rickard Gustafson: I will try to. I think the answer is yes. We do foresee that it's going to be normal seasonality in Q4. So you should bear that into your estimates. The negatives that we foresee in the quarter -- coming quarter is clearly FX. As we mentioned, probably going to have if we remain at current levels, a negative SEK 600 million impact in Q4. Tariffs, we do say that we largely compensate. We believe that we're going to do that also in Q4, but that means largely means that there is some net negative impact in the numbers, but largely compensate. On the positives, we do see that we will we do see that we will continue with our cost control. We will continue to drive our portfolio management and price mix activities as we have done in the past. And we do foresee that we will continue to yield benefits from rightsizing -- sorry, from rationalization and from world-class manufacturing. And probably some but not significant also contribution from the rightsizing initiative. Most of that will happen later though. So all in all, but it will be -- we do expect normal seasonality. Sophie Arnius: And let's continue with a question from Klas Bergelind at Citi. Klas Bergelind: I was late on the call, lots going on, so you might have covered some of this. But first on North America, I was expecting higher growth driven by the pricing there to compensate for the tariffs. So it seems at least versus what I thought that underlying volumes are weaker. So can you please talk through Rickard, what end markets sort of weakened quarter-on-quarter? I mean, commercial vehicles, heavy machinery. Have you seen any improvement as we went through the quarter and into October? Just curious about the underlying volume development in North America, please. Rickard Gustafson: Right. And yes, Klas, we did touch on this a bit earlier, but I'll try to give you some color to this. When it comes to the numbers I report for Americas, it's both Industrial and Automotive. And we do see growth in our Industrial business, and I have answered another question today where I do acknowledge that the growth in Industrial is driven by price mix. We're still in negative volume territory also on the Industrial side in Americas. Some areas that is growing nicely in Americas in this quarter is primarily aerospace and marine that have very strong performance. And as you mentioned, in Automotive, we have seen a weak demand when it comes to commercial vehicles in the quarter. And Automotive is also reporting negative organic growth in the region. Klas Bergelind: Okay. When it comes to -- just one follow-up, and I'm sure you talked about it, Section 232, a lot of questions on this. But have you given any sort of clarity around the share of steel and aluminum out of your COGS at the moment, please, i.e., the share that is subject to the 50% tariff, so we can do -- I mean, we're stumbling a little bit in the dark, right, where we were trying to do our own models. But if you have said anything on that, Rickard? Sophie Arnius: Susanne, can you please respond to this question? Susanne Larsson: Yes. So we are not disclosing the share as you're asking for. And at this point, we are mainly saying that we will continue to compensate the majority of this out into the market. Rickard Gustafson: So when we say largely compensate also for Q4, that includes what we know right now related also 232. Susanne Larsson: In the current scope it has. Yes. Rickard Gustafson: Yes. Klas Bergelind: Okay. Absolute final one, promise to be quick, is on the spin-out costs. I think when I spoke with Sophie this morning that you're guiding for higher one-offs quarter-over-quarter. I'm trying to understand the composition relative to world-class manufacturing spin-out cost. And also you had that sort of noncash write-down, I think, Susanne, in the third quarter. I'm just -- are we going to see any more? I'm just trying to understand the level of one-offs into the fourth quarter, please? Sophie Arnius: Yes. Susanne, do you want to? Susanne Larsson: Yes, I can take that. So you're right, we said that sequentially, we will increase it in quarter 4 over quarter 3. And I also want to just pay -- make you pay attention to our announcement that we are closing a factory in Argentina. So that is something that will also come into the quarter 4 as a one-off charge down. So that, together with a continued high level of effort into the Automotive separation activities are the main reasons for that. Sophie Arnius: Very good. We will continue with a question from John Kim, Deutsche Bank. John-B Kim: I'm wondering if you could just give a bit of color on your rightsizing, whether your headcount reduction or optimization has gone to plan versus the initial guide? Yes, I'll leave it that. Rickard Gustafson: Right. I'll take this one. The answer is yes. We are progressing well in line with our internal plan and a lot of the necessary negotiations in the different jurisdictions or countries have been completed and the vast majority of people impacted have been informed. And we're now going to start to see that the staff reduction to happen. As I said a couple of times, we do not anticipate a significant impact on our cost base or positive contribution to the cost in the fourth quarter. There will be some, but it will be not be significant. But the vast majority will come as we enter into 2026. Sophie Arnius: And then we have the final question from the line of Seb Kuenne at RBC. Sebastian Kuenne: You raised the tax guidance to 28% from 26% and this is not because of any impairments, not being tax deductible, but more because of your regional profitability structure. Do we now have to assume that the tax rate will also be higher in the coming seasons or coming years? And could you split that between Industrial and Automotive? Is it more Industrial profits being in high tax countries or more the Automotive side? Sophie Arnius: Susanne, that's a CFO type of question. Susanne Larsson: It is indeed. So thank you for the question. Yes, we raised the outlook for the full year tax rate from 26% to 28%. And I say that all of that is actually explained by FX. And we have some of our entities with the functional reporting in another currency than they're local, and this is something that is then impacting the tax as well then. So that is the reason fully for us then having that. And that also means that this is not necessarily something that you can assume is a going concern as we move along, but then having this impact where we have big FX implications as such then. Talking about the 2 stand-alone companies and their relative tax rates, we have not disclosed that yet. So I'll leave that for now. Sebastian Kuenne: Sorry, the acoustics was a bit bad. So it's more of a one-off FX issue rather than underlying structural regional split of profits? Susanne Larsson: Correct. Sophie Arnius: Very good. That was the final question. So Rickard, please go ahead with your concluding remarks. Rickard Gustafson: Yes. Thank you very much, and thank you all for joining us for this call and for your energizing and engaging questions. As you heard us talk about, we are continuing to maneuver in a rather challenging and volatile environment. With that said, though, we are sticking to our strategy and we're trying to deliver on what we said that we're going to do. And that recipe is working. We continue to report a resilient and somewhat improved earnings that we are pleased about. We are also happy that we now, after 8 consecutive quarters of negative organic growth, entering into a more growth territory and especially that is driven at this time by our Industrial business. Again, we don't yet say that we've seen the shift and the uptick in the market and the activity levels are rather unchanged, but we are happy also with the progress that we'll make in the strategic transformation of the company. So with this, I thank you for your attention, and I hope to see you -- many of you either in person or if you join through digital means in a few weeks' time in Stockholm. I wish you a good day, and thank you so much.
Operator: Greetings, and welcome to the Aurora's Third Quarter 2025 Business Review Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stacy Feit, Vice President, Investor Relations. Thank you, Stacy. You may begin. Stacy Feit: Thank you, Alicia. Good afternoon, everyone, and welcome to our third quarter 2025 business review call. We announced our results earlier this afternoon. Our shareholder letter and a presentation to accompany this call are available on our Investor Relations website at ir.aurora.tech. The shareholder letter was also furnished with our Form 8-K filed today with the SEC. On the call with me today are Chris Urmson, Co-Founder and CEO and David Maday, CFO. Chris will provide an update on our progress we have made across the key pillars of our business, and David will recap our third quarter financial results. We will then open the call to Q&A. A recording of this conference call will be available on our Investor Relations website at ir.aurora.tech shortly after this call has ended. I'd like to take this opportunity to remind you that during the call, we will be making forward-looking statements. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed, projected or implied during the call. In particular, those described in our risk factors, including in our annual report on Form 10-K for the year ended December 31, 2024, and other documents filed with the SEC as well as the current uncertainty and unpredictability in our business, the markets and economy. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended September 30, 2025. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and Aurora disclaims any obligation to update any forward-looking statements, except as required by law. Our discussion today may include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, may be found in the shareholder letter, which was furnished with our Form 8-K filed today with the SEC and may also be found on our Investor Relations website. Our discussion today may also include reference to forward-looking free cash flow, a non-GAAP financial measure. To the extent that this forward-looking financial measure is provided, it's presented on a non-GAAP basis without a reconciliation due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. With that, I will now turn the call over to Chris. Christopher Urmson: Thanks, Stacy. In the third quarter and early October, Aurora achieved several more driverless trucking industry firsts, rapidly advancing our path to scale and further extending our leadership position. The crank we set in motion with commercial launch is now accelerating, delivering compounding returns across our technology, operations and customer adoption. Earlier this month, the Aurora Driver surpassed 100,000 driverless miles on public roads. Importantly, we've maintained 100% on-time performance, while upholding our perfect driverless safety record. Last week, we launched driverless commercial operations on the westbound 600-mile lane from Fort Worth to El Paso, setting a new benchmark for autonomous trucking. This expansion accomplished just 6 months after our driverless launch is faster than any other self-driving company has scaled to a second U.S. market. The Aurora Driver unlocks substantial value on this lane, and we're thrilled to add multiple customers, including one of the leading carriers in the U.S. to our driverless cohort for this route. To meet expected customer demand in the second quarter of 2026, we plan to launch our second-generation commercial hardware kit on a new fleet of trucks that will enable driverless operation without a partner requested observer. This third vehicle fleet fortifies our near-term capacity plan and supports our scaling objectives for 2026. Let's dig into what we've been up to. Following earlier-than-anticipated validation of night driverless operations in July, we're already seeing the utilization potential of our self-driving trucks. Our highest mileage driverless truck logged nearly 18,000 miles in a single month. This demonstrates the confidence we have to operate trucks at an annual run rate that doubles the industry average. Our team's focus has since turned to driverless lane expansion and validation in more challenging weather conditions to further increase the value of the Aurora Driver for our customers. Our second driverless commercial lane from Fort Worth to El Paso directly addresses critical customer pain points. This route is notoriously hard to staff and challenging for traditional drivers to complete within a single day. Launching driverless operations on this lane demonstrates the significant efficiency and value potential the Aurora Driver brings to the freight ecosystem by enabling nearly continuous operations. We're now nearing completion of driverless validation for the return trip as well as the Phoenix extension with our software release planned for January 2026. The Phoenix expansion will add another 400 miles to establish a continuous 1,000-plus mile multistate route between Fort Worth and Phoenix, which far exceeds hours-of-service limitations for a traditional driver. We're also working with multiple customers to identify locations along the I-20 corridor and in the Phoenix area for the first customer endpoints we plan to support with driverless operations in early 2026. As you can see in the case study on Page 16 of the presentation, on these long-haul lanes, the Aurora Driver has the potential to more than double revenue and deliver several-fold higher profit per truck for our customers. Looking ahead to 2026, we expect to rapidly unlock lanes across the Sun Belt. Future planned expansions include lanes between Dallas and Laredo, a critical route for one of our key customers and between Dallas and Atlanta, which will extend the driverless I-10, I-20 corridor to approximately 2,000 miles. Launching driverless operations from Fort Worth to El Paso and soon in the Phoenix extension required us to validate behavior against dust storms, which are prevalent in some parts of Texas and Arizona. These fast-moving storms can quickly reduce highway visibility. If such conditions are present when the Aurora Driver-powered trucks are on the road, the Aurora Driver is designed to slow its speed and if significant perception degradation is detected, autonomously execute the safest behavior, pulling over or exiting the highway when possible. This advanced capability is powered by our multimodal sensor suite, including Lidar, camera and radar. As you can see on Page 10 of the presentation, in a dust storm on the Fort Worth to El Paso lane just outside of Midland, Texas, our perception system leveraged radar and our proprietary FirstLight Lidar, which we're able to see through the dense dust at twice the range of cameras alone. This provided the crucial data needed to make safe decisions long before visibility was completely compromised. These advanced capabilities will also benefit our upcoming Phoenix lane and other routes where similar weather events occur. We also continue to make progress validating driverless operations in rain and heavy wind conditions, which will also be part of our January 2026 software release. This will support high availability potential for Aurora Driver-powered trucks across the Sun Belt, a meaningful component of the value proposition. Along with expanding the Aurora Driver's operating domain, we've also validated additional trailer types, including those with super single tires and increased our driverless fleet. These expansions have contributed to a material acceleration of our driverless mileage with the Aurora Driver earlier this month surpassing 100,000 driverless miles on public roads. That's double the cumulative driverless miles we achieved just 5 weeks prior in early September. We now have 5 driverless trucks regularly scheduled between Dallas and Houston and from Fort Worth to El Paso. To provide a window into this progress, we are continuing to showcase the Aurora Driver in action during this initial phase of our operations via Aurora Driver Live. You can access the live stream via the link on Page 4 of our presentation or the live tab on our YouTube channel at Aurora Driver. You can see our driverless trucks traversing route between Dallas and Houston and now Fort Worth to El Paso, demonstrating the safety, reliability and growing maturity of the Aurora Driver. In addition to the opportunity to see our technology live on the road, we've received positive feedback from customers and investors about our willingness to provide this level of transparency. It's a strong signal we stand behind what we're building. With over 6,000 hours of watch time to date, this special series offers industry-leading transparency into autonomous driving performance and the future of freight. Our driverless mileage growth is poised to further accelerate as additional customers integrate the Aurora Driver into their operations to capitalize on its exceptional value proposition. We firmly believe the Aurora Driver will fundamentally redefine the freight ecosystem with its potential to set new standards for safety, efficiency and sustainability, thereby driving both revenue growth and margin expansion for our customers. A member of Werner's safety team and one of their most seasoned drivers recently came down to Texas to assess the Aurora Driver's performance. Their reactions spoke volumes about the Aurora Driver's core advantages, superior perception, unwavering focus and the ability to safely navigate long monotonous lanes, which are particularly difficult to staff and have hours of service constraints for traditional drivers. I'm inspired when I hear industry veterans affirm the transformational role our technology will play in the freight industry. You can hear firsthand from the Werner representatives in the video on Page 5 of our presentation. With our Fort Worth to El Paso driverless launch, we've expanded driverless operations for Hirschbach, one of our earliest adopters and value partners and added 2 additional carriers to our growing driverless customer cohort. Launching driverlessly on this lane is a major inflection point on our journey with customers and the expansion of our driverless cohort validates our technology, rigorous safety approach and the value we deliver. Now that we've proven the promise of the Aurora Driver and are rapidly increasing its value for customers, we're expanding our sales funnel to include mid-market customers, who offer shorter approval cycles. To efficiently target this new segment, we recently announced a strategic partnership with McLeod Software, a premier provider of transportation management solutions for over 1,200 carriers and private fleets. This partnership will deliver seamless integration for our cloud customers, which we expect to accelerate new customer adoption of the Aurora Driver. Just one month after announcing the partnership, we executed an agreement with customer McLeod customer Russell Transport for driverless hauls on the Fort Worth to El Paso lane. In parallel, we continue to advance our second and third-generation commercial hardware programs as well as our vehicle programs that underpin our path to scale and self-funding. Designed to deliver customer value for 1 million miles, we expect our second-generation commercial kit to drive a 50% plus reduction in our hardware costs. And we're also seeing some meaningful performance gains, particularly with the next generation of our proprietary long-range FMCW lidar. FirstLight is now detecting objects at 1,000 meters away, which is double the distance of our current generation as well as the closest FMCW lidar competitor. For a truck traveling at highway speeds, this equates to more than 34 seconds of planning horizon. This will further enhance the Aurora Driver's performance and set a new standard for safety in the industry. We plan to increase driverless operations without a partner requested observer in the second quarter of 2026 with a new fleet of trucks equipped with the second-generation commercial hardware kit. This fleet will be based on the international LT Series truck with Aurora performing all necessary upfit required for driverless operations. These trucks will undergo rigorous testing and validation, just like any platform we would take to driverless operation. This third truck fleet fortifies our near-term capacity plan and will support our target to exit 2026 with hundreds of driverless trucks in operation. While this program is underway, we achieved an industry-first partnership manufacturing milestone with Volvo as they began the lineside integration of the second-generation Aurora Driver commercial hardware kit into the Volvo VNL autonomous on the pilot line at their New River Valley, Virginia manufacturing facility. Once Volvo completes validation of the vehicle level firmware necessary for driverless operations, we will integrate these trucks into our driverless fleet. In addition, PACCAR continues to advance the prototype testing of their scalable autonomy-enabled truck platform at their facilities. Looking further ahead, we continue to progress our third-generation commercial hardware kit that we believe will unlock scale on the order of tens of thousands of trucks. In September, Continental completed the spin-off of their automotive business, AUMOVIO. I had the honor to a keynote their Supplier Day, which highlighted our flagship program, which has a planned start of production in 2027. We're excited to see AUMOVIO continue to make significant manufacturing investments here in the U.S. to support the scaling of the Aurora Driver. Earlier this month, they announced a $110 million investment to significantly expand their New Braunfels, Texas manufacturing facility, where the Aurora Driver hardware kit will be produced. The project, which includes a 65,000 square foot addition and a state-of-the-art automated warehouse is expected to create new well-paying jobs in the coming years. The expansion will more than double the existing production floor space and is expected to be fully operational by August 2027. We've now received and begun testing computer samples from AUMOVIO, which include NVIDIA's DRIVE Thor system on a chip. Complete prototypes of this hardware kit are on track for delivery by the end of the year to begin engineering validation testing. As we accelerate our path to deployment at scale, favorable regulatory momentum continues to build across the U.S. Earlier this month, we received approval from the U.S. Department of Transportation to begin using cab-mounted warning beacons as an alternative to reflective triangles. The cab-mounted flashing lights indicate when a vehicle is stopped on the side of the road to warn other road users, which is similar to systems used by emergency and construction vehicles and is a step forward for road safety. And on the legislative front, the AMERICA DRIVES Act, a landmark bill to establish a federal framework specifically for self-driving trucks, continues to gain traction with co-sponsorship from U.S. Representative, Jay Obernolte of California. In closing, we've made unprecedented progress since commercial launch and continue to be the only company with driverless trucks on public roads in the U.S. We've proven that the technology works and are now channeling our momentum to support lasting customer value and our path to scale. Insights from our real-world driverless miles reinforce there are no shortcuts to safety, trust and scale in autonomous trucking. Our strategic investments have built powerful flywheels that are now accelerating, driving us forward with increasing efficiency. Our industry-leading technology, coupled with a world-class ecosystem of partners, customers and shareholders, uniquely positions Aurora to set the standard for autonomous trucking. Thank you for your partnership, as we continue to build the future of transportation. With that, I'll now pass it over to Dave, who will review our financial results. David Maday: Thank you, Chris. Let's discuss our financial results for which we have provided a summary on Page 17 of the slide deck for reference. Third quarter 2025 revenue totaled $1 million across driverless and vehicle operator supervised commercial loads for Hirschbach, Uber Freight, Werner, FedEx, Schneider and Volvo Autonomous Solutions, among others. The Aurora Driver achieved another record number of commercial miles driven during the quarter, which drove a 12% sequential increase in revenue from the second quarter. Third quarter operating losses, including stock-based comp, totaled $222 million. Excluding stock-based comp of $51 million, R&D totaled $138 million, SG&A was $28 million and the cost of revenue was $6 million. We used approximately $149 million in operating cash during the third quarter and capital expenditures totaled $8 million. This cash spend was meaningfully below our externally communicated target, reflecting continued strong fiscal discipline. We expect cash use of $175 million to $185 million during the fourth quarter of 2025. During the third quarter, we issued 80 million shares of Class A common stock through our at-the-market program for net proceeds of $460 million. We used $21 million of the net proceeds to fund the tax liability associated with the vesting of our employees' restricted stock units during the third quarter. In turn, we ended the third quarter with a very strong balance sheet, including increased liquidity of $1.6 billion in cash and short-term and long-term investments. We expect this liquidity to fund our operations into the second half of 2027. We will be providing 2026 financial objectives in the fourth quarter 2025 business review in February. For the remainder of the year, we will continue to focus on expanding driverless operations and advancing our program to support our 2026 scaling objectives to accelerate our first-mover advantage to reinforce our leadership position. With that, we'll now open the call to Q&A. Operator: [Operator Instructions] Our next question comes from the line of George Gianarikas with Canaccord Genuity. George Gianarikas: Maybe first, I'd like to ask if you could sort of give us form and shape to your plans for moving from a terminal to endpoint shipments. Christopher Urmson: Yes. Thanks, George. Great to take a question from you. I think one of the misconceptions that we hear is that this is kind of a big deal, and it really isn't. So today, for example, when we're operating -- getting to our Houston terminal, we drive for about 5 miles through various industrial park surface streets to get to our terminal. So we have a system that's capable and able to deliver this, like it works well. So for us, it's just a matter of timing and sequencing when the volumes are sufficient that it's relevant for our customers. And so we intend to be rolling that out to customers through the next year. Dave? David Maday: Yes. And I would say maybe 2 other things. One of them is on the misconception piece, right? Like if you think about endpoints, customer endpoints, roughly 80% of those endpoints are within a 5-mile range from a highway. So this is not a difficult technical challenge at all. I think -- the other thing it's important to point out that we started out -- and everything kind of relates to our technology rollout and our crawl, walk, run, right? So we started out operating a small fleet of trucks that we're continuing to build up. But it's important to understand that we need to be able to drive in all weather conditions, right? We already opened up nighttime earlier. We're expanding lanes, but we also want to be able to operate in rain and heavy wind. And when we're able to operate in all these conditions then, when we go to customer endpoints, we're able to operate a larger number of vehicles between their specific endpoints. So the one thing that's really important is to make sure that we've got a really robust product that is operating between the endpoints. So I would say that this is a very deliberate plan that we're executing upon. George Gianarikas: And maybe as a follow-up in 2 parts. So in your press release, you say that you want to deploy hundreds of trucks next year that feels like a little bit of an acceleration. Is that true? And the second part of the question is, is that being enabled by your partnership with international, which I think is new. Did you have a partnership with international before this? Christopher Urmson: Yes. So this is, I think, in line with what we've been saying for a while now. We've been saying we want to get 10-plus -- tens of trucks this year, and we want to get hundreds next year. And so I think it's us aiming to accomplish what we set out to do. In terms of with international, this is a new relationship. So we are purchasing trucks from international, and we're doing the upfit ourselves. We continue to work with Volvo and PACCAR and continue to be excited about the plan forward with them. This is a way for us to take timing into our own hands, ensure that we can deliver this and support and fortify our volumes for next year as a response to the customer interest that we're seeing today. Operator: Our next question comes from the line of Ravi Shanker with Morgan Stanley. Ravi Shanker: If I can just quickly the line of discussion on international. I just wanted to confirm, so are you just buying the trucks off a lot and kind of rolling that out as a third fleet? Or is this an actual OEM relationship like you have with PACCAR and Volvo, in which case, kind of is there a time to commercial launch of that as well? David Maday: Ravi, it's Dave. So we are buying stock trucks. We're not actually buying necessarily up a lot. We are ordering them through international, but there is no co-development partnership associated with those. So it's important to understand that we've got a tremendous experience in how to integrate the Aurora Driver into platforms. We've done it on like roughly 8 platforms. So we understand all the necessary capabilities to launch a safe product. And in this particular case, we've got 2 partnerships with co-developments already. We felt this was a great opportunity for us to continue to meet customer demand and work and offer the Aurora Driver on a third platform. Christopher Urmson: And to answer the second half of your question, Ravi, we expect to have the international truck on the road driverless in Q2 of '26. So we're excited to add that to our growing fleet. Ravi Shanker: Understood. That's helpful. And maybe as a follow-up, as you guys get closer to launching Gen 2 and specing the Gen 3 hardware, when do you get a sense of the bill of materials and the cost of the system involved? And maybe also, like when do you expect to have conversations with your OEM partners and maybe launch actual pricing of the truck and the system for your customers? Christopher Urmson: Yes. So I think on the bill of materials for the Aurora Driver, we have very good insight into that today. We track it as part of our development process. We know what that bill of material cost is. And it's important to understand again that as we look at that cost, that doesn't get borne upfront as part of the purchase of a truck, that is paid through the subscription that customers will pay for the Aurora Driver, this Driver as a Service model. And we factored that into the cost and into the revenue stream and profitability of the business going forward. Operator: Our next question comes from the line of Colin Rusch with Oppenheimer. Colin Rusch: You've talked a lot about the simulation expertise that you have. Can you talk a little bit about any sort of acceleration that you're seeing or any sort of transitions that may see hiccups, as you move to the new hardware? Christopher Urmson: Yes. Well, first, yes, we think simulation is an important tool. It's something we've invested in and I appreciate you recognizing that. No, we don't really see any hiccups. Like one of the things that we -- that I think a lot of folks don't really understand is that the automated driving system is a complicated, difficult thing to build. But the tools and process and rigor you have to put in place to have conviction that the thing is safe to put out on the road and operate at 70 miles an hour down the freeway is at least as hard, if not harder. And so as we've been building our processes for validation and release, we've designed them with an eye towards this needs to scale. This needs to allow us to accelerate our release process over time and meet the needs for that second generation, third-generation hardware. And so it's kind of moving along as we'd hoped. So yes, I hope that -- I'm not sure if I answered your question, but we're feeling pretty good about this. Colin Rusch: Okay. Yes, I'll follow up offline. The second one is really around customer comfort with the technology. Now that you're accumulating a fair amount of experience on the road without the driver, how quickly are customers getting comfortable with taking a safety driver out of the cab and thinking about actually starting to deploy with you guys out of the gate without a driver? Christopher Urmson: Yes. I think that, one, it's dangerous to characterize all customers in one bucket. And so there's obviously a spectrum of them. But what we're seeing is enthusiasm, right? The conversation has moved from, hey, maybe this will happen to, oh, it's happening. I can see why this will benefit my business. I would like to have access to that. And so we mentioned Russell Transport. That's a customer that just signed up with us and signed up with us on day 1 to operate driverlessly. And we expect that to be the flavor of many of the customer relationships that we're going to put in place going forward. Operator: Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald. Andres Sheppard-Slinger: Congrats on all the great progress. I think some of our questions have been asked. But Chris, I'm hoping maybe if you can help us maybe give us some granularity as to how we should think about the truck deployments for Q4 and maybe early next year to -- I guess, so you have 5 in operational as of now. So to get to more than 10, presumably, that means deploying 6 additional trucks before year-end. So I mean, how should we think about Q4 deployments and maybe ASPs? Any granularity you might be able to give us there? I know we'll get more color on Q4 for next year, but helpful... Christopher Urmson: Yes. Yes. So we expect to get to 10 trucks operating driverlessly at the end of this year. We'll kind of ramp them through the course of Q4. We really -- you're probably sick of us saying crawl, walk, run but we very much believe that. We want to make sure that customers are comfortable, regulators are comfortable that we're building out at a rate that really enables us to do something useful in the world. For us right now, it's a balance between increasing driverless operation and utilizing the fleet that we have to advance capability to deliver that value to customers. And so we're putting time into, of course, the lane expansion work and into weather so that as those trucks begin operating driverlessly, they're maximizing the utility for the customers. Andres Sheppard-Slinger: Got it. Okay. That's helpful. And I guess as maybe a quick follow-up. So in your presentation in the time line slide, you talked about having positive gross profit by end of '26 or early '27. How should we think about that? Is there a certain number of trucks in operation that you think you'd need to get to that point? Or is there a better way to think about kind of that ramp-up? David Maday: Yes. So it's a little bit of truck volume. It's a little bit of continuing our capabilities that we're focusing on today. So there's -- what we've tried to describe as 4 key enablers. The first one is to launch our second-generation hardware kit. We are well on the way to that, and that will be launched with the introduction of our new fleet of trucks in April. So we're really excited Q2 -- sorry. And we're really excited about that. I think there's an element of continued progress on remote assistance. And we've said before, again, remote assistance, they're not operating the vehicles, but they are supporting the vehicles if there's any need for support like detecting different signs and things like that, that we want to clear. We're well on our path towards that where we think we're going to be able to have one person operating and supporting multiple vehicles. We're going from a few to many. And so we think that path is pretty clear. There is an element of what type of support do we need on site if we're able -- if there's, let's say, we have a tire blowout or something like that. We're pretty confident in that. That still needs a little bit of work to prove out, but we think that there's a pretty clear path to that. Those are the big items that we talk about. And then the last one is, obviously, you need a sufficient scale because we do have some structural cost elements, whether we operate at our terminals or our insurance costs, et cetera, where just purely the mileage accumulation is really important. So again, I think when we originally talked about gross profit positive, we had established a target for ourselves, this was back in '24, by the end of '26. We launched a little bit later for commercial launch. So we expect that may flow into '27, early '27. But we still feel confident that, that's a good target, but we're not putting any formal guidance out yet for '26 profitability. Christopher Urmson: And just to add on what Dave was saying right now, like take, for example, the Aurora Driver hardware kit, there, we just look at the BOM cost, and we see roughly half the price of what our current system is. And then you add to that the increased durability, so you can amortize that over a longer distance or a longer amount of driving. That's a big mover, and we see that coming online in '26 or in Q2 '26. Operator: Our next question comes from the line of Chris Pierce with Needham & Company. Christopher Pierce: If we just go back to the international truck announcement, I just want to understand, will customers be able to buy international trucks that you upfit? Or is this just something you're doing to sort of pull forward or accumulate more proof points with the Aurora Driver technology? Christopher Urmson: So as you know, today, we're operating in this, what we call Transportation-as-a-Service mode, where we're operating trucks for our customers. And initially, we expect that's how this will operate. So we'll own these trucks. They'll be out there revenue generating, generating value for customers. Maybe at some point in the future, we consider that. But initially, this is going to be trucks we own and operate and get paid for. Christopher Pierce: And should we think about, if it goes well, is this something where you've talked about launching with other OEM partners in the past. Do you -- but international has a public autonomous partner already. Do you see a world where OEMs have multiple autonomous platforms and the end user, the truck fleet chooses which one they want based on metrics or price? Or how do you kind of see the market shaking out? Christopher Urmson: Yes. We've made no secret that we intend to have the Aurora Driver available on all OEM platforms. And we love the opportunity to compete. We think the Aurora Driver is going to be the best product in the market. And so yes, we would love to have and hope to have a long-term relationship here. Christopher Pierce: Okay. And then just lastly for me, not to sort of put you on the spot, I'm not sure how many headlines you're watching during the day, but there were some headlines from NVIDIA all across mobility today with OEM partners, eVTOL partners and in the -- with international in the trucking space. What's the right way to sort of frame this announcement, if you saw it versus your relationship with NVIDIA? I just want to kind of understand what is new, not new, kind of how we should think about that broadly, if there's something you can speak to? Christopher Urmson: Yes. We've obviously been working with NVIDIA and AUMOVIO on the third-generation Aurora commercial hardware kit for some time now. I think we announced it back in January, maybe. So great to see others recognizing the opportunity to use this technology. We think it's great hardware. And will this continue to build our business? Yes. NVIDIA makes good products. So I'm not surprised others are using them. Operator: Our next question comes from the line of David Vernon with Bernstein. David Vernon: So first question for you on the equipment side. You mentioned in the presentation that the second generation should be getting a 50% reduction in the hardware cost. Is there a scale number to think about that you need to hit to get to that level? And then with this equipment, like what's the actual life cycle of this stuff? Like how often do you -- are you envisioning that you're going to need to kind of be upgrading the hardware on a truck? Or is it going to lack the truck? Christopher Urmson: Yes. So as we talk about the price point of the bill of material savings, that's across this production run of 1,000-plus units, right? And as we talked about in the past, we have the vehicles we have today with our first-generation hardware. We knew we could build that in tens and not more. And that's why we have the second-generation hardware where our contract manufacturing partner, Fabrinet, is producing those, and that gets us to 1,000 plus. And then, of course, the truly large automotive scale comes in with the AUMOVIO partnership, and that's when we can get to tens of thousands of units. So this fits kind of the bridge between tens and tens of thousands. And so the price numbers are across that 1,000-plus scale, and we have commitments and alignment on that. In terms of the life cycle, we expect this hardware to be lasting 1 million miles. That aligns well with the kind of useful first ownership for many of these trucks and meets our objectives for the profitability and financials here. David Vernon: Okay. That's helpful. And then, Dave, my second question would be for you on your sort of illustrative end-to-end case study, looking on Page 16 of your presentation there for Fort Worth to Phoenix. If I have my metrics right, I'm pretty sure a fully loaded Class A tractor can go 1,000 to 1,200 miles on a full tank of gas. With the driverless, couldn't this truck make the trip in a day as opposed to the 2 to 3 that a normal trucker would quote for? And if that's right, then why sell it at 205 a mile? David Maday: Yes. I think it's a -- well, a couple of things. Number one, yes, we can drive the same distance for fuel economy. We're actually probably slightly better for fuel economy. We're averaging about 15% better than the traditional human driver. We can go all that distance and our intent is to go in a single day. I think the 205 is also illustrative for us because each lane is going to be a little bit different in terms of its pricing environment and the customers. And so for us, we've always said that in the Transportation-as-a-Service element, which is -- this is the illustrative kind of example, and then there's the Driver as a Service example. In each of these particular examples, Transportation-as-a-Service, we're kind of pricing like the rest of the market. And for the Driver as a Service, we've got the 65% to 85% range. But we'll get more specific on pricing when we get a little bit further along. Stacy Feit: David, I just jump in here for one second. I think -- just because Dave doesn't have the slide in front of him. The revenue per mile that we have there, that's not necessarily to Aurora, right? So this is an end-to-end in a Driver as a Service business model. That is an industry rate that DAT sourced, right? So we're using that cost. Basically, that's what a carrier would be paid to haul those loads on that lane based on industry data. And then we're showing how much more revenue and margin we can drive for the customer based on the Driver as a Service model in which they are paying us the driver fee. So we can actually walk through the math offline, but I just wanted to clarify that one piece. Christopher Urmson: And I do think, though, to your point as there is an opportunity potentially for premium pricing here because of the speed at which you can move these goods. But we're still exploring when and if that's an appropriate lever to pull. David Vernon: Okay. And -- but -- is the software subject to any hours of service or no? And then I'll let you go, sorry... Christopher Urmson: No, it's not. No, the software is not subject to hours of service because if you just think about the reason for the hours of service limitation, it's because a person gets tired, right? Our software is that super human ability to not get tired. Operator: Our next question comes from the line of Mark Delaney with Goldman Sachs. Mark Delaney: First, just hoping to better understand some of the progress the company has been making with Volvo. I think in the last earnings call, you spoke about hoping to have 20 trucks from them by the end of the year. Where do you stand with that? And if I understood the press release today, you also are working to integrate at lineside. So if you could share some time frames for that as well. So a couple of different parts to Volvo time lines and progress, please. David Maday: Yes. Mark, can you just hit the first part again, just to make sure I got it correct. Mark Delaney: I thought you were planning to take some trucks from Volvo Autonomous Solutions, if I was remembering correctly. Where did you stand with those and getting those validated? And then I think you also talked today about doing some lineside integration. I was hoping to also understand when that may materialize. David Maday: Yes. Okay. So I just want to make sure that I got the 20 part right. So yes, for Volvo Autonomous Solutions, what we had said, and we had said this last time as well, that we are starting to get their second set and now we're actually in the process of building kind of their third set of trucks. And so there's -- they call like B-Sample and C-sample. So they're development trucks that have all the representative hardware. But as Chris mentioned, there's still some updates associated with the firmware and the software that need to be done to have them fully validated for driverless operations on their truck platform. And we're in the midst of deploying those trucks, and we use them in terms of delivering commercial loads to support Volvo Autonomous Solutions business as well as development testing and integrating them into our second-generation hardware. What Chris referenced even today is that we actually have our first lineside integration of the Aurora Driver kit being lineside installed at an assembly plant -- at their New River Valley assembly plant. And so that's really a look into the future because remember, one of the things that we're really excited about with the PACCAR and Volvo partnerships is the ability to build at scale. And one of the key components of really building at high scale, high volume is the ability to lineside install like it was any other part that was being assembled onto the vehicle. And so we're making progress on both of those fronts. Mark Delaney: Very helpful, David. And just the time frame to be done with the testing and validation with Volvo, do you have an estimate you can share? David Maday: Yes. We -- again, same as always, we're going to try not to talk about our customers and our partners' timing. We let them do that, but we're making tremendous progress. And again, we're starting lineside integration. So things are advancing really well for us. Mark Delaney: Okay. And then just my last question was just on the news with international. Maybe just talk a little bit more around how that's evolved and how that supports your driver out timeframes that you were describing in your prepared remarks. David Maday: Yes. So I think with international, also super excited. And we've had a lot of -- the interest and the customer demand on the Aurora Driver has really been strong, and we continue to make great progress technically. And we want to be able to kind of fulfill that promise of being able to deploy these trucks across the Sun Belt and working off of international trucks where we upfit stock trucks from international and being able to install the Aurora Driver on those and deploy those driverlessly without an observer in the second quarter of 2026 is a great opportunity for us to meet demand and kind of fill that volume potential and continue to demonstrate our leadership position. So our focus is really on continuing to build the momentum across the board. Operator: Our last question comes from the line of Itay Michaeli with TD Cowen. Itay Michaeli: Just 2 questions on the product road map. First, Chris, you mentioned kind of solving for some of the dust storms. I'm curious as you solve for that, how much of that was kind of done by the lidar -- your lidar versus radar? And secondly, I guess, a slight delay in the rain and heavy wind update. Just maybe talk a little bit about that. Was that just tied to maybe having to solve for the dust storms first and that pushed out a little bit? Anything you could share there would be helpful. Christopher Urmson: Yes. So on the -- how do we deal with the dust storm part of this. There, as we said for a long time, we see real value in having a complementary set of sensors. They have different strengths and weaknesses. And so there isn't like we just use lidar or we just use radar. We build a model, a perception model and AI model that's taking data from those different sources and producing the best possible outcome from it. And so we lean into the special properties that come along with FirstLight, our FMCW lidar. And of course, radar, given its relatively longer wavelengths is less impacted by dust. And so between the 2 of them, we do a really nice job of seeing what's on the road in front of us. In terms of the rain pushout, this is -- like we look at this as just not a thing, right? Whether it's the end of December or the kind of the beginning of January, we just like to report things with integrity, and we realized it was going to come out in the release a couple of weeks later than we had originally said. So we just value transparency figure we'd share that. David Maday: Yes. And it's also important to point out that we also pulled ahead the Fort Worth to El Paso lane quite a bit. We're going to continue to drive towards moving really quickly on this. And as Chris reminded me even earlier today, we are going to give people a little bit of a breather during the holidays. Christopher Urmson: Yes, Dave has to remind me not to beat myself and the team on the week or 2 here, given that we pulled the other thing forward. Operator: Thank you. At this time, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Yuen May Lum: Hi. Good morning. Welcome to Mapletree Logistics Trust results presentation for the second quarter ended September 2025. We have the whole management team here with us, Jean, CEO; Charmaine, CFO; and James, Head of Asset Management. So to kick off the presentation, Charmaine, would you like to start? Sheh Min Lum: Good morning, everyone. I'll first take you through the 2Q key highlights. So gross revenue is 3.2% lower year-on-year at SGD 177 million. This is mainly due to depreciation of currencies against Sing dollar FX. Then, we have the absence of contribution from divested assets, but this is offset by revenue contribution from our AEI at 5A Joo Koon, now known as Mapletree Joo Koon Logistics Hub. So that has achieved a committed occupancy rate of about 82% as of now. And lastly, we saw stable same-store performance, while there were lower contribution from China, this is offset by better performance from the other markets. So this resulted in NPI being 3.3% lower year-on-year. DPU is 10.5% lower year-on-year at SGD 0.01815. Excluding the DPU of SGD 6.1 million, our DPU from operations is 4.8% lower year-on-year, but a positive 0.2% quarter-on-quarter. In terms of portfolio occupancy, that's 96.1%, an improvement from 95.7% last year. Portfolio rental reversion, positive 0.6% as we saw the negative rental reversion for China narrowing in 2Q. WALE stable at 2.7 years. Aggregate leverage, 41.1%, slightly lower than 41.2% last quarter, and our average debt maturity is 3.6 years. We continue to hedge our interest rates and about 84% of it is hedged into fixed rate, while 75% of our income has been hedged to the Sing dollar. Moving on to the results. Gross revenue is 3.2% lower year-on-year for the reasons highlighted earlier. So consequently, our NPI is 3.3% lower. On a constant currency basis, gross revenue and NPI would have declined by 0.9% and 1%, respectively. Borrowing costs decreased mainly because of lower base rate on our unhedged Sing dollar and Hong Kong dollar borrowings, where we benefited from declining SORA as well as low HIBOR during the quarter. We also had some interest savings from the powering down of loans with divestment proceeds, but this is partly offset by interest incurred on loan drawn down for the AEI as well as replacement hedges at higher cost and higher base rates for our KPI loans. So DEI is 9.6%, lower with a DPU of 10.5% lower, SGD 0.01815 versus SGD 0.02027 in 2Q last year, excluding the DPU of SGD 6.1 million, operating DPU is 4.8% lower, SGD 0.01815 versus SGD 0.01907 last year after taking into account a higher unit base. One half results, reasons for the variances are largely similar to that versus -- for the 2Q versus 3Q last year. Including DP -- our DPU would have been 11.4% lower, SGD 0.03627 versus SGD 0.04095, excluding DG of about SGD 11.8 million, DEI is lower by 5.1% and resulting DPU from operations, 6.1% lower at SGD 0.03627 versus SGD 0.03861. Sequentially, 2Q versus 1Q, I think we see -- we saw a better performance. Gross revenue marginally higher, mainly coming from the contribution from our 5A Joo Koon AEI. Property expenses higher, mainly because I think we will take some time to cover the property expenses incurred at 5A Joo Koon as we continue to ramp up the occupancy rate and start collecting more revenue for the AEI project. So accordingly, NPI is just marginally lower. Borrowing costs lower because of the lower Hong Kong dollar and SGD SORA rates. Resultingly, our DI, SGD 98.2 million versus SGD 97.6 million and available DPU, 0.2% higher, 0.0815 versus SGD 0.0812 after accounting for a high unit base. Moving on to the balance sheet. Our NAV stable SGD 1.26, leverage at 41.1% versus 41.2%. Interest costs came down marginally to 2.6%. We target to keep this at similar levels, about 2.7% to 2.8% for the next 2 quarters. We have a bit -- I mean, depending on where the SORA market goes, we may benefit a bit more, but we're still looking at about 2.7%. Our debt maturity profile remains well staggered, average debt duration of about 3.6 years. We have about SGD 819 million of available committed credit facilities to meet our refinancing needs in the next 12 months. And as mentioned earlier, we have hedged about 84% of our total debt into fixed rates, leaving the rest of the 16% in SGD and JPY floating rates, which will benefit from all the floating rate movements. And then in terms of FX, we have hedged about 75% of our FX for the next 12 months into Sing dollar or derived in Sing dollar. I'll pass over to James to bring you through the portfolio details. James Sung: Hi, everyone. So in terms of our portfolio update for 2Q, revenue [indiscernible] contribution for developed markets, which continue to be at 70%, which gives us the stability in revenue. In terms of trade sectors, 85% of our revenue are actually serving domestic consumption, which remains resilient. Only 15% of our revenues are for exports. But as we have shared earlier, to U.S., our exposure is less than 5%. So there's a limited risk to our portfolio, but we can't discount any indirect consequences or impact to the sentiments of the market. Next, occupancy. Overall, occupancy remains very resilient. It has improved from Q1. So now it's at 96.1%, compared to 95.7% in 1Q. So in most of the markets, we continue to have 100% occupancy like Australia, Vietnam, India and Hong Kong. We see 4 countries registering positive occupancy rates. Singapore is one of them. As shared by our CFO, this is due to the improved leasing up momentum at our 5A Joon Koon, now it's called Joon Koon Logistics Hub. So the 2Q occupancy is 60%. Our committed leases is at 82%. So we should see this improving as we move along in the next 2 quarters. China also saw improvement in occupancy rates, driven mainly by improvement in occupancies in the Tier 2 cities. Japan was down primarily due to a lease expiry in Kuwana. So we are in the process of backfilling the space in the next 1, 2 quarters. Korea saw an improvement in occupancy based on the new lease in Wonsam 1. Malaysia has also saw a slight improvement in occupancy because of a new lease in Tanjung Pelepas. So in terms of rent reversion, our overall rent reversion was 0.6%, excluding China, was 2.5%. In Singapore, it was 3.9%; Japan was 0, flat; Hong Kong, 0.7%; South Korea, 1.1%; Malaysia, 3.4%; China, minus 3.0%; Vietnam, 4.3%. And there were no lease expiries due in this quarter for 2 other countries, Vietnam and Australia -- Australia and India. So in terms of the lease expiry profile, we saw that in 2Q, our lease expiries for the balance of this year is down to 16.6% compared to last quarter, which we reported 25.3%. 20% of our total revenue is contributed by our top 10 tenants. So there's no single tenant that contributes more than 4% of our portfolio. So there's no concentration risk. Next. In terms of active portfolio rejuvenation, as you know, we have announced 3 completed divestments in 2Q, namely 31 Penjuru Lane in Singapore, Subang 2 in Malaysia; and Yeoju in South Korea. And we will be -- and we have completed one in 3Q, mid of October for the one in Gudang. Sheh Min Lum: Okay. I'll go through a couple of slides to update you on our green initiatives. So in support of the group's long-term target of net zero emissions by 2050, MLT has committed to achieve carbon neutrality for Scope 1 and 2 emissions by 2030. So on this front, we are pleased to update that our target set for FY '25, '26 for solar generating capacity as well as green buildings, year-to-date, we have reached exceeded set targets. So for solar, we have already expanded our capacity to currently 56.4 megawatt peak against the target of 55. So we are on track to hit 100 megawatt peak in 2030. And if we take in to include third-party funded capacity, actually, we are at 108-megawatt peak, which I believe should be the largest, if not one of the largest amongst Singapore REITs. Then for green buildings, we have already reached a 69% percentage for our portfolio by GFA, and we hope or aim to reach 80% by the year 2030. For green financing, we have secured another SGD 300 million of new green and sustainable financing this year, and that brings it to a total of SGD 1.5 billion or about 27% of our total borrowings, up from 24% as of March this year. For green lease, we also continue to make good progress, tracking at about 59% currently for all our leases. And we're also happy to note that our Benoi Logistics Hub, which was the first AEI in Singapore was recently recognized as the one of the -- rather the only industrial logistics building by -- under the BCA Green Mark 20th Anniversary Building Project. So now I'll pass over to Jean to wrap up. Jean Kam: Good morning, everyone. In terms of the outlook, right, I think as all of you are aware, the world economy has proven more resilient than expected with a lot of the front-loading of exports and AEI investments. And in terms of the trade tensions between the U.S. and China, it appears to be cooling down based on the latest development. However, I think this on and off tensions continue to create a lot of uncertainties and continue to clock the global economic outlook as well as keeping our business and consumer sentiments cautious. Operations-wise, you have heard from James, we have a slight uptick in our occupancy rate this quarter compared to last quarter, mainly coming up from Singapore with the progressive leasing out in 5A Joo Koon as well as China. And our negative reversions in China has been narrowing, and it's now at negative 3%. On the leasing outlook, from the occupancy and rent reversions, our China operations appears to be stabilizing. By region, in terms of the West and Central China, it seems to have bottomed. We are starting to see some higher signing rentals from some of the cities in the West, for example, in Guiyang and Kunming. On the Northern China rents, like I said earlier or before, we have already signed at very low rents. If the situation doesn't further deteriorate, we hope that wherever we have locked in continues to be stable. And on the South, there will be a lot of upcoming supply. But for MLT, we only have 2 assets. I think -- so that's not a very big concern to us. The region that we are watching very closely that is of concern is actually the East China Greater Shanghai region as the vacancy remains elevated and pretty high at around 26%. So I think in a nutshell, if you ask me when is the inflection point, really, it is very hard for us to put a forecast. And with the current weak domestic consumption, we think the asset supply will probably take at least another 1 to 2 years or more for it to be absorbed. Going to Hong Kong, the leasing market remains cautious with the ongoing slight uncertainty. However, to date, we have renewed or replaced about 90% of this FY lease expiry. And already, the team is already starting to engage our bigger tenants for the coming FY lease expiries. Based on the earlier conversation, we think they will likely continue to renew with us. But I think in terms of the rental reversions, it will likely to be flattish, taking into consideration the current vacancy levels. As for Korea, there is an elevated market vacancy of 16%. Although in terms of the supply pressure, it seems to be easing based on the current statistics. And the flight to quality continues with some of our older specifications facing some leasing challenges and higher incentives. Back to Singapore. As mentioned by CFO and James, we have already achieved a commitment rate of 82%, and we are looking to still target to achieve full occupancy for this AEI by this financial year-end. So Singapore remains a resilient market. But with more supply coming on stream these 2 years, we think the rent reversions will moderate to a low single-digit kind of growth trajectory. I have covered about 70% of AUM and the rest of the 30% from 5 countries like Australia, Japan, Malaysia, Vietnam, India remains resilient. On capital recycling, I mentioned before that we have identified a SGD 1 billion pipeline as potential assets for divestment as part of our portfolio rejuvenation strategy and half of it will come from Greater China. So last year, we executed about SGD 210 million. To date, we have executed about SGD 60 million post quarter closing. And for the divestment target this financial year, we are targeting about SGD 100 million to SGD 150 million this financial year. On the divestment options for China, we are in discussion, and we have received a few interest from some insurance companies and SOEs on a few of our assets in China. So we are still in continued dialogue. And as for the renminbi fund, it is something that we are exploring as a possible exit option. So on acquisitions, amidst the tapering of interest rates, there are more opportunities out there and use spread seems to have improved for some of the countries, but we remain highly selective and disciplined in our acquisition process. We will be keen to increase our presence in our emerging markets like India, Vietnam as it still offers a faster growth trend and our AUM is still very small in these 2 markets. And as well for Singapore, we are also still exploring AEI opportunities for the -- in our East location in Singapore. With this, I think I wrap up my presentation, and I'll leave it for Q&A. Thank you. Yuen May Lum: We'll now open for Q&A. Okay. Mervin you're first in line. Mervin Song: Thanks Lum Yuen. Jean, congrats on the fabulous performance in China considering the difficult market conditions there. I'm very glad to see some signs of stabilization. First on the China reversion, I think guidance previously was flattish for next financial year. Are you maintaining that guidance? Or is there some is any variation? And your occupancy, been able to hold it low 90s actually increased this quarter. Any guidance on occupancy going forward? Second question I have is in terms of cost of debt guidance thoughts for second half this year as well as FY '27? Sheh Min Lum: I'll get James to answer that. James Sung: Sure. On the first question on China rent reversion, yes, your observation on the listing of the negative rent reversion is coming up. So we see that the mix 2 quarters, we are still watching closely. It should improve and we should flatten hopefully in the next -- within the next 2 quarters. So that's the outlook for China. And the occupancy you're referring to China occupancy? Mervin Song: Yes, yes. I mean the market vacancy is still very high. So you've done an amazing job holding at low 90s. James Sung: Yes. So we still positive but our occupancy rates in China. As you can see, 2Q, we improved 1 percentage point. So we reckon that in the next few quarters, we should be hovering around this level, 94% or even better. Mervin Song: Sorry, just a follow-up on the reversions. You expect it to improve in the next 2 quarters at least. But is there a chance that the 0% level rather than next FY '27 could be like fourth quarter? Jean Kam: We are looking at perhaps in Q4, hopefully, we can have a neutral position by end of FY. We are still working very hard towards that. Mervin Song: Okay. That's fantastic news. And the interest cost guidance? Sheh Min Lum: Hi Mervin. So on the cost of debt, it's currently in. I mean it was 2.7% last quarter. This quarter, it declined slightly to 2.6%, mainly because we benefited from the lower SORA rates as well as the low HIBOR rates at the beginning of the quarter, which has now increased, right? So moving forward, I think for the second half, we are looking at about 2.7%, but also a lot depends on where the unhedged rates will be, but if it's current level is about 2.7%, and we will target to keep it stable for the next financial year. Yuen May Lum: Derek from DBS. You're next. Derek Tan: Hey, good morning can you hear me? Yuen May Lum: Yes. Yes. Derek Tan: Congrats on a stable results. Just 2 questions from me. The first one is on Joo Koon, right? I know you're getting fairly good committed occupancies and just wondering whether for the remaining leases, right, from [ 60 to 80 ], are you getting higher rents and at this moment in time, what is the income collected reflective in terms of occupancy level. So we would expect that income for these assets should start to continue to improve in the subsequent quarter, right? So that's the first question. And maybe my second question -- maybe my second question is on income hedges. I just want to get a sense about your hedging expiry for next year, which other currencies that we should be taking a lot of and whether there's going to be any potential mark-to-market. I'm watching especially your Japan and Hong Kong hedge yourself. So it's something that could be expanded network. So I just wanted to get this out of the way? James Sung: So 5A Joo Koon, the rentals because we have now hit about 80%, 82% committed, right? So the leases for the balance will definitely be higher than the present because this is quite typical when you first start, there will be selling more incentives to start with to get the levers in, then as we improve the occupancy rates, the rents will go up. So that's typically how we are marketing this project. Derek Tan: So last quarter, how much have you collected out the 60%? Jean Kam: It's about SGD 1 million -- It's about SGD 1 million before the fitting out and rent freeze. Sheh Min Lum: So Derek, I think in terms of the contribution from the new AEI, right, in 2Q itself, we collected revenue about SGD 1 million, but I think this is largely because a lot of the rent freeze and [indiscernible] were given in the front. And you are right, we will see this contribution increasing for the next 2 quarters and then [indiscernible] financial year. Derek Tan: That's good news. Sheh Min Lum: So I think in terms of the hedges, right? Okay. So for the next 12 months, for JPY, about -- we have locked in about 83% of our DEI from Japan at a rate of about less about 90, so that's a very good rate. We will enjoy it [indiscernible]. And for Hong Kong dollars, 72% has been locked in. The rates are at about [ 5%, almost 6% ]. Derek Tan: You mean everything expiry [indiscernible] only partly? Sheh Min Lum: So like for the next 12 months, yes, this all 83% -- like JPY all 83% will expire by 12 months time. Derek Tan: So we should be locking it? Yes. Sheh Min Lum: Yes. So a lot of it is mark-to-market. So for JPY, I think a bit more color. We have previously locked in for a longer period. So if you look at beyond the 12 months, we have locked in about 56%, so the mark-to-market rate for JPY will be lower, slower. But like for Hong Kong Dollar the rest of the currency, I think most of them will expire in the next 12 months. If you notice the swap costs, right, I mean, the hedging cost has gone up actually quite a fair bit in the last past half year. So the ways that we are able to enter into forward these days are not as attractive. Derek Tan: Okay. Got it. That's why I needed to know. Sheh Min Lum: Thank you. Yuen May Lum: Roy Chen from Macquarie. Roy Chen, you can ask your question. Please go ahead. Chengzhi Chen: Yes, congrats on China bottoming up factory guidance? Few questions from me. I think firstly, in terms of the interest cost, I think you are guiding that next year is going to be flat 2.7%, I'm just wondering how are your hedges right in terms of the interest rates versus the current rate, I think a lot of the REITs are really recording lower average cost of debt. So are there still more lower rates that in your books? That's one. And then my second question is on the China lease expiries that's coming up this year -- remaining of this year and next year. How much of those these expiries are coming up from the East China assets? And last one, in terms of your divestments. Are you seeing a pickup in interest in transactions. And now that the interest rates are actually lower. So in terms of that, we should expect a faster pace of the reset. Sheh Min Lum: Okay. I'll go on the interest cost first. I think the first thing is at an interest cost of 2.7%, I think that's one of the lowest in the market as of now. Color on the hedges that's falling through -- falling off next financial year. So for example, our Hong Kong dollar, the rate that's falling off is 1.7%. If I were to replace it with Hong Kong dollar IRS, that would be much higher. So what we have been doing in the past 1 to 2 years is when this really low rates in Hong Kong dollar and Aussie dollar comes up for replacement, we have actually replaced it with a cheaper currency, for example, CNH or SGD. So I think to keep our interest cost at 2.7% next financial year, we will potentially replace this Hong Kong dollar debt that's expiring at 1.7% with maybe a Sing dollar or a CNH loan, which would be similar levels at this expiring 1.7%. That's how we will try to keep our interest cost stable. Does that answer your question on how we can keep it -- how it's going to be at 2.7%. If you look at the universe of rates as of now, I think the lowest that we can find would be Sing dollar and CNH and of course, JPY too. With the new Prime Minister, I think maybe that would -- the rate of increase for JPY would be slower. But comparing against whatever is expiring, it would be similar levels. Chengzhi Chen: Got it. How about your Singapore loans debts? Will you still get some benefits from your Singapore loans? Sheh Min Lum: So the Singapore rates that are dropping off are like 2%, maybe marginally lower, but we don't have Sing dollar due for refinancing in the next 1, 2 years. I think I also mentioned earlier that in terms of the lower rate this quarter, we have benefited from the unhedged portion of the Sing dollar loans. So if SORA decreases or lowers further, yes, we will benefit, but conversely, if SORA increases, then our 2.7% will probably increase to 2.8%, 2.9%, depending on where SORA is. Chengzhi Chen: Thanks for the comments. Jean Kam: Yes. Roy Chen, regarding your questions on divestments, with the lowering of the interest rate environment, the divestment activities, yes, you're right, that is starting to pick up and seeing more interest -- but is particularly, I think for our Greater China portfolio that we are looking to divest, at least we are seeing some inquiries coming in. So now right now is about the discussion on the kind of pricing that the parties are looking at. So from that perspective, on the China divestment process, compared to last year, it is slightly better. We are seeing interest. And the other part that we have been trying to sell like the older specs like in Korea, Singapore, Malaysia, that one, I would say it would be a bit less sensitive to the interest rate environment, but more about whether the end user or the buyer finds our property relevant for their business requirements. Not that interest rate is not important, but I think more of whether the current specification suits their business needs. So -- but in a nutshell, I think that's what we are looking at now in terms of the current divestment pace. I hope that answers your question, Rachel. I will let James to answer on the lease expiry in China coming up from the East region. James Sung: Roy Chen, I'll get back to you before the end of this call, we're completing. Yuen May Lum: Shall we move on to the next person. Okay, Brandon. Brandon Lee: Can you hear me? Sheh Min Lum: Yes. Brandon Lee: I just want to go back to the asset divestments in China, right? So the funding you spoke about, is it -- are you talking about the private bid or are you looking for CREIT? Jean Kam: No, it's a private one. Yes [indiscernible] . Brandon Lee: Okay. And for the sort of timing wise, right, this SGD 0.5 billion that you're looking to sell in China, can you roughly guide on when we could see this being offloaded from your balance sheet? Jean Kam: It's quite hard for me to actually give a guidance. But I think immediate for at least this 1, 2 financial year, probably SGD 100 million. Brandon Lee: SGD 100 million in FY '26, so another SGD 400 million in FY '27? Jean Kam: Yes. But that one also includes the Hong Kong divestment that we are looking at. So we are looking at trying to divest our shorter title assets. And that's going to take some time because all the shorter assets, we will need to find a lot of individual owners, so that one will take a bit of time. Brandon Lee: So we see the SGD 0.5 billion? Jean Kam: Greater China, it's Hong Kong and China. Brandon Lee: Greater China. Okay. And in terms of the divestment premium discount. Can you give a guidance on that for both Hong Kong and China? Jean Kam: We are looking at valuation. Brandon Lee: Debt valuation? Jean Kam: Yes. Brandon Lee: Just looking at some of the leases that you signed this quarter in China, right, I saw that the -- some of these have been brought ahead to FY '27, '28. So does it mean that you are still signing pretty short leases in China? Jean Kam: Okay. I think generally, yes, the lease in China, it is still pretty short term in nature. In terms of signing beyond 2 to 3 years, we are still seeing, but it's really very few. So overall, most of the tenants in China is still taking a cautious position, so still pretty short term. But if you ask me to -- if I diagnose further -- if you look at renewals that we signed this year versus last year, in terms of the WALE, we are seeing some slight very small improvement, compared to -- that means what I'm saying is that last FY renewal versus the first half of this FY renewal in terms of the WALE is slightly longer. Yes. So I hope that answer your question, yes. Yuen May Lum: Xuan from Goldman. Xuan Tan: I have a question on acquisitions, right? And how are you thinking about funding? Is it coming purely from divestment? Or are you now open to equity and all that share price has increased? Jean Kam: For now, it will still very much be the divestment pace, depending on how much capital we can be cycled. But having said that, right, if there's a large portfolio that is very attractive. I think we do not rule out the option to capital market. Xuan Tan: Got it. And can you share more colors about the China divestment and valuation. I guess we've seen some of this in a steep discount. Why is logistics holding up better? Sheh Min Lum: I think in terms of why we are seeking the valuation, I think that's something -- that's why if you notice, it's been taking -- we are still trying to negotiate. We're still trying to negotiate. And then the other reason, I think if you look at -- yes, I forgot to add on that in terms of the renminbi fund that we are looking at, right, we are actually working with our sponsor on this. So that's something that we are negotiating with them. Yuen May Lum: Next line is Derek Chang. Jian Hua Chang: Just a quick follow-up, I guess, on the divestment of assets to the sponsor, right? That's the development fund right that they have. So will this be a potential you divest and then you do a joint development with the sponsor? Or how are you thinking about this? Jean Kam: No. No. It's more like we have some assets in the balance sheet that we are looking to divest to decent fund and then the sponsor will be more like LP and whereas they will also look to get some capital partners in it. So we will not be having a stick in the fund. And it's not yes. It's not a development fund. It's just -- we are just exiting our assets and put into the renminbi fund, which is an income fund. Jian Hua Chang: [indiscernible] exit. Understood. And then on acquisitions, right? I think you mentioned earlier, India and Vietnam, but these markets, I guess, the use spread isn't too attractive, especially if you're looking to deploy proceeds from divestments. Are there other markets that you are looking at where you spread more attractive? Jean Kam: In terms of the yield, these 2 markets continue to be the highest from the yield perspective. Of course, I think in the other markets where we are starting to see interest rate coming down, for example, maybe Korea, in terms of yield spreads, it is a bit better. So maybe that's something that we will continue to look at, but it will really be very opportunistic. As for Australia, I think the rate hasn't really come down much, but it's something that we still continue to monitor. Jian Hua Chang: What about Japan and Singapore. Jean Kam: Singapore, we are looking at more AI, asset enhancement. I mentioned that we will -- we are actually exploring in discussion to acquire a property that is adjacent to our current assets, and we are looking at amalgamation and doing a new redevelopment. For Singapore acquisitions, it will be more perhaps buying some old properties that is very near to our existing assets, and we are looking at redevelopment developingit. Japan, yes, no doubt, the cost of debt is the lower at low 2s. But if you look at the yield, it is actually very tight at 4% or below. So from that perspective, if there is any potential acquisition, it will have to be via recycled proceeds. Yuen May Lum: Next, we have Terence. Terence Lee: This is Terence from UBS. For the China portfolio, do you mind sharing how under/over rented the current in-place rents stack right now versus market? And if you don't mind splitting between Tier 1 and Tier -- non-Tier 1 type of classifications? James Sung: Yes, James here. So currently, we analyzed in terms of mark-to-market, I think that's what you are alluding to what percentage is not mark-to-market. So we scan through our leases in China, about 10% is yet mark-to-market. So meaning to say they would exist if the market remains at a certain -- at this current situation without going down further or without going up, right, we have 10% of this exposure. But this 10% is not going to expire all within 1 year. So it's spread over the next 3 years or so. Terence Lee: Got it. And I think just going back to the point on acquisitions, right? I think the earlier statement was focusing on India/Vietnam. But I'm just thinking why not just focus on Singapore, whereby you can avoid the FX issue, Borrowing cost is also almost like one of the lowest points in the history, whereas I guess the preference or EM has [indiscernible] proven to be quite challenging. Jean Kam: I think for Singapore, because it is a very regulated and tight supply market, right? Definitely, if there are opportunities, we will definitely also take a look and evaluate. So in fact, there were a few deals that we have seen, but I think it is a bit challenging at this point in time, taking into consideration some of the expectations as well as the tenure that is left. So that's something that we will continue to want to pursue. But realistically speaking, it will be more opportunistic from that sense. So that's why I think in terms of acquiring a small property, which is near to our existing in for us to do the rejuvenation. It is something, at least it is more attributable. But having said that, I think definitely, we will still continue to pursue -- it's just that I think in terms of modern grade A specifications that is available after the moratorium of the JTC requirement, typically, we are looking at a very short land these left. So it is something that I think we are cautious about, and we would perform for Singapore to rejuvenate within the existing portfolio that we have -- and so far, we have done 4 and 5A Joo Koon is our fifth successful AEI. Is our fifth or fourth? Oh fourth, sorry, fifth is including the [indiscernible], our fourth successful AEI project in Singapore with good track record in terms of the leasing performance as in terms of giving us good returns. Terence Lee: And my last question is maybe just it's more big picture thinking. We've seen REITs where through the period of high interest rates, surely the DPU had suffered. But even coming out of it, I think some of them are trying to shore up their capital buffers. So we've seen some examples of REITs, I guess, reducing fees in units. So I guess the parallel being that for MLT, FY '26 looks to have taken a hit. So when we formulate our thinking about FY '27, is that also part of management's thinking that it's time to, I guess, rebuild some of these buffers. Jean Kam: Yes, you're right. So I think I have mentioned before, I think once our operations start to stabilize, our DEI starts to improve. We are looking at slowly taking back some of the fees in units and convert into cash. It is something that remains in our mind. And we will do some conversion as and when our DPU is able to take it. Terence Lee: I guess suffice to say earlier that I think the idea of divestments is limited gains. And correct me if I'm wrong, over there. And I guess, by extension also, if there are any gains, we probably won't see them being paid out? Jean Kam: Yes. I think -- we have just turned off the distribution of the divestment gain just a few quarters ago. So if there is any future divestments with just very few million gains or very little gains. I think we will continue to actually keep that and strengthen our balance sheet, for flexible low financial agility for future acquisition. But having said that, if we are able to divest an asset that give us a very huge gain, I think it's something that we are open to explore to give a bit of a divestment gain in future. But based on a lot of the divestment pipeline that we are looking at, we do not foresee that there will be a very huge gain over the original costs based on our current visibility. James Sung: Roy Chen, James, back to your earlier question, you're asking in terms of the balance of this fiscal year or financial year or what expiries from East China is coming up. So portfolio, East China consists of Sichuan province, Guangzhou province and Shanghai. So we have 19 properties and all in China. And based on this expiry, we have 36% due from this East China coming off for the balance of the year. Of course, not all East China is -- not all the 36% going to expire just a bit. Some would be placed. Some majority will be renewed. Chengzhi Chen: Well, Yes, Yes. James Sung: Did you hear me? Chengzhi Chen: Yes, you're saying the financial year is 36%. James Sung: Yes, the balance of next 2 quarters. Chengzhi Chen: Okay. And these leases are up to market already at current rents, right? James Sung: No, there's still a small gap. Yes. Chengzhi Chen: How about next year? James Sung: Next year, we are looking at about -- for East China, about 25% to 30%. Chengzhi Chen: Okay. And also there's still some have mark to market? James Sung: Yes, yes single-digit percentage. Chengzhi Chen: Maybe can I just ask one last quick question. In terms of your renminbi fund. What's the fund size that you're expecting? Jean Kam: I think it's something that is still in discussion. In terms of what I've guided right I say [ SGD 0.5 million ] is coming out from China and Hong Kong. So from our perspective, I think in terms of the sales, the exit option for China, it's not a very large amount in that sense because I mentioned [indiscernible], right, a lot is also coming up from Hong Kong as well. Chengzhi Chen: So this renminbi fund is specifically for the China asset only? Jean Kam: Yes. Chengzhi Chen: That's what you're seeing, right? Jean Kam: Yes. Yes. Chengzhi Chen: And the Hong Kong assets are still expected to divest to third party? Jean Kam: Yes, yes. And that will probably take some time because those that we have identified are shorter tighter units. So meaning that all the small, small units will take some time to get the right buyer. And typically, the buyers' interest would likely be from the business owners rather than a kind of demand. Chengzhi Chen: Is there a timeline for the renminbi fund right, is it going to be this year or next year? Jean Kam: We are looking at, hopefully, quarter 4, but maybe most likely quarter 1, next financial year. Yuen May Lum: Next, we have Brandon. Brandon Lee: Jean, just a few follow-up questions, right? Just going back to China, right? So assuming that your China stabilizes, right, how big of improvement in the sort of earnings contribution you would see coming back from China? Because I think this quarter, you had 14% in the good old days, you were at 20%, 21%, any specific number you can give us? Jean Kam: Brandon, it's a very difficult question to answer. I don't have a crystal ball. Unfortunately, I can't give you the guidance. But what we are really trying to work on the ground is really, as you have seen for the first half, we are trying to really do that stabilization. And there's still a fair bit, I think some of the -- like this [indiscernible] has asked how much is coming up from East China. So we still have -- for the East China, there are still some leases coming up. So that's why I think it is very hard for me to give you a number at this juncture. Brandon Lee: And can you give a rough reversion guidance for FY '26 in Korea and Japan? Jean Kam: FY '26. Sheh Min Lum: You are referring to next financial year, Brandon? Or this year? Brandon Lee: Remaining second half, you can give '27 even better ? Sheh Min Lum: Yes, I was going to say, it is next year, then can we check in again another time, in the quarter. Brandon Lee: FY '26. Sheh Min Lum: Yes, FY '26 is second half, right? Okay, for which country again? Brandon Lee: Korea and Japan. Jean Kam: James, do you want to take that? James Sung: Yes. For Korea, we believe next year? Sheh Min Lum: No, second half of this year. James Sung: Second half of this year, second half of this year? Brandon Lee: Maybe full year is easier -- easier, then we can plan it ourselves. James Sung: I think second -- we just [indiscernible] the second half of this year for Korea, it's still going to be around 1%. Jean Kam: Yes, it'll be the low single digit around what we are seeing at the current second quarter. James Sung: In Japan should be quite similar as well -- not 0, but quite flattish. Jean Kam: Probably [ 0.5 ] the kind of range. Brandon Lee: Okay. Just one last one, right? So you mentioned that equity is considered if it's a portfolio. When you say portfolio, is it more external? Or is it a amalgamation of your sponsors asset in India, Vietnam, Malaysia, everything, Australia, even all combined? Jean Kam: It's anything that's up for review and any opportunities that is good. So I don't want to rule out whether it's third party or it's [indiscernible]. Yuen May Lum: Mervin, you have a follow up question. Mervin Song: Yes. Just a follow up for the Joo Koon Logistics Hub. When do we expect like full cash flow contribution for the initial 60% committed level than 82%? Jean Kam: Sorry, I didn't get your question, when do we expect full contribution from the 82% is it? Mervin Song: The initial 60% and then the 82%. James Sung: Yes. it should be in a part of 3Q onwards. Mervin Song: So 3Q will get the full 60%. James Sung: Yes. Mervin Song: Then the 82%. James Sung: Part of 3Q because 2Q some of the reasons came in since September. Right? So you give them quickly. Mervin Song: Then this maybe a 4Q '26, you get a lease for [indiscernible]. Jean Kam: 4Q, yes. Mervin Song: Then the 82% will be middle of next year, next financial year? Or be late? James Sung: 82% is likely to be part of 4Q. Mervin Song: Part of 4Q. Much better than my projections. James Sung: So this year, we're expecting a full contribution, basically the full year contribution we are expecting from April. Mervin Song: [indiscernible]. On the Hong Kong TV lease, I can't remember, was it renewed like a year ago? Or is it coming up again? And what's happening in the lease? James Sung: Hong Kong TV has expanded over the last few years. So the leases are renewed really, was renewed [indiscernible] for last year. Mervin Song: And when does this expire? James Sung: Typically, it's a 3-year 3 years. Mervin Song: Final question for me. In terms of Australian net effective rents, especially for Melbourne has been quite weak. Your thoughts on Australian market at this point in time and rental reversion guidance for Australia going forward? James Sung: Australia, you're right, Melbourne because of the supply, right, the rents are a bit soft, right, to a single-digit [indiscernible]. Similarly for Sydney, all right, it has normalized to single-digit rent growth, right? But for places like Brisbane is still -- is much stronger in terms of cost of the demand and supply dynamics. So Melbourne is because of the over -- I wouldn't say oversupply about new supply coming off on stream. That is causing the weakness in the rentals. Whereas Sydney, not so much new supply. So the rents are still quite healthy, right, but it's single digits rent growth, not so much of double digits rents growth [indiscernible] we experienced last year. Mervin Song: So in terms of your in-place rents for Sydney, Melbourne and Brisbane, how does it compare to spot market rents at this point in time? All under rented. Is it? James Sung: Yes. For the leases because the rents -- the lease profile for Melbourne and Sydney typically can be most of the leases are between 3 to 5 years. So we can expect still upside when it's mark-to-market when it's renewed. Mervin Song: How under-rented would there be? Is it still 10%, 15% below market? James Sung: I would say about 5% to 15%, depending on the lease. Mervin Song: So we should still see income growth ahead. And Brisbane under-rented, is it? James Sung: Brisbane is more or less in that market really, Brisbane. Mervin Song: But that's -- those parts still going up low single? Yuen May Lum: Next, we have Joy. Qianqiao Wang: Just a quick question from me. First of all, on lease tenure, I mean, other than China, are you also seeing other places that are shortening lease tenure because of all these trade uncertainties, for example, Vietnam? James Sung: Not really. There's still -- in fact, the sentiment on the ground is very positive, right? So the -- in fact, our -- when the -- what you call it, lease expires, we have actually quite a number of prospects lining up in our facilities. So that shows the market is still very robust. Jean Kam: In fact, I think the demand inquiries is very strong, and we do not have actually much space to actually fill up the vacancy. We don't have any vacancies in that sense, yes. We have more demand than the supply that we have, yes. Qianqiao Wang: And then just on that topic, from Chinese tenants moving outskirt to ASEAN, how much are you able to actually capture? Jean Kam: We have captured, I think, across our 4 locations. We have them in Singapore, Malaysia, Vietnam and Hong Kong, yes. Qianqiao Wang: But in terms of flow, I guess, reason where -- I think we are seeing a lot of flow into Vietnam. Outside of that, is there any other locations that you're seeing a sudden surge in demand? Jean Kam: You mean out of the Asia Pac? Qianqiao Wang: Out of -- yes, Asia Pac? Jean Kam: Oh, yes. actually, they are looking for space in Middle East as well as in Europe. Qianqiao Wang: No, sorry, not out of Asia Pac, I mean within Asia Pac. Jean Kam: Yes, within Asia Pac, it's the -- mostly the 4 countries that we have. Actually, Australia we had as well. Qianqiao Wang: And just I missed the early part of the discussion on the China fund. Can I just understand why there is no intention to do CREIT? Jean Kam: I think between the 2, the CREIT is -- the setup time line is going to be very much longer. And then I think for CREIT, one of the key conditions is that about 75% -- it's 85% of the recycled capital has to be in China, so I need to actually -- yes, I need to reinvest. So that's why I think in terms of that exit option, the renminbi fund will be a bit more attractive for ourselves. I think there was also -- there was also a question about how much is going to be of the China assets that have been earmarked and as well as the Hong Kong assets have been earmarked for divestment, how much is for the fund, right? So not all will be going to the fund. In terms of the -- so between the split between Hong Kong and China, it's about half-half. But of the half that's coming up from China, not all will go into the renminbi fund. There are some that we are separately in discussions with some other interested parties. Qianqiao Wang: You will also rule out the possibility of doing a private REIT on the Shanghai Stock Exchange. Yuen May Lum: I think that one probably at this point in time, not within our planning horizon, yes. But [indiscernible] one step at a time. I think that we have come to the end. Thank you so much, everyone, for dialing in. Any more follow-up questions, please feel free to reach me. Thank you. Have a good day.
Jacob Broberg: Good morning, and welcome to Electrolux Professional Group, the result presentation of the third quarter of this year. My name is Jacob Broberg. I'm heading up Investor Relations. With me, as always, have Fabio Zarpellon, the CFO; and Alberto Zanata, CEO. And as always, also Alberto starts. Please go ahead, Alberto. Alberto Zanata: Thank you, Jacob. Good morning to everybody. I would describe the third quarter of 2025 as a good quarter considering the context. The context is a context where the market condition are still not stabilized. There is still the uncertainty, in particular in the United States, and in particular, after the tariff announcement in July, the market in the United States has full of uncertainty and the decision, in particular, if we talk about chain rollout, a big project has been put on hold or postponed. It is an environment that is clearly marked by tariffs and currency and that have been negatively impacting our business. Despite all these things, and that is the reason why I consider it a positive quarter, we performed delivering organic growth, delivering improved margin, delivering improve EBITA. Currency impacted for a 0.5 percentage points, so quite significant in the quarter. It is a quarter where we delivered solid cash flow, operating cash flow. Also in this case, are continuing to invest. I mentioned more than once perform while transforming. And these are the quarters where this company is going through big transformation in terms of new products that we are finally -- we will finally start to bring to market from January 2026. But it's a transformation that is not only considering the investments and the new product, but is considering also the organization. Beginning of the year -- beginning of September, sorry, we launched program that has the objective to streamline the operation, reducing the operating cost, but also has the objective to change the skills of the company. We are -- we launched this program that has an impact of roughly SEK 85 million in terms of cost reduction already next year, is a program that is impacting a quite significant number of employees, 350 employees. Even if the net, as you see is not the total number of affected employees. And why is that? Because an objective of the program is also to transform our organization. Next year, we want to move more resources after having invested so much in R&D and developing product in investing in the automatization of our factory in the digitalization of our operation. Next year, we want also to invest to make use of these investments and to focus on the front end on the sales. The program, by the way, is progressing pretty well. is according to our expectations, and we believe we will be able to deliver what we have been promising. If we move about the market, I think I already commented the U.S. where you see that we are basically flattish on Food & Beverage, with the food still growing, in particular the chains. Chain business is still growing. And I believe it's 7, 8, 9 quarters in a row that we are growing chains. They are not the big chains. They are the mid- small-sized chains. They are not big rollouts, but it is the replacement business, new openings or as I said, small chains, but it's growing. One comment is to Laundry. You see Laundry here down, but I'm repeating things that I said also in the past, here, you should read these numbers considering that in the U.S., we have a large importer that is a stocking the product, and the fluctuation of the inventory and the shipment to this importer are clearly affecting the number that you see. The thing that I can say is that the external sales because we have visibility on the external sales of our distributor, our partner in the United States are healthy. We have an order stock or our distributor has an order stock in the United States, that is at the historical peak. So there is good business. And indeed, the order intake during the month of October is basically on the double level of last year. That was expected considering this number for Q3. What is good and I'd like to underline is the trend in Europe. At the beginning of this year, we have been talking about Europe saying that we would have expected a slowdown after years of growth, in particular in the South European markets, in the Mediterranean region, reality is that Europe is still holding very well. Both Laundry and food are holding well. And we see also not only the Mediterranean region contributing, but also the Central and Nordic region doing positive. And I think this is important because despite the fact that we have a clearly global business, Europe still remains a very important part of our business with roughly 50% of the sales executed in this part of the world. A few words also about the 2 segments, Food & Beverage. So Food & Beverage delivered organic growth. Food & Beverage delivered improved profitability and improved margin. Food & Beverage is also partially affected by tariffs and currency, in particular for what the beverage business is concerned, that is produced in Thailand, most of the product in Thailand and Italy, and the main market is United States. Nevertheless, despite these things, I repeat, organic growth, improved earnings, EBITA and improved margin. With Europe being the main market, delivering the positive results, U.S. food, in particular, while we had a decline in Asia and Middle East and Africa, but that is -- again, is these are regions with many projects. And it is similar to the discussion we had even if not affecting the inventory, but the fluctuation of the order that can change the number pretty well. In that area, we are sitting on a good order stock, so we should be able to have the results done. Positive notice about this segment is that the order intake was positive for Food & Beverage. If we move to the Laundry, that is the segment that is more impacted by tariffs and currency because a large portion of this Laundry business is in the United States. Organic sales are unchanged. So we have basically a flat development, with the order intake that was down, but remember the comment I made earlier is mainly because of this fluctuation. We already see this in the month of October, we are close to the end of the month, and the order intake is very good in Laundry, in particular, in the United States. Despite the significant impact close to 1 point of EBIT due to the currency. The margin in Laundry in the quarter improved, EBITA in absolute values was more or less flat, but the margin improved. And this is significant in relation to the -- how healthy is the underlying business of this segment. With this said, I believe we can get a little bit more into the details and Fabio, they're yours. Fabio Zarpellon: Thank you, Alberto, and good morning to everybody. As Alberto mentioned, in the quarter, we made an additional step in our profitable growth journey. Sales grew organically. We improve profitability before the provision for restructuring cost. Despite the headwinds we had to face both from currency tariffs, and by the way, was to continue to invest in product innovation and digitalization of our group. From a geographical perspective, we continue to have a pretty well-balanced situation with Americas contributing roughly 26% of the total sales, APAC 16% and now Europe below the 16%. When it looks to the margin development in the quarter, we got a positive contribution from price, lower material cost and the operational costs were more and less in line with last year with a different mix, meaning we continue to increase the investment for innovation and digitalization of the group. Thanks to this good price management. I'm happy to report that we have been able to compensate, I would say, not all, but at least the majority of the tariffs impact in the quarter. Few more words instead on the current development that continue to affect negatively our financial. And here, 2 pieces, currency translation and currency transaction. Currency translation affecting negative our top line by roughly 4.5%. And in value more or less the bottom line, but no material impact for what concern the margin. Instead, currency transaction do also here to the strengthening of SEK versus, I would say, mainly U.S. dollar and euro has reduced our, let me say, margin by 0.5 percentage point. Currency transaction that as we have reported previous quarter has not affected just this quarter, but it's somehow a negative contribution we face along this year and then if I sum up the currency transaction effect on EBITA in the year-to-date data, we are close to SEK 16 million or 0.6 points in terms of margin. A few more words then on the program we have launched to streamline our operation and improve the profitability. Total costs, as you know, was SEK 235 million, we treat it as item affecting comparability, partially booking gross margin, and this is the reason why you see a reported decline of gross margin impacting SG&A. The program is affecting both segment. Food & Beverage represent roughly 70% of the cost and the remaining of Laundry. So you see that is more in line with the size of the 2 businesses. Execution started is proceeding according to plan and we expect to receive material saving out of it. Based on current sales development already in 2026 about anticipated the SEK 80 million. They are equivalent to 0.6 point in margin and for 2027, where we are going to enjoy, I would say, the full contribution from the plan, we talk about 1.4 points of margin. So execution according to plan material contribution to our margin expansion. A few words then on the other component of our income finance net was SEK 21 million, significantly lower than last year, thanks to the fact that we continue to reduce our borrowing thanks to the good cash generation. A peculiarity in the quarter, we have positive contribution to income from tax. What happened in the quarter, the income before tax was pretty low due to the restructuring provision, and we have some previous period adjustment that brought the overall tax to positive. If we exclude this, let me say, one-off situation, the underlying tax rate is in line with the guidance we gave in the past that is around 26%. EPS was pretty low in the quarter, SEK 0.14 per share, and this is due to the restructuring provision. Without it, we are in line with the previous year earnings per share. Our cash flow generation continued to be solid over SEK 400 million was the cash flow delivered in the quarter, somehow lower than last year due to lower contribution from working capital and higher CapEx. A few more words than on CapEx. We anticipated an increase of CapEx, it is happening year-to-date, we are close to 2%. But I will say we see more CapEx in absolute terms and in percentage of sales coming in coming quarters this year and next year due to the investment we are doing in product innovation. This said, it is something that we can manage and will not affect materially our capacity to generate cash quarter-on-quarter. Capacity that is supported by a positive development on operating working capital. We are definitely well below last year. We somehow temporary stop the increase -- the decrease, sorry, compared to June. This is a temporary effect due to some stock pile-up, due to production movement, particularly in Laundry. Few last word on our financial position that you see the graphs is strong and continue to be stronger. So we continue to repeat that our net debt-to-EBITDA is reduced now to 1.2x. So solid group with solid performance and with ingredients to continue to profitable growth the journey. And with that, back to you, Alberto. Alberto Zanata: Thank you, Fabio. And as usual, some words about the quarterly events. And I'm very proud to report back or to inform you about the award, the product innovation award that we won. It's not the first time, but this year is important because it is in the U.S., first. And secondly, because we got these awards, thanks to the technology that we have been embedded in the Electrolux product, Electrolux Professional product and presented in the U.S. by technology that we got from TOSEI. So from the Japanese company, we acquired 1.5 years ago, close to 2 years ago now. I think this is an example of how we've been able to leverage the acquisition. The TOSEI business is not performing as we were expecting in particular, on the food area, I would say, and nevertheless -- and it is not because the performance of the company, it’s because of the market conditions that are -- that have been deteriorated during the past 18 months. Nevertheless, we developed the Electrolux Professional version of the Combo machine. Combo machine is peculiar technology where you're combining 1 machine at the washer and dryer cycle, you are probably used to have it home in some situation, in the professional environment it's only used in Japan because of the space constraint that they have there. And the big challenge is to have the 2 cycles in a way that the time is not so long as you probably has experience, if you had been using this machine at home. The technology that we have in Japan is great. It works. And it was a great success also in the U.S. because the reality, space constrained, you have also in a country like U.S., if you think about the big city. So we got the award, is confirming our innovation is -- these are products that now we are marketing also outside the United States. In the synergy plan, it was only supposed to replace the external supplier that we use in the -- in Japan, we did it. It's already done this one. But now we are also marketing this product outside Japan. So great things. Even if it is not here, we are also using the technology of the Adventys, the other company we acquired last year, we are embedding in the cooking lines that we presented last week, and we start selling in January, and we will talk about that next week during the Capital Market Day. With this said, if we have to summarize the quarter, as I said, I believe it's a quarter where we perform while transforming the organization, we performed because we improved our organic sales growing organically. We improved the underlying profitability, the margin and EBITA. It is another step. I consider this one an additional step in our journey towards the financial target that we have is mainly driven by the large businesses, so the Food & Beverage and Laundry in Europe and the food in the United States. We ended the quarter with a positive order intake for Food & Beverage. I would consider positive also the Laundry one, if I look at the number month today. So the order intake is still positive, it's still positive despite the uncertainty that we have to recognize and acknowledge in the market. And exactly to face possible downturn, but not only for that, we launched a program that is in the execution phase to reduce our operating cost. And as I said, clearly, it's giving us the possibility to be leaner, more flexible, agile, ready eventually for situation that we don't see in front of us today, but we could and we should be prepared for. But it's also a program that is giving us the possibility to have a shift in competencies in our organization to invest in resources that will make use of the product that we develop to further accelerate the growth of the sales. It is a quarter also where we have been working hardly and we will talk more about that next week during the Capital Market Day, to prepare for -- to prepare the launches of this product. We had a peak -- we are in the middle of a peak of investment, both in R&D and industrial investments, so tooling factory lines, that obviously, they have to bring the fruits. They have to generate something. And these are the products that we will start selling from January 1, 2026. With this said, back to you, Jacob. Jacob Broberg: Thank you, Alberto. Thank you, Fabio. With that, we open up for questions. Operator, please go ahead. Operator: [Operator Instructions] The first question comes from the line of Hageus Gustav from SEB. Gustav Sandström: This is Gustav Hageus with SEB. Might I start with the comments on the R&D spend into the second half of next year. Could you remind us where you are at, at the moment in terms of R&D to sales? And would you think this business commence or if not, where you've been historically in that relationship to get some sense of what the margin potential uplift could be here going into end of '26? Alberto Zanata: Okay. Gustav. So the average R&D spending on net sales is at 4.5%. I mean average and the underlining average because it is higher, in particular, for what the business area, Food and Laundry are concerned. It is a peak, as I said, because we mentioned this more than once that we are renovating the complete platform of Laundry and the platform of cooking in Europe. We expect that we will continue to spend this level slightly lower probably, also during the first part of next year, starting to bring it back to normal -- we call it a normalized level that is still high for the average of the industry, but it's part of what we do always during the second part of the year and going on into 2027. What's the normalized level? it's roughly 1 point less than what I said. Gustav Sandström: That's helpful. And if I can stay on that with the developments you're doing in the facilities, some with the new product, could you help us a bit understand firstly, if there will be sort of the phasing of the new versus old products, is there going to be a gap here of prebuying, do you think from -- based from experience as you roll out the new platform? And secondly, in terms of margin and the mix from the new products versus the old? And if depreciations will be a factor here going to -- as you roll these new products from the new facilities out to the new lineup, that would be helpful. Alberto Zanata: Okay. So I don't believe that there will be so much prebuying of all product for several reasons. First, the first line coming to market is the cooking line that will come in Q1 next year, so from January on. And it is an important line because it's basically 1/3 of the business in Food Europe. It is the line, the highest margin, so we are relaunching that we are expecting a push of sales clearly for the product that have the best margin in our European product portfolio. It is not only what we call horizontal cooking, so the stoves, but it is in addition to the stoves also relaunch of the Combi Oven with new features, and you know that the Combi Oven are high-margin product and the tabletop cooking. So it's all -- whatever is hot, let me say, in our portfolio. So it's an important part and we are expecting to have an impact all along the year. So to launch it in the beginning of the year is very, very important. And I repeat, these are product -- these are the most profitable product in our European portfolio. They are a replacement, so they are going to replace the product that today have in production. The launch that will happen during the second quarter, that is the first batch of laundry is at 30% of the laundry sales. It's also important, it's partially replacing something that we have in the portfolio today, but it's also giving us the possibility to be much more competitive mainly in Europe again with a small capacity washers. I don't have to say that Laundry is high margin product category. The third line is -- the third product that we will bring during the summer is again in Europe, and it is cooking, and this is a completely new product for new segments. So there are no replacement that will be only added sales in an unsaturated segment of the market. But I think probably I'm talking too much about these things because there will be a lot to say next week during the Capital Market Day. Gustav Sandström: Okay. But -- and could you just remind us sort of what the delta will be from the potential gross margin uplift then from these products versus I guess, more efficient production with the new line versus higher depreciations from whatever you have invested in the new lines. What -- is the delta positive as you see it on operating margins from this? Fabio Zarpellon: Yes. So this -- we expect this product to positively contribute to the margin expansion. Yes, we are going to have additional depreciation due to the investment we are doing on this product. At the same time, this will be compensated by a better other -- lower production cost in other items and better price and mix. So we expect a gross profit expansion and EBITA expansion all included. Gustav Sandström: That's very clear. And if I can continue a little bit on the nitty-gritty with the cash flow. Maybe you can help me sort out the discrepancy between the cash taxes and the reported taxes, both quite big in the quarter and almost SEK 300 million right in year-to-date. It seems like you're paying more taxes than you account for. Will there be a reversal at some stage here? Or is there anything I'm missing? Fabio Zarpellon: Yes. So this is mainly related to the provision for the restructuring. Somehow that has an impact on the tax and with no material yet on the cash flow. So temporary, we have been reducing the cash payment, but this one will come step by step. Gustav Sandström: So you should have a lower tax cash tax in Q4 2016 or how do I read it? Fabio Zarpellon: No, that all the rest equal, the tax rate for quarter 4 onwards is expected to be line with the guidance I gave earlier of the 26%. In the quarter, the tax rate was, let me say, even positive because, as I mentioned, due to the restructuring provision, the income before tax was pretty tiny. So we have a tax cost pretty small in the quarter. And we have a couple of positive previous period adjustment that brought the tax amount to a positive roughly SEK 25 million in the quarter. This was temporary related to the provision for restructuring this previous period adjustment, the tax rate and tax impact going forward is confirmed in line with what I mentioned, the 26% guidance . Gustav Sandström: Okay. And -- but in general, then cash flow into Q4, it seems like last year at least was quite strong. Can you comment on the seasonality that you see this year for the cash flow into Q4? Jacob Broberg: Seasonality. Fabio Zarpellon: Seasonality of cash flow. Yes, if we go through the different quarters, normally, we have relatively quarter 1 and quarter 3 are somehow the ones that compared to EBITDA, they are lower in terms of seasonality, normally stronger in quarter 2 and quarter 4, and we expect also this year quarter 4 to be in that line. Gustav Sandström: Perfect. And then that brings me to my last question, on capital prioritization, 1.2x EBITDA now gearing if I read correctly, target is 2.5. So how do you -- I appreciate that you're looking to buy companies, but it's been some time now. So how do -- would you see that you prioritize between M&A, dividends, buybacks, further investments in organic growth? Alberto Zanata: We are still targeting to buy companies. So we are still targeting to make use of this cash to buy companies. So that is still our priorities. We have been working. I always said that it's hard to predict when it's going to happen. But still, this is a full-time activity, let me say, for some people, some resources in our organization. . Fabio Zarpellon: To be added here, Alberto. If we look at the past, this group since COVID has been able to combine acquisition, investment in product innovation, in organic growth and pay dividend. So let me say, we have the strength in place to be able to act on these 3 dimensions. And somehow, the trend of our net debt on EBITDA development is confirming that we have the ingredients to continue to perform on these 3 important aspects. Jacob Broberg: I think I will take 2 questions from the web. One is from Stefan Stjernholm at Handelsbanken related to TOSEI. If we can give an update on TOSEI sales margin development and synergies. And also you had a question about R&D cost, but I think you answered that before, Alberto. So TOSEI update, please. Alberto Zanata: TOSEI, we have -- we are experiencing 2 different dynamics. In Laundry, the business has been weakening, but it seems to recover a good level with the profitability more or less in line with what it was a different situation in food, the Vacuum business, that due to the fact that the post-COVID a season of large subsidies from the government and now the market stabilized on a lower level. We know and that we clearly see this because Japan is one of the few markets where there are statistic that we didn't lose market share. Remember that we have roughly 50% market share in vacuum and 50% in Laundry. We didn't lose market share. Nevertheless, the market, in particular, on the vacuum side is smaller. So how -- what we are doing and the synergies are jumping in, in this discussion is because, in particular, on the food, let's talk about the food first. We launched the Electrolux produced product in the TOSEI business. It is with the Electrolux Professional brand, but it's going through TOSEI. And I tell you that I experienced personally a couple of weeks ago when I was there, when all the products that are coming from abroad, like, by the way, for our competitor, they are typically tested by the distributor. In our case, we are adding a brand or a brand -- sorry, a mark where is tested by TOSEI that is, in some way, giving trust to the customer that this is exactly the product fitting the request of the market in Japan. So we launched the food preparation, a lot of activities over there with the distributors. And these days, we are also introducing the Combi Oven. So from the business synergies point of view, we are doing the things that we said, yes, it's not super fast, but the Japanese market is progressing much lower than other regions. On the Laundry side, I think I mentioned earlier, when I was commenting the award that we got in the United States, we already replaced the external supplier that we had for the combo machine with a combo machine producing TOSEI and branded Electrolux Professional, we are also selling that product in the Asian market, in other Asian markets under the Electrolux Professional brand. And we also, at least a couple of weeks ago when I was there, I saw the TOSEI dryers that have been produced in the Thai factory and that should be sold in Japan replacing the local production with clearly higher margin and higher performances. From the cost point of view, TOSEI is also part of our program because now we merged the 2 organization. We have 1 office, so we close 1 office. We have only 1 office, 1 legal entity, 1 system, sharing all the showrooms around the country that are many, by the way, in Japan. And so we are starting to see the benefit also from the cost point of view. Jacob Broberg: Then I have 2 more questions related to the efficiency program. One was from [indiscernible] Capital. What was the impact on the gross margin of the SEK 235 million in items affecting comparability. And how much of this amount was below the gross profit line. And then there is another question from Henrik Christiansson, DNB Carnegie. The underlying gross margin, what was that margin. Those were the questions. Fabio. Fabio Zarpellon: So overall, the provision was SEK 235 million, roughly SEK 135 million was included into the gross profit. So the underlying gross profit margin, excluding this provision was in line with last year, meaning the 34.5%, to be said that when we talk about the currency impact, currency transaction impact of 0.5 points, the tariffs impact, these are affecting the gross profit. So the underlying gross profit, excluding these, let me say, items is expanding. It's expanding thanks to what I mentioned earlier, good pricing, reduction of product cost, mainly in the area of material. Yes, we are not yet able in the quarter to compensate fully the tariffs and the currency, but we have put in place action in terms of pricing to be able to do so over time in the coming quarters. Jacob Broberg: Thank you. Operator, please go ahead if there are any other questions from the phone? Operator: [Operator Instructions] The next question comes from the line of Christiansson Henrik from Carnegie. Henrik Christiansson: Yes. So a follow-up on that because I noticed they're on the slides that you said that you've taken action on pricing to offset FX. And I think you said, Fabio, that there was a SEK 60 million negative currency impact year-to-date, and you now said you have announced price increases as well. When do you expect that to go into effect? Alberto Zanata: The price have been already announced, they will take effect January 1 in some -- for some product categories. The last ones will be March 1. It's a matter of timing, seasonality, habits, let me say, in the different region. But during the first 2, 3 months, all the price will be effective, as I said, already announced. And we know that with this one, we will cover the gap that this year we were not able to cover because of the combination of the negative impact of tariffs and currency. Henrik Christiansson: And a follow-up on that. So what is the total gap? So the SEK 60 million negative currency? And then is there tariffs on top? And do you expect to close that fully next year? Fabio Zarpellon: Yes. The tariffs is on top of it and with the action that Alberto mentioned regarding price, we expect in 2026 to compensate both. Henrik Christiansson: And how much is the tariff impact that you haven't been able to close? Fabio Zarpellon: The tariffs, if the order of magnitude, just to give a sort of guidance in the quarter, meaning quarter 3 is in the area of roughly SEK 10 million. So it is negative -- this SEK 10 million is net of the price increase. So this is somehow the net. It is there, not negative effect but not really material when you think that we deliver over SEK 300 million in EBITDA in the quarter. Operator: The next question comes from the line of Johan Eliason from SB1. Johan Eliason: I have just a minor follow-up. You mentioned in Food & Bev that beverage declined in the U.S. How big is beverage of Food & Bev in the U.S. today? And what was the reason for the decline? Alberto Zanata: Okay. I go by memories because half of it -- half of the Food & Beverage business is, I would say, less than 1/3 is beverage and it's 100% imported, majority from Thailand and some from Italy. The frozen from Italy, the cold from Thailand. The reason is that it is the food -- the beverage business because we said the food, we grew while the beverage was declining, is that because it's 100% a chain business. The beverage business in U.S. is chain business. It is a chain business, and as I mentioned, most of the rollout, they've been put on hold. So it is a peculiar situation, the one that we are facing in the United States with the beverage business . Johan Eliason: And is this -- I remember you had this big contract some years ago. Is that one big chain that is sort of behind most of the beverage business in the U.S.? Alberto Zanata: Okay. That was -- but it is already 5 years ago. So I have to say that eventually, I can expect that we are going to replace this product relatively soon. But besides that, now the beverage business, we have -- today, in the beverage business, in particular, the business we're having are many midsized chains. So some hundreds of restaurants, not the -- as it was in that case, the 17,000, 18,000 restaurant chain. So -- but United States is full of regional restaurants -- regional chains with some hundred outlets. So it is still a profitable, healthy business that is -- beginning of the year, it was good, beverage, it was good until the spring, I would say. And then suddenly, everything was on hold. Johan Eliason: And we discussed TOSEI say on how the integration and work on that is ongoing. How would you characterize the Unified Brands business today in the U.S.? Is it where you wanted it to be? Because you had some issues, obviously, in the initial year? Alberto Zanata: Yes. Okay. U.S., we had the record year in the U.S. was 2022. I tell you that this is a year where we will do probably better. So we are improving all the issues that we have been addressing -- have been addressed. We opened several places where we can host reps, dealers, customers. We have our own new place in Mississippi. That is a brand-new one that we opened in March. I think we are doing well, honestly. We are reestablishing the position that we have in this country growing, both the imported and non-imported products, so the locally manufactured, building around some strong brand. So Groen, Randell, Electrolux Professional and Crathco. Crathco is the beverage. These are the 4 pillars of our strategy that is driven by brand and product. So hot for growing technology in Electrolux Professionals, the beverage leading market, leading brand in called Randell, that is the preferred choice for blue chips chains for what the prep tables are concerned. So I would say that now it's clear, the strategy, the way to go. And we have the setup that is able to support these things. We went through some years of difficulty, as you said, but I believe they are behind us right now. Operator: Ladies and gentlemen, there are no more questions. I would like now to turn the conference back over to Jacob Broberg. Please go ahead, sir. Jacob Broberg: Thank you very much for listening in. And hopefully, I will meet all of you next week on our Investor Day here in Stockholm on November 6. Thank you, and goodbye. .
Howard Andrew Digby: Good evening, everyone, and welcome to Elsight's presentation of our financial results for the third quarter of 2025. My name is Howard Digby, a Non-Executive Director at Elsight based here in Australia, and I'll be your host for today's session. Following the presentation by our CEO, Yoav Amitai, we will open the floor for a Q&A session, where Yoav and the leadership team will address your questions. Before we begin, I would like to remind you that today's presentation may include forward-looking statements. These statements are based on our current expectations, assumptions and projections and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a detailed discussion of the risks and uncertainties associated with our business, please refer to the most recent financial reports and disclosures available on our website. Please also note that we undertake no obligation to publicly update any forward-looking statements unless required by law. As we go through the presentation, all figures are in U.S. dollars unless indicated otherwise. And our financial year is the calendar year, and we're discussing what has just been the third quarter. We encourage you to submit your questions at any time during the presentation by clicking on the Q&A button at the bottom of your screen. We will address as many as time permits at the end of the session. Now without further ado, I'll hand it over to our CEO, Yoav Amitai, to begin today's presentation. Over to you, Yoav. Yoav Amitai: Thank you, Howard, and thank you, everyone, for being with us in today's investor presentation. It's another exciting quarter for the company, and I'm really happy to be here and to share with the audience what we have to say and how we see the past performance and more importantly, the future outlook of how we see the business and what is the opportunity we have in front of us. I think it's a super interesting point in time for the company, for our employees, for our shareholders to be part of our journey. And I'm really happy to be here today and to share with you all what we have achieved and what we're looking forward to do in the coming months and quarters that we have ahead of us. Starting at a high level, for those of you who are new to the story, just to take -- very briefly about who is Elsight and what we do. So Elsight is coming from communication background. That's what we have done all of the years. And something like 5 years ago, we focused the business to be solely for uncrewed system, which include aerial vehicle, aka drones, ground vehicles, maritime robotics sometimes and so on. Basically, we're going after the market that moving systems without operator, human operator in the field that needs to have reliable communication. After doing a lot of market research and exploring the different market sectors, we chose this market to be our focus at the moment. And we'll talk about it later, but I think that having our super reliable communication device or solution that can help us go into many other directions, and we'll discuss it later in the presentation. I'll just leave you with that for now. In general, once we chose that we're going after the uncrewed systems, that presented us with a super interesting opportunity started in commercial market, doing a lot there from drone deliveries to inspection to agriculture, health care services, first responders and so on and so forth. Something like 2.5 years ago, we also started to have an increased exposure for the defense market. And today, we're playing in both the defense and the commercial market. And one of the nice thing about our product is it kind of one size fits all. We are using the same device, the same sets of features basically for both ground vehicle and aerial vehicle for both defense market and commercial market. And every feature or every capability that we are developing goes to all different kind of customers that we have, which makes it very, very interesting opportunity for us to continue and develop and to approach 2 different markets, very different markets, but to approach them with the same sets of features and capabilities. Looking on a high level about what we achieved this year, I think we're continuing to show the growth of the revenue and signing more contracts over the last -- over the third quarter, the third calendar quarter, like how I would say -- said. I think it's shown a very strong value proposition or product market fit within the market we're going after and also show how important and how good is our technology on the different use cases that are currently using our systems and our products, and that's what we wanted to achieve. When we were -- wanted to focus the business, it was about that. And now probably it started to be the right time for us to broaden that and to start to look into adjacent direction or parallel direction that will be on top of the very big opportunity that we have ahead of us. One super exciting point that we were happy to announce to the market in the last quarterly a couple of days ago was that the company become profitable. Like we estimated in the second -- in the first half of the year in the previous quarterly, we estimated that we're going to become profitable. And I'm happy to say that this quarter, we moved over the breakeven point into profit and profitable company. I would say as a side note or as a general note that while we are focusing on the top line and continue the growth because of the opportunity we have ahead of us, we're still talking about super high gross margin business that can create high profit margins, and that's a result of the uniqueness of the technology, the strength of the technology and our position against other players in the market that are offering different kind of solutions. That's all behind us in terms of what we already achieved. And looking forward, we'll stretch the pipeline of more than -- or $157 million of pipeline of tangible opportunities, not just addressable market, but actual opportunities that we have different levels of connection with. We'll go -- we'll touch about that during the presentation. Production capacity and our operational capacity in general and how resilient is our production line, that will be another point in the presentation. And speaking a little bit about how we are making it more or more profitable and enhancing the business model or make the business model better as we scale and as we deploy more and more units into the field. But starting with the numbers from beginning, comparing to last years that we had, so you can see that the massive jump or the massive growth that we had in the revenue due to the industry tailwind and due to the execution that we're doing as a company. It also plays into the operation cash flow and where we are positioned in terms of the cash flow of the business and same for the cash receipts from customers. So we are seeing how we are building cash position basically and making this a positive cash flow business and also profitable business, which allows us to do more and to execute better and to press the pedal to the metal being more aggressive in our go-to-marketing and sales and new initiative development that we're doing in different directions. I think another interesting element or trend that we added to the -- to our presentation this quarter is how we are beating the records quarter-over-quarter in the last 3 quarters. The reason we mentioned 3 quarters because those were all-time high quarters in Elsight, and you can see how we are growing that. And looking into the future, we also see how we continue this trend and how we can continue to take those numbers higher on a quarterly basis, which that's connected to the point that I made before about having this -- or being focused on growing the top line of the company while enjoying, let's call it, the bottom line of having high profits and positive cash flow as a business in general. So that was to give you a very wide perspective about where we're at. Now starting to deep dive into why it's happening, why us and why now, starting from the macro picture of what is currently going on in the market. And starting from the defense market, I also stated in our previous presentation, looking on the different trends that we're currently seeing in the market. So what you see here, the chart shows the expense of governments -- the NATO governments on defense over the years. The light blue is what was the actual expense in 2014. The dark blue is what was -- what is the estimated expense or investment, I should say, in 2024. And this red dash line that you see on the top -- that's the NATO country's commitment to increase their defense budgets from 2.2% to 5% until 2032 or 2035 depending on the country. Now there are 2 main trends that we're seeing, and that's not only in NATO country. We see it across the board in many different governments. One is the amount of capital or the amount of the budgets that are currently allocated to defense and the growth of those budgets of governments that are understood that they need to have their own industrial base. They need to have their own supply chain, and they are starting to build these capacities and getting ready for something that might happen in the future or something that is already in the present. The second interesting trend that we're seeing is how much of those budgets are allocated into uncrewed system, which is exactly our market. So that's another interesting trend that -- we're seeing it all over the world. Just to give you an example that I read, it's not even here in the presentation. I just read it after we released the quarterly about Greece. Greece is a country that I personally never have any title about what is their defense investment in general. And just last Sunday, I read that Greece had said that they're going to do 1,000 drones per month in the next couple of years to build their own capacity, and that's Greece. Now that's just an example of something that I literally just read a couple of days ago, and that plays across the board, like I said, seeing what is the position that those kind of systems are taking in the modern warfare, and that's in the defense market. Looking on the commercial market, we also see a lot of advancement happening in the commercial market. And I think the best example of -- since the last quarter presentation is the FAA, the American aviation -- Civil Aviation Agency that released what they call Part 108. Part 108 stands for the new legislation or the new framework, let's call it, for BVLOS, Beyond Visual Line of Sight application or how drone service provider or drone users can now do Beyond Visual Line of Sight application with their drones. And it doesn't matter if we're talking about last middle mile logistics for drone deliveries or inspection, like I said before, or agriculture or drone as a first responder or you name it. It's not fully legislated yet, but there is a framework. And today, unlike a couple of months -- just a couple of months ago, service providers know what are the boxes they need to tick and what is the process they need to follow. And we do expect or the industry in general, not only us, expect that will be a strong catalyst for the market to start and do more and more commercial deployments and more and more commercial application. I would say that over the last quarter, we also saw that a lot of our commercial customers are starting to ramp up their production. It's still not in a high -- multimillion dollars contract. It's in the hundreds of thousands of dollars, but we really see how it's getting there. A good example of it will be Flock Safety company in the U.S. doing drone as a first responder, also called DFR. Basically, what they do, they put in drone and rooftops across cities in the U.S. and providing police services as a service basically for local police department and being able to provide them with real-time situational awareness. They just launched their new drone last week in a big conference, Chief of Police conference in the U.S. And the Halo is a big part of the -- of this new drone of this program of how we can control those drones for long distances and doing BVLOS, Beyond Visual Line of Sight missions. So that should give you -- that just to give you examples from the tailwinds that we are seeing or the trends that we're seeing in the market, both in the commercial and the defense market and what we're doing there. And I think that create kind of a perfect storm for us of having the experience in both markets, having a lot of ad hoc features that are specifically developed for those kind of customers and having the market reach or the brand name within this market to be able to play a very interesting role within this industry next growth stage. And I think we also see it in our own numbers of pipeline opportunities of actual revenues of actual contract -- new contract that has been signed that are not yet being delivered. I think all of these are factual truth basically to show where we're at and how the future will look like. For those of you, again, who are not familiar with what we actually do, so Elsight started, like I said, as a communication solution, providing highly reliable wireless communication solution. And the challenge is with all those systems, whether they are in the air, on the ground or overseas, how a remote operator or a control center can control all those different platforms and assets that are traveling around the globe. And that's basically what we are solving. Now there are a lot of different communication solutions. All of you are probably familiar with them. There are the satellite solutions. There are the radio frequency kind of point-to-point, like the old RC remote control devices that we used to have as children's maybe, some of us at least, private and public cellular networks that are part of the global infrastructure available. Our approach is that these infrastructures are great. None of them provide the ultimate solution of what those systems require in terms of mission continuity and communication resiliency. So on the bottom line, what we are providing is what we call connection confidence. We're not talking with the customers about communication. We're talking with the customers about mission completion because if they lose communication, and it doesn't matter what the mission that those drones and robots need to perform, that will be a game over for many of them. And we are assuring that the mission will be able to complete and rather it's to deliver diapers for someone backyard via drone or to do an inspection for a power line or to do ISR mission or logistics mission in front lines or any other mission. Those are examples of how we enable those platforms to complete their missions basically. And being able to change or we are seeing in many cases, how we changed the whole concept of operation of our customers and how it's completely changed their end users' approach of how they can utilize those systems. So taking on one hand, the market opportunity or the trends that we're seeing in the market, like I just said 2 slides ago, with our strengths and experience and more than 450,000 flight and drive hours of experience that we currently have, taking all of these together with our technology, I think that just showed the perfect storm that we're in the middle of it, and that's self-explanatory for those of you who are reading news and seeing what is the place that those kind of platforms are currently taking in the front stage. And I truly believe based on the reaction, the feedback, the traction that we have coming from customers and prospects, I truly believe that Elsight is in a super interesting spot to take over this opportunity and to become a meaningful player within this environment or within this ecosystem. Talking a little bit about our business model and gross margins. Like I said, we're talking about highly profitable business model. So first of all, just to explain to, again, those of you who are not familiar with our product, we're talking about hardware-software combination. I always said to all people, customers and investors the same that we are -- Elsight is a software company that happens to have hardware. We do have our own hardware. You won't be able to find this hardware manufactured by anyone else. But our core IP, our secret sauce is in the software and not in the hardware, but still we're part of our -- it's still part of our solution. It's a feature. It's not a bank that we have in hardware. And today, we are enjoying the fact that we have it. It's also helped with the stickiness of the product. So the business model works the following. First of all, we have the unit sales, the onetime unit sales that we're selling for a couple of thousands of dollars per unit. So every drone is equipped with either one or more systems depends on the level of redundancy that the customer needs on the drone. Just to give you again a ballpark, on the hardware side, we're today doing around an average of 80% gross margin on our revenue that we are bringing from there. So we have $0.80 from every dollar we're selling remaining as profits basically on the hardware part, which is exceptionally high if you compare it to any other hardware solution. And I think it also shows where we're at in terms of competition and in terms of us being ahead of the game basically. The second element, which is also mandatory inherent part of the solution is what we call the AllSight cloud. So every unit that's being deployed in the field needs to be connected to this AllSight cloud. For government use and it doesn't matter if it's defense and homeland security, those data centers will be on the customers' premises. For commercial use, many of them are utilizing our own survey infrastructure, all of them paying the same fee of between 10% to 20% of every sale is going to the recurrent revenue per annum. So as long as those customers would like to use their systems, their robots, their drones, the whatever they are using, they will have to pay this recurring fee. And again, going to gross margins, you can see that here, we're talking about 82% gross margin. Just to explain why it's as far as my concern, relatively low margin for a software solution or for a software product. The reason being is because we build an infrastructure that can support a lot of units. And as we scale and as we add more and more units, those gross margins are going higher. We started the year on Q1, if you look on the presentation we released that was 51% gross margin. And today, we're in the end of Q3, we're already in 82% gross margin. The reason is because we are deploying more and more system on the same cost base, so the margins are going higher, and that's part of how we leverage our software capabilities and the fact that a lot of our value proposition sits within the software. On top of that, like I said before, we are utilizing all the different networks, the satellite networks, the cellular networks, private and public. And one of the challenges or friction that we have seen with our customers is that it's very hard for many of them to provide the airtime, the SIM cards, the Telstra and Optus SIM cards or the airtime coming from the satellite provider. And today, part of what we're doing, we're also providing a one-stop shop with the airtime, with the SIM cards, with the satellite airtime. And that's kind of a resell model that we're providing a bundled solution, kind of a one invoice, one-stop shop that you had all your communication need in one invoice, and that's the value proposition or that's the user experience of what we wanted to create, and it's playing very well into our revenues -- different revenue stream of what we were having, and that's become a very interesting revenue stream. So overall, if we take the -- not the average, but if we take the number of the gross margin over all these bundles today or in the third quarter, like we put in the quarterly, we have between 78% and 80% gross margin on all these offering together, partially onetime, partially long term. And that's related to what I said before of creating super valuable solution to our customers, solving real pain that they are willing to pay for it and to pay for a premium price. And this is what you see in our gross margin, and that's where we are positioned at the moment. Talking a little bit about pipeline and what we're doing to mature this pipeline. So just a comment that I received after releasing the presentation. For those of you who don't know, in the previous presentation we put out, we had $151 million on the pipeline. And today, we -- or in this presentation, we introduced the market with $157 million. And there is one point that I think is important to notice. First of all, the bottom line here, the order book that we have last -- on the previous quarter, that was $11.5 million, and now it's $10.2 million. But we -- as you all know, we announced in the quarterly that we have done $8.7 million in revenue in the third quarter. It means that not only that we converted part of the pipeline into actual sales, we also add on the top of the funnel or the top of the pipeline, more opportunities. So the difference is not only this $6 million difference, it's also baked into it all the different opportunities that was already converted into actual revenue, and that's how we are accelerating or that's how we are converting pipeline into revenue. I think another important point to mention, and I get that feedback after releasing this presentation is that this pipeline is -- I don't want to say conservative, but I would say that this pipeline represent tangible opportunities of people or companies more accurately that we have connection with. It's not all the news that we see online and we collect them into pipeline. Those are real tangible opportunities that we are seeing how we can mature those in the next 18 to 24 months like we put in the presentation. And that's super important because it's not just wishful thinking, it's more of a tangible opportunities, while the lower end of the pipeline is with existing customers in different stages of relationship, let's call it. And the top of the funnel, the top 2 tiers of the funnel, that represent prospects that we're currently in different stage of the sale process of maturing this pipeline into actual revenue. In the next slide, I will talk about how we accelerate both pipeline growth and pipeline conversion. But the important point that I wanted to present in front of you all is that those numbers we're seeing on a quarterly basis, how those numbers are translated into actual revenue. And there are orders that are not included even in this pipeline, and they are happening. Just to give you an example, in the third quarter, we had 2 or 3 different orders that was in the hundreds of thousands of dollars of revenue that wasn't even in the pipeline, and we didn't announce it in the market just because it's below the noise level for us today. But those orders are keep coming from return customers that are deploying more and more systems into the field. And we are -- based on our design win strategy, we are getting the POs on every new drone that they put -- those customers are putting out to the market. So that just to give you a good picture about our pipeline and how we convert it. Where we are focusing at the moment in terms of sales and marketing efforts. So like I said in my previous presentation, we're seeing the biggest opportunity in the North American, mainly U.S. market and the European market. We are recruiting people in both markets to have boots on the ground in multiple countries in Europe and multiple places in the U.S. to be closer to the industry, to be closer to the end customer with the objective of doing 2 main objectives: one, to grow the top of the funnel, the pipeline basically top line to make sure that we're continuing to bring new -- next new opportunities into this pipeline but equally important, also to help to accelerate this conversion of pipeline opportunities into actual sales and into signed contract. And again, I think that we are seeing the progress happening there in both, by the way, working with -- directly with the government and with different OEMs. The reason we're working directly with the government is because of our go-to-market strategy of being able to speak with the end users to create the demand and at the same time, speaking with the OEMs with the system integrator who will essentially provide a full system to those customers. And this is the go-to-market play of speaking with both ends of the user chain, let's call it, or the supply chain. And by that, accelerating our or the way that the market accepting us or the traction that we're getting from the market. And that's true, by the way, for both commercial and defense market, like I said, seeing all the different opportunities and all the new budgets that are now being prepared to be deployed in the field, this is what we're looking for, and we are expecting to have recruitments before the end of the year like we expected in the previous quarter. We are in a very advanced discussions or process with different candidates to become our representative or business development people on the target market. So that's where we are focusing at the moment in terms of go-to-market strategy and sales and marketing efforts. We are -- right now, as we speak, we are in the high season on conferences since beginning of September until late November before the holidays, we're literally having a almost every year -- every week, sorry, having a conference somewhere around the world, making sure that our name is out there, that people are familiar with us, that people know what is our value proposition. So we will be able to leverage into actual sales in the future -- in the present and as well as in the future. A little bit about supply chains and what we're doing there, starting from the fact that, as I said before, we are a software company that happens to have hardware. And I'm saying it with pride that our hardware is pretty simple to be manufactured. Today, we're using only contract manufacturers. We don't have our own manufacturing facility. And for us to increase the capacity is basically to go to the contract manufacturers and said, we need more, we need more capacity. And what we're doing in parallel to having our 3 different contract manufacturers that we have today, we're also broadening that and open it for more. Again, like we presented to the market in the previous quarters that we are now onboarding a new contract manufacturer that will be good for NATO countries, mainly for diversity and to reduce friction, but it will also result in -- sorry, in a higher capacity to be able to support our long-term plans or our long-term pipeline of opportunity that we will need to deliver them. So we're still expecting to have this new manufacturer that we already have the first engagement with them, and we are considering what will be the right timing to start and actually do manufacturing there. There are a lot of factors into this discussion, but that's basically where we're at in terms of updates versus the previous quarters. Assuming that some of the question will be around IP protection. And since we have here the title about the IP or the patents that we have, I want to touch about that a little bit. Starting with the obvious protection of IP of having patents. So we do have our patents. We still have a long time until those patents will be expired. So it's not anything close. But as far as my concern, patents are great, but they are not a very, very strong protection because of reasons. I think that today, the biggest moat or the deepest moat that Elsight have around our technology is, first of all, having the long experience of, like I said, more than 450,000 flight hours of enhancing our algorithm of collecting a lot of data and learning from this data, what we can do better and how we can enhance the product, which takes a lot of data from the actual deployment to learn the algorithm of how to do their work better. And also looking on how we do a lot of our features or a lot of our value proposition to our customers and basically how we can make the product sticky or as sticky as possible within their operation. And by doing that, that will block some of the competition by having what I call before design win strategy means that we would like the customers to use as many tools as possible or as many features as possible that we put out. So we will be a central part within their operation or within the way they are doing their job basically. So that's how we are protecting our current existing competitive advantage. So besides investment in sales and marketing and operation and being able to deliver in full on time with a super resilient supply chain, we are also looking forward and seeing how else we can expand our revenue, not only by providing -- by bringing in new customers or going into new regions or new sectors. We're also looking about how we are broadening our product portfolio and increasing our product reach to the same customer base or to a new customer base. A great example for that is a feature that we started to deploy with first Alpha customers over the last quarter of our patent-pending technology for positioning and navigation around non-GNSS solutions. For those of you who don't know, GNSS stands for Global Navigation Satellite System, which basically is what we know as many of us know as GPS. And today, that's as big as a problem or as a challenge like the communication solution that we feel that we have a superior solution there. We do think that with our capabilities and with our products, we can provide a very, very good and interesting solution for this non-GNSS challenge. And like I said, today, we started to have first deployment with Alpha customers just to get feedback to understand what we need to do different, what is the best -- what is the value proposition, what is the right pricing for this product. And we do expect to have sales from these products, specifically, again, as an example, during calendar year '26, and that will be another catalyst for our revenue and another product we will have around our portfolio, where we are going to our existing customers or to net new customers to convince them that that's the right path to go. So that's just an example of how we are developing our product portfolio horizontally and not very vertically to be able to offer more solution basically to our existing customer base and by that, increase the revenue per unit or the revenue per customer of what we're offering today and having a more full solution that we want to position ourselves as the tech stack provider for unmanned or uncrewed systems. And again, it doesn't matter if we're talking about on the ground, in the air or overseas. In addition to that, that's also another new initiative that I mentioned already in our previous presentation. We started to recruit the first people to this new business unit and it's still in stealth mode. I'm sorry in advance that I assume that in the next quarter, it also will remain in stealth mode just because we highly believe that we will have a very strong first-mover advantage in this market. We already recruit the head of this new business unit, Roie Gross, who joined us a month ago and start to promote this business. We're now working with the engineering team to start and build and shape and design the actual product on the technical level while we are approaching customers. We want to get as fast as possible in front of customers or design partners to be able, same as I said, in the positioning solution to start and get feedback from the real customers and understanding or sensing the willingness to pay and so on. But this is going to go after $20 billion total addressable market, which is super mature market that have different solutions today. And we believe that we can come with a new solution that will, in many ways, will disrupt this market. Just about setting expectation, I don't think that in 2026 calendar year, this product will generate millions of dollars of revenue, but I definitely expect that to start and be presented and being used by customers with the plan of starting having material sales in '27 and beyond. And I believe that if we will execute correctly, this new business unit, we will be able to -- or this business unit will might become bigger than the whole Elsight business today, and that's super promising. It's still in hypothesis, let's call it, that we need to prove to ourselves that we have the right assumptions and we can follow them. But I think we were able to prove to the market that we know how to execute, and that's another initiative that we have to execute on and to see how we take it to the market and how we get market traction and market to support us while we are building this new initiative that will generate revenue in the future. So taking the full picture or looking forward, like I said in the beginning, I think that we are currently in a super interesting point in time of having the perfect storm around us, having all the capital that we have that we need to accelerate our growth and to make sure that we can execute our plans to make sure that we keep our gross margin based on where we are in terms of other competitors or alternatives that are available in the market, seeing the opportunity that we have in front of us, both in commercial market and defense market, also looking into other kind of markets that we're currently exploring and looking to. I think that I'm saying it for many years now, but I truly think that today being part of the Elsight story is being part of a success is being part of pioneers that are pushing together this industry forward. And the opportunity is just huge. I truly believe that the opportunity in front of us is much bigger than what we had in the past. With that, I will hand it over back to Howard, and we'll open the floor for any questions you might have. Howard Andrew Digby: Thank you, Yoav. [Operator Instructions]. Yoav, if I might start, we've had a lot of questions asking what are your competitors? Yoav Amitai: So like I said during the presentation, our competitors, we're looking on many of them not as direct competitors, but as, I'll call it, alternatives or providers that provide different kind of solutions that are sometimes complementary to ours. I think that if we will look on the point-to-point radio frequency, point-to-point RF solution or on the satellite solution, on the cellular solution, that might be considered as a competitor, but I don't think that if you will ask those companies and looking at it from our perspective, we also don't see them as a competition. I would say that today, our bigger challenge than competition is market education and making sure that we are educating the market basically with how solution like ours can disrupt or can change the old concept of operation. So while all of these different kind of technologies are alternatives because in the end of the day, the system engineer or the software -- the system people that needs to build the system, if they have to choose between different alternatives. So that's kind of -- this is kind of competition. But it's not a direct competition in the means that today, we're not aware for someone who have TRL 9. It means production level technology like ours that offer the same value that offer the same capabilities. And today, like I said, we're not aware of anyone or any company that offer it in the market. We do see some companies starting to talk about it in their marketing material, which for me, it's a good sign. It means that the education or the needs in the market is growing. And I will also mention or add that some of those new companies that are talking about those kind of solutions are talking with us to be their engine under the hood. So in terms of competition, we are feeling very comfortable, and we have a long -- we're ahead of the game in terms of where we're at and where the maturity of technology is, and we're feeling very comfortable in this position. Howard Andrew Digby: Another question I have -- you kind of answered this in terms of the margins and the business model, but the question is simply what is the unit pricing? Yoav Amitai: So for obvious reasons, I'm not going to get to specific pricing. I'll talk more broadly. But as I said, we have 3 main revenue streams from the units we're selling. Two of them are mandatory part of the product and another one is kind of a complementary or offering that we're offering to our customers. On the hardware level, just to remind you, I said -- as I said during the presentation, that today, we have their 82% gross margin. Just to give you a ballpark or order of magnitude of the dollar amounts that we're receiving, we're talking about thousands of dollars per unit U.S. dollars per device. Then each one of those devices will have to pay the subscription fee for the software part, which is usually around 10% to 20% of the hardware cost. And again, not getting into specific numbers, just because of competition, because of market dynamics. But on these customers will pay hundreds of dollars per annum for the subscription fee. And that's, like I said, as long as they are using their platform. The third element, which is the data, the airtime, like I said, the cellular networks, the Optus and the Telstra of the world, this is -- there is a big range there because those prices is dependent on the use case and the consumption of data of our customers. So it's very hard to say this is the revenue that is coming -- well, we know it very well, but it's very hard to put it into a model and to say this is the portion of revenue that will come from data because there is a big variance there. But that's basically how the pricing model works. Again, without getting into the specific numbers, but I hope it gives you a good picture of the business model and of the unit economics. Howard Andrew Digby: We had a few questions about our market focus about foreign governments, although everyone is a foreign government. But also about European and U.S. governments. And also, do we expect further repeat orders from European drone defense? And there's a sort of similar related question about do we expect any announcements before Christmas? Yoav Amitai: So starting from the first part of your question about additional geographies, let's call it, that we're working. Like I said during the presentation, and that's what we have said for the last 1.5 quarters, let's call it, that our current focus is mainly Europe and the U.S. We think and we see actual deployments of budgets in those regions, and we believe that this is where we have the biggest opportunity in terms of access to the market and also in terms of the value proposition of what we're providing. In both markets, we're currently -- like I said, we're in the final stages of recruitment people to have boots on the ground to accelerate both top line of the pipeline, to bring net new opportunities into our pipeline and also to help with accelerate the conversion of this pipeline into actual revenues. So that's the effort that we're currently doing in the sales and marketing. We are currently -- or the end of the third quarter, it's always the conference season. Since beginning of September until mid-November pretty much, we are literally on a weekly basis on industry conferences and government conferences, doing a lot of progress with those pipeline and with these opportunities and bringing people that will be boots on the ground on those areas will accelerate those processes. And we're doing a lot not only with having people, but also having the infrastructure that will help us kind of localize our production, localize our go-to-market and everything. And that will reduce a lot of the friction that we might have in the sales. Going to the second part of the question about additional contracts and continuity of those programs. The answer is yes. We're definitely expecting to have more of those existing customers coming from them. They are part of the pipeline as well. And the last point about having more updates before Christmas, that also will be, yes, we do expect to have more news coming to the market before Christmas. Howard Andrew Digby: We had some questions about the analysis from Bell's, the announcement. I mean partly a comment but also a question maybe for Bell's, but please feel free to comment. Bell's recent coverage on ELS is, in my view, a disappointing report. Figures are wrong, and they use a materially different times earnings ratio than they do for DRO and EOS. What was the analyst rationale -- that was the direct question, although you want to comment on that? Yoav Amitai: Yes, that's probably a good question to ask the analysts directly. Like you know, it's not something that we're affecting. They're taking the numbers. We're just proving the facts and making sure that they are following. There were some misalignment, I will call it, or some places that was currency mistakes, but those were fixed on the update that they released on Monday morning after we put out the quarterly, at least part of them. And about the way they're modeling and the way -- why they're doing those multiples for this company and why for that company, that's a question for Bell's analysts -- Bells and Potter analysts. That will be hard for me to answer those. Howard Andrew Digby: A related question, given that we're so cash flow positive, why do you feel necessary to raise so much to Bells, not a very sticky raise and post rise support limited? Yoav Amitai: So I'll talk in general about our cash position and why we build it and what is our plan to do with that. We all need to understand that Elsight, once we're starting to go to the big programs and once we're starting to get above the noise level, we've also been looked more on the bigger programs, and those programs required to show strength of balance sheet and to be able to show that we are here and we're here to stay and we're not fragile. So that's one. In addition to that, I mentioned a couple of initiatives that we're doing over the presentation from expanding our sales and marketing efforts in specific regions and target markets. R&D development that we're doing to come with new products and new capabilities. And also another point that I have not mentioned during the presentation. But today, we're also looking not only on organic growth, but also on inorganic growth opportunities. This market, the defense tech or in general, this unmanned market is super fragmented market, and we're seeing a lot of consolidation happening in this market. And from the very close relationship or very long-term relationship that we have with this industry, we believe that we can find the right companies or the right solutions or the right offering that are in the market and struggling to succeed and leverage our market reach and our market access and the customer base that we have built over the year we will be able to leverage those interesting technologies into better companies basically. That's one. The second point of why we would do those kinds of transactions, and we're not looking about very big transaction. Obviously, we're looking on small companies that will provide us this technology -- technical edge or will provide us with access to market that we currently don't have access to, and we would like to accelerate those processes. So we are both sourcing and looking for companies having a strategy in place of what we're looking for, looking for the best candidates. And obviously, we'll do it only when we will feel that, that's the right company and that's the right time, but it's part of what we do. So that's why we build this position, this cash position. It's true that we are cash flow positive. We have big plans. We're playing in the big -- in the Premier League basically today, and we need to make sure that we have what we need to succeed. Today, I definitely think we're there. And I think we also show it in our numbers during this presentation and the progress work that we're doing. So that's about that. Howard Andrew Digby: I'm getting some questions again about the product, but just before that, a couple of questions about the corporate side of things. Two questions about listing in other markets. One is -- I'll give you them both because it's a complete answer, I think. Have you considered a dual listing in Europe alongside DRO and EOS? And the other question is, any plans to list on the NASDAQ? I appreciate it's costly, but our valuation would increase threefold based on comparisons. -- which is, I guess, an opinion expressed alongside that question. Yoav Amitai: Yes. I would say -- I will comment this way. First of all, I would say that we are considering alternatives to be exposed to foreign investors, both in Europe and in the U.S. because of the place or where the defense tech thematic is taking today in global markets in general. So we do look for the right way to have this exposure. being listed in NASDAQ or doing some kind of this approach, not as -- I mean, some of those companies that was mentioned have OTC kind of interfaces and other that are lighter, not in terms of how much it will cost, in terms of management attention. And I think that's the main point. Today, Elsight, and it wasn't clear during the presentation, it's super important to mention it now. Elsight today is standing in front of massive opportunity. And today, for us to do moves that will distract the management focus from execute and deliver on those opportunities will be short-term mistake or long-term mistake, sorry, to get short-term benefits. And I think, again, connecting to the point that I made before, we are -- like I said, we are considering all those alternatives, and we will do it when the time will be right or if the decision will be correct. Right now, we feel that the focus should be on executing and unlock more sales and more growth. And as a result of it, we will get to every place we want to get to. But that's the best comment I can give for that. In parallel to this, like I said, we are considering all the different alternatives to create exposure to these markets. Howard Andrew Digby: Another question coming to some corporate question -- some technology questions, perhaps here from new investors, it's good to go over this with everybody. What is the problem -- fundamental question. What is the problem that you are solving that others can't solve? Yoav Amitai: So on the technology level, I touched upon that a little bit when I spoke about the competition. In general, what Elsight approach is, is that there are a lot of great infrastructures in the world, there are a lot of different communication technologies. None of them are ultimate. And what we are providing we are providing kind of a logic abstract layer on top of all those physical layers on top of all those radio levels to be able to communicate in the best redundant, robust way. And we see the actual results in the field, in actual front lines, in actual industry test, in actual DoD test that we're going through. We are seeing how literally a lot of jaws are dropped because of seeing the performance that we are bringing with our solution. And that's, I think, what is special about that. And in terms of the protection or the IP protection, again, I touched it in the presentation, but I think that with all the experience we have accumulated and all the development that we have done, not only on the communication layer, but everything that is around this communication layer, I think it creates a very, very big competitive advantage. In general, I would say that big companies, if someone will ask why company like Lockheed Martin or Anduril or those companies will not get into your market and kick you out. I would -- my comment will be that, first of all, we have this moat around the technology, what I just mentioned. And also, I would say that those companies are usually buying the innovation and not creating the innovation internally. So that will be my comment on that and why we feel confident that we are ahead of the game, like I said. Howard Andrew Digby: I've got a question about another technology question. How does your product hold up against CUAS solutions? For everybody, that means counter drone -- effectively Counter-Drone solutions. Yoav Amitai: Yes, counter UAS. UAS stands for Unmanned Aerial System and counter UAS. So there are different type of counter UAS systems. There are the kinetics one or the laser one that just take the whole drone down. There is not much we can do about that. They just burn the old drone or they just literally shoot it down. There is nothing that the communication or any other tech stack technology can do. They just need to be in stealth as much as possible and not being detected by those systems. That's what we can provide with this challenge. But the other type of solution that are more of EW solution, electronic warfare type of solutions, in this case, that's exactly what we're doing. We're showing time and time again how we can overcome it by creating basically 3 dimension of communication, which is both doing frequencies hoping based on radio that are connected to us, but also going between different technologies, and this is how we overcome those systems. And again, I think we are proving it on -- in many cases, today, we have a lot of case studies showing how we overcome a lot of those EW challenges. And I think that's very much a very strong value proposition that we are offering to our partners and customers. Howard Andrew Digby: Someone has just asked a question, just popped up just to dive deeply into one part of that, and you may want to put some context here is that you mentioned the kinetic and laser type of solution. But isn't it a risk for you guys if the laser counter drone tech proliferates and grows? Yoav Amitai: If it's what, sorry? Howard Andrew Digby: Isn't it a risk for you if these laser counter drone tech proliferates and grows? Yoav Amitai: I don't think it's a risk for Elsight per se and knowing how those systems are being deployed, they are deployed to protect specific locations. And again, they need another system to detect those drones to know that they are coming. I don't think we'll see a day that we will have around every city in the Western world or the Eastern world or any world, we'll see laser all over the place and counter drone measure. It's just -- it's a huge CapEx investment that I don't see any government is doing it and looking at the market and what are the dynamics in the market. So I don't think it's -- let's say that I'm not seeing it as this risk in our line of sight as a company. Howard Andrew Digby: Corporate question. Given our growth trajectory, congratulations. Are there any plans to further strengthen the Board? Yoav Amitai: Straight answer is that we currently don't have specific plans around that. But we're constantly thinking what else we can do to strengthen the company in general. That include the Board as well. Howard Andrew Digby: And a question here, will there be -- it's probably got time for 1 or 2 more questions. Will there be dividends? Yoav Amitai: I think it's -- I think this question coming too early. But looking forward, and I think Elsight has proven this year, and I think we'll be able to proven in the years to come how profitable is this business. I'm not talking about gross margin. I'm talking about actual net earnings. And as a result of it, obviously, when the right time will come, we'll do that as well. I think that today, again, going back to the point that I said before, for us needing to show the strength of our balance sheet and take over the opportunity that we have in front of us, I think this is where we should focus. When the right time will come, we will definite it will definitely be part of our discussion. But that's -- Howard, maybe you want to add to that question as one of the boards. Howard Andrew Digby: Yes. Again, I would just endorse what Yoav says and something that we can communicate and update on as the capital needs of the business required. But clearly, it says that we see the opportunity to invest in our business as the biggest opportunity at the moment. Now I've got the last question here. [Operator Instructions]. But the last question here, does what Yoav is saying mean that Elsight system makes drones using their platform more resistant to EW counter drone devices. So just drilling in further, like, for example, Drone Shield, I think they're specifically asking about these kind of solutions. If you haven't answered it already, you may want to add a few more comments on that. Yoav Amitai: Yes. Without commenting on specific company's systems, the short answer is yes. The long answer is, again, I stretch different kind of counter UAS systems where Elsight solutions will be able to help in other places that Elsight solution or it's not relevant. They just take down the entire system. So there's not much we can do on software or hardware layers. But I mean, like I said, that's a big part of why we're winning contract today because we can show our resiliency for those -- some of those counter drones EW, Counter-Drone solutions, yes. Howard Andrew Digby: Okay. So thank you, everybody, for your questions. Thank you, Yoav. Thank you for joining us today and your continued interest in Elsight. Thank you to people who are new investors and are looking at following our story. We appreciate your time and thoughtful engagement. As you've seen, we're making strong progress in building a leading position in the rapidly growing uncrewed connectivity market. And we're excited about the opportunities ahead. We remain focused on executing our strategy, expanding our customer base and delivering sustainable profitable growth. In the last quarter, you've seen us demonstrate and consolidate a business that's highly cash accretive. It's capital light, but with the opportunity to deploy resources and capital for continued accelerating and even, as you heard Yoav said, step change growth in the future. If you -- as I say, if you have additional questions, please follow up through our Investor Relations contact. So on behalf of the Board and the entire Elsight team, thank you again for your support, and we look forward to updating you on our continued progress in the months ahead. Have a great evening. Yoav Amitai: Thank you, everyone.
Operator: Good afternoon, everyone, and welcome to the Enphase Energy's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Zach Freedman. Sir, please go ahead. Zachary Freedman: Good afternoon, and thank you for joining us on today's conference call to discuss Enphase Energy's third quarter 2025 results. On today's call are Badri Kothandaraman, our President and Chief Executive Officer; Mandy Yang, our Chief Financial Officer; and Raghu Belur, our Chief Products Officer. After the market closed today, Enphase issued a press release announcing the results of its third quarter ended September 30, 2025. During this conference call, Enphase management will make forward-looking statements, including, but not limited to, statements related to our expected future financial performance, market trends, the capabilities of our technology and products and the benefits to homeowners and installers, our operations including manufacturing, customer service and supply and demand, anticipated growth in existing and new markets, including the TPO market, the timing of new product introductions and enhancements to existing products and regulatory tax, tariff and supply chain matters. These forward-looking statements involve significant risks and uncertainties, and our actual results and the timing of events could differ materially from these expectations. For a more complete discussion of the risks and uncertainties, please see our most recent Form 10-K and 10-Qs filed with the SEC. We caution you not to place any undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations. Also, please note that financial measures used on this call are expressed on a non-GAAP basis unless otherwise noted and adjusted to exclude certain charges. We have provided a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release furnished with the SEC on Form 8-K, which can also be found in the Investor Relations section of our website. Now I'd like to introduce Badri Kothandaraman, our President and Chief Executive Officer. Badri? Badrinarayanan Kothandaraman: Good afternoon, and thanks for joining us today to discuss our third quarter 2025 financial results. We had a good quarter. We reported quarterly revenue of $410.4 million, our highest revenue level in 2 years. We shipped 1.77 million microinverters and a record 195 megawatt hours of batteries. We generated free cash flow of $5.9 million. Our Q3 revenue also included $70.9 million of safe harbor revenue. As we exited Q3, our microinverter channel inventory returned to normal, while our battery channel inventory was slightly elevated due to sell-in of our new fourth-generation battery. For the third quarter, we delivered 49% gross margin, above the higher end of our guidance range, 19% operating expense and 30% operating income, all as a percentage of revenue on a non-GAAP basis and including the net IRA benefit. Mandy will go into our financials later in the call. Our customer service NPS was 77% in Q3 compared to 79% in Q2. The average call wait time was 2 minutes. To further enhance the customer experience, we are preparing to launch our AI-powered assistant in the Enphase app, which will help customers find answers quickly, troubleshoot issues and manage their systems more intuitively. Our data engineering team continues to strengthen the intelligence behind our support systems, leveraging analytics and machine learning to identify common issues, predict service needs and reduce response time across all regions. Let's cover operations. In Q3, we shipped approximately 1.53 million microinverters from our U.S. facilities, booking 45X production tax credits. Our domestically made microinverters help residential lease PPA providers and commercial asset owners to qualify for the 10% domestic content ITC adder. We grew our U.S. battery production in Q3, shipping 67.5 megawatt hours compared to 46.9 megawatt hours in Q2. We are now building our fourth-generation battery, the IQ Battery 10C in the U.S. using domestically made microinverters, domestically made thermal and battery management systems as well as packaging, while only sourcing cell packs from China. These batteries have greater than 45% domestic content and help our lease PPA customers qualify for ITC bonuses. We remain on track to source non-China cell packs by the end of this year, scaling into battery builds in the first half of '26. Therefore, we expect limited exposure to the recent China-related tariffs as our supply chain transitions away from China. In summary, our U.S.-made microinverters and batteries can help customers qualify for domestic content ITC bonuses as well as meet [ FEOC ] compliance even as the criteria becomes increasingly stringent each year, a big differentiator for Enphase. Let's now cover the regions. Our U.S. and international revenue mix for Q3 was 85% and 15%, respectively. In the U.S., our revenue increased 29% in Q3 compared to Q2, primarily due to increased demand as well as higher safe harbor revenue of $70.9 million compared to $40.4 million in Q2. The overall sell-through of our products was up 9% in Q3 as compared to Q2. In Europe, our revenue decreased by 38% in Q3 compared to Q2, while overall sell-through decreased by 27%. Europe negatively impacted our Q3 revenue by approximately $25 million compared to Q2, a larger sequential decline than expected. The overall business environment across the region is still challenging, but we are maintaining our discipline on the channel as well as targeting specific growth areas that could drive higher 2026 revenue. I will now provide some color on key markets in Europe. In Netherlands, the solar demand remained soft in Q3. We are making steady progress towards the sizable battery retrofit opportunity we see in 2026 and beyond. Rising solar export penalties and the planned sunset of net metering at the end of 2026 are creating a compelling use case for storage. With an Enphase installed base of about 475,000 residential solar systems in Netherlands, we estimate a $2 billion total opportunity for batteries. We recently announced a collaboration with Essent, one of Netherlands' largest residential energy providers or REPs, enabling customers to add IQ Batteries and participate in Essent's smart steering VPP program. This program is designed to boost self-consumption and lower utility bills. Through the smart steering, participating customers may receive fixed monthly compensation of up to EUR 122 depending on the battery size. Essent intelligently controls charging and discharging to optimize value for the home and the grid, supporting a more reliable energy system. Building on this momentum, we are advancing additional partnerships and expect battery sales in Netherlands to be a growth driver in 2026 and beyond. In France, the residential demand remained muted in Q3. Many households waited for the October 1 VAT cut of 5.5% for sub-9 kilowatts, but its limited scope and dependence on low-carbon panels reduce the impact. Meanwhile, 2025 policy changes have extended payback period, creating a tougher market for installers. We are focusing on self-consumption where low export incentives strengthen the value proposition for solar plus battery solutions. In Germany, the residential market remained weak in Q3. Lower export value and stop-start incentives have kept many households on the sidelines, softening demand for both solar and batteries. Even though our performance was relatively stable, supported by our partnership with leading installers and the strong uptake of the FlexPhase battery, which provides both self-consumption as well as 3-phase backup. In the U.K., residential solar and storage adoption is stable, driven by time-of-use tariffs, low export rates and a growing focus on resilience and self-consumption. We are deepening ties with REPs and supporting them with a robust API platform. In Q3, we also added backup capability for our batteries in U.K., which was long overdue and further expanded our resilience offering. In Australia, the residential storage demand is accelerating following the July 2025 battery rebate program with installers bundling PV and batteries and the average battery sizes increasing as low export rates for self-consumption. Distribution operators are rolling out dynamic export limits and interoperability standards favoring systems with fast controls and 3-phase backup. Against this backdrop, we launched the FlexPhase battery in Q3, delivering 3-phase backup as well as flexible power to meet evolving DSO requirements. We also launched IQ8P high-power microinverters for higher power modules as well as our newest IQ EV chargers, strengthening our position in the strategic market. Let's discuss our outlook for Q4. We are seeing a further ramp in the U.S. demand in Q4, primarily due to homeowners moving to capture the expiring 25D tax credit before the end of this year. In the first 3 weeks of October, our U.S. sell-through was up over 20% compared to the Q3 average. We anticipate this elevated activity will continue for much of Q4. We also anticipate that our overall sell-through for the company to be between $350 million to $400 million in Q4. However, our revenue guidance is in the range of $310 million to $350 million. And for IQ Batteries, we expect to ship between 140 and 160 megawatt hours. There are 2 reasons contributing to this lower revenue guidance. First, we had $70.9 million of safe harbor revenue pulled in from Q4 to Q3 as customers wanted the product before the U.S. Treasury guidance in Q3. And second, we are reducing shipments of product to the channel in order to destock the channel as we head into 2026. This positions us to enter 2026 with a healthy channel, setting us up for a clean Q1 and beyond. Currently, we are approximately 75% booked to the midpoint of our Q4 revenue guidance. Safe harbor opportunities are not yet included in our Q4 guidance, but similar to Q3, they present upside opportunity. We are working closely with several TPO partners on safe harbor planning and are well positioned to support both methods of safe harbor, the 5% method as well as the physical work test method based on each partner's preference. Let's look ahead to 2026. While we don't typically guide beyond the next quarter, we are sharing our preliminary views to frame expectations. For Q1 '26, we anticipate a larger-than-normal seasonal decline following the expiration of 25D tax credit and estimate a company revenue of $250 million. We view Q1 as the cycle trough with conditions improving through the rest of the year. While we constructive on the balance of the year, there are 3 external drivers that could support recovery. First, the U.S. power prices are rising about 5% this winter with additional increases expected in 2026. Second, interest rates are declining, easing affordability. Third, new and attractive financing solutions are entering the market to help offset the loss of 25D. Taken together, these drivers could enable a second half of 2026 rebound and set the stage for growth. In addition, we see several Enphase specific revenue drivers that are expected to fuel growth through 2026. Our fourth-generation battery, the IQ Battery 10C is positioned to capture share through lower installation costs for backup. We are now entering the 480-volt commercial solar market with our IQ9 and GaN microinverter, which we expect to ship this December and ramp in 2026. We are also leveraging strategic partnerships to capture the battery retrofit opportunity in Netherlands. Our newest IQ EV chargers and upcoming IQ bidirectional EV chargers are poised to expand our market and our fifth-generation battery system paired with IQ9 residential microinverters will drive a step change reduction in system cost in both the U.S. and Europe. While there is uncertainty around 2026, we remain confident in our ability to execute and deliver growth across these vectors. Now let's talk about financing. The industry is moving towards the TPO model in 2026. Enphase supports all the major TPOs today. We are further strengthening these relationships through safe harbor and tax equity support, providing domestic content as well as [ FEOC ] compliant products offering O&M services, Solargraf integration and helping to implement innovative financing solutions. Looking ahead, we see a strong trend developing in the market towards prepaid lease offerings, which can provide homeowners with the option of ownership after 5 years. In this model, the TPO captures the 48E tax credit and in turn, offers the homeowner an attractive lease prepayment or a lower monthly payment when paired with the loan. This structure makes the economics similar to today's solar loan economics with the 30% 25D tax credit. Furthermore, financing providers like the Enphase system value proposition, which includes not only the Enphase equipment but support for operations and maintenance as well as Solargraf integration to offer an overall attractive package to consumers. We believe the TPO market is poised to growth in '26 and see multiple ways for Enphase to support the growth. Let's talk about products, starting with IQ Batteries. In August, we began shipping our IQ Battery 10C supplied by our manufacturing facilities in the U.S., delivering domestic content, which is significant value in the growing TPO market. As a reminder, we introduced our fourth-generation battery towards the end of June. The fourth-generation battery stands out for its smaller footprint, enhanced features, easy installation and reliability. It delivers 30% more energy density, occupies 62% lesser wall space and reduces installation cost of backup compared to our prior products. In addition, our fourth-generation battery system also includes the IQ Meter Collar, which simplifies backup and IQ Combiner 6C, which seamlessly integrates solar, batteries, EV chargers and load control. The IQ Meter Collar is now approved by 39 U.S. utilities, and that list is growing every week. We are making strong progress in building partnership with REPs as well as VPP operators around the world that are looking for flexible distributed energy capacity. Homeowners can receive attractive compensation for installing Enphase batteries as part of these program. In addition to the Essent program I mentioned earlier, we signed multiple new contracts with the utilities, including one recently with San Diego Community Power. With advanced APIs, our batteries seamlessly integrate into VPPs in regulated markets like the U.S. and participate in wholesale energy markets in deregulated regions such as Europe and Australia. We are actively engaged currently in over 53 VPP programs worldwide, and this is growing at a strong pace. Let's talk about microinverters. In September, we opened U.S. preorders for the IQ9N Commercial Microinverter, our first microinverter powered by Gallium Nitride or GaN. We expect to begin shipping the product in December, as I said earlier, we believe IQ9 marks a major leap in performance and platform flexibility and most importantly, unlocks a 2-gigawatt market opportunity by enabling us to service 480-volt 3-phase commercial systems in the U.S.A. for the first time. This represents an approximately $400 million total addressable market for Enphase, which we believe will help drive additional revenue in 2026 and beyond. IQ9 microinverters are expected to meet [ FEOC ] compliance as well as domestic content right off the bat, offering a powerful and reliable alternative in a market still dominated by Chinese equipment. Why does GaN matters? GaN replaces legacy silicon power devices to deliver faster switching, better thermal performance and higher reliability. We have invested over 5 years in the semiconductor technology, and this rollout sets a new trajectory for cost and performance across our next-generation microinverters, batteries, bidirectional EV chargers and more. Let's talk about EV charging. We are now shipping our latest and greatest IQ EV charger 2 across 18 European countries as well as Australia and New Zealand. The charger supports up to 22 kilowatts 3-phase charging and works as a stand-alone unit or fully integrated with Enphase Solar and batteries. We have opened U.S. preorders and expect Q4 shipments into the U.S. with further expansion planned in additional European markets and India. Let me share an update of our IQ bidirectional EV charger expected to launch in mid-2026. We showcased this 11-kilowatt solution powered by 3 high-performance GaN-based microinverters of 3.84 kilowatts each at the recent RE+ trade show. The IQ BiDi EV charger only needs to be paired with the IQ Meter Collar for a simple, powerful configuration that enables home backup and grid services. Together, these 2 components offer one of the lowest cost and simplest ways to provide whole home backup even without rooftop solar or home batteries. Homeowners can just start with this configuration and expand over time by adding Enphase solar and batteries to build a full energy system. Let's now switch to Solargraf, our all-in-one platform purpose-built for installers. We have been rolling out major enhancements, including seamless integration with TPO partners, an Express Editor that allows installers to quickly adjust proposals on the spot, a powerful custom tariff builder, advanced installer management tools and a simplified AI-driven design experience. We believe these updates make it easier for installers to service more homeowners at the kitchen table with greater flexibility, speed and financial transparency. We plan to expand the Solargraf platform into additional markets and countries and introduce new features to support productivity, sales velocity and customization for solar installers. Let me conclude. There is a significant change occurring in our markets. The loss of the 25D tax credit is a near-term headwind that will impact our results in early 2026. But we believe there is also tremendous positive change that is bolstering the long-term outlook for our business. We are entering an interest rate reduction cycle, which historically has been the catalyst for residential solar sector. Power price outlooks are surging on the back of AI power demand as well as overall electrification growth. Utilities are struggling to keep up with this demand, creating bottlenecks and price inflation across the grid that are poised to accelerate. We provide homeowners and commercial businesses with an easy off-ramp from this price inflation with a solution that can be interconnected in 90 days. The U.S. residential and commercial rooftop solar industry brings on nearly 2 gigawatts of new power interconnected to the grid every quarter with the 48E tax credit expanding to more customers in 2026 through innovative financing solutions like the prepaid leases, we see an attractive value proposition for solar driving recovery in the second half of 2026 and beyond. We are laser-focused on the revenue drivers we can control, growing battery sales with our fourth-generation battery, expanding into the 480-volt commercial market with GaN microinverters, capitalizing on battery retrofits to our solar installed base in Netherlands, ramping our [indiscernible] EV chargers now and the BiDi EV chargers, which will launch later in 2026. And last, launching our fifth-generation residential batteries along with IQ9 residential microinverters to reduce system costs significantly for residential solar for both U.S. as well as Europe. As always, we remain focused on operational excellence, product reliability and quality and customer service, delivering best-in-class solutions for our long-term growth markets. With that, I will turn the call over to Mandy for her review of our financial results. Mandy? Mandy Yang: Thanks, Badri, and good afternoon, everyone. I will provide more details related to our third quarter of 2025 financial results as well as our business outlook for the fourth quarter of 2025. We have provided reconciliations of these non-GAAP to GAAP financial measures in our earnings release posted today, which can also be found in the IR section of our website. Total revenue for Q3 was $410.4 million. We shipped approximately 784.6 megawatts DC of microinverters and a record 195 megawatt hours of IQ Batteries in the quarter. Q3 revenue included $70.9 million of safe harbor revenue. As a reminder, we define safe harbor revenue as any sales made to customers who plan to install the inventory over more than a year. Non-GAAP gross margin for Q3 was 49.2% compared to 48.6% in Q2. GAAP gross margin was 47.8% for Q3 compared to 46.9% in Q2. Non-GAAP gross margin without the net IRA benefit for Q3 was 38.9% compared to 37.2% in Q2. Reciprocal tariffs impacted our gross margins by 4.9% in Q3. GAAP and non-GAAP gross margin for Q3 also included $42.5 million of net IRA benefit. Non-GAAP operating expenses were $78.5 million for Q3 compared to $77.8 million for Q2. GAAP operating expenses were $130.1 million for Q3 compared to $133.5 million for Q2. GAAP operating expenses for Q3 included $47.4 million of stock-based compensation expenses, $2.9 million of acquisition-related amortization and $1.3 million of restructuring and asset impairment charges. On a non-GAAP basis, income from operations for Q3 was $123.4 million compared to $98.6 million for Q2. On a GAAP basis, income from operations was $66.2 million for Q3 compared to $37 million for Q2. On a non-GAAP basis, net income for Q3 was $117.3 million compared to $89.9 million for Q2. This resulted in non-GAAP diluted earnings per share of $0.90 for Q3 compared to $0.69 for Q2. GAAP net income for Q3 was $66.6 million compared to $37.1 million for Q2. This resulted in GAAP diluted earnings per share of $0.50 for Q3 compared to $0.28 for Q2. We exited Q3 with a total cash, cash equivalents and marketable securities balance of $1.48 billion compared to $1.53 billion at the end of Q2. The 5-year convertible notes we raised in 2021 are coming due on March 1 next year, and we expect to settle the principal amount of $632.5 million at maturity with our cash on hand. As of September 30, 2025, we have approximately $280 million of production tax credit or PTC receivable on our balance sheet, net of income taxes payable. $108 million is related to U.S. microinverters shipped to customers in 2024 and $172 million is for shipments made in the first 9 months of 2025. As we elected direct pay, the net PTC will be refunded by the IRS through our annual tax return filing. Due to extended IRS processing time lines, we expect to receive 2024's $108 million payment from the IRS in Q2 next year. We expect to receive our 2025 tax refund sometime in the first half of 2027 based on the current estimated IRS processing time. As part of our anti-dilution plan, we spent approximately $1.7 million by withholding shares to cover taxes for employees stock vesting in Q3, that reduced the diluted shares by 49,023 shares. There were no repurchases of our common stock in Q3 due to our limited free cash flow generation in the quarter. We are evaluating opportunities to accelerate the monetization of our PTC. Our remaining buyback authorization is approximately $269 million, and we remain confident in our overall business outlook over the long term. In Q3, we generated $13.9 million in cash flow from operations and $5.9 million in free cash flow. Capital expenditure was $8 million for Q3 compared to $8.2 million for Q2. Now let's discuss our outlook for the fourth quarter of 2025. We expect our revenue for Q4 to be within a range of $310 million to $350 million, which includes shipments of 140 to 160 megawatt hours of IQ Batteries. The revenue guidance doesn't include any safe harbor transaction. We expect GAAP gross margin to be within a range of 40% to 43%, including approximately 5 percentage points of reciprocal tariff impact. We expect non-GAAP gross margin to be within a range of 42% to 45%, including the reciprocal tariff impact. Non-GAAP gross margin excludes stock-based compensation expense and acquisition-related amortization. Given the vast majority of our manufacturing occurs in the U.S. and due to fluctuating tariff impacts to our international manufacturing cost baseline, we will no longer be guiding and reporting gross margins without the net IRA credit. As always, gross production tax credit earned will be reported in our 10-Q quarterly statement and 10-K annual financial report filed with the SEC. We expect our GAAP operating expenses to be within a range of $130 million to $134 million, including approximately $53 million estimated for stock-based compensation expenses, acquisition-related amortization and restructuring and asset impairment charges. We expect our non-GAAP operating expenses to be within a range of $77 million to $81 million. For 2025, we expect our GAAP tax rate of 18% to 20% and a non-GAAP tax rate of 14% to 16%. With that, I'll open the line for questions. Operator: [Operator Instructions] And our first question today comes from Colin Rusch from Oppenheimer. Colin Rusch: Can you talk a little bit about the dynamics going into the first quarter next year in terms of the amount of inventory that you feel like is appropriate? Are you still thinking about kind of 8 to 10 weeks' worth of inventory out in the channel as you enter into the first quarter of next year? Badrinarayanan Kothandaraman: So Colin, you may not have heard our comments in the prepared remarks. We anticipate an overall sell-through for the company to be between $350 million to $400 million in Q4, but we are only guiding Q4 revenue from -- in the range of $310 million to $350 million. So therefore, you can do the math, and that represents approximately $45 million of undershipment at the midpoint. So we are very cautious. We want 2026 to have a very healthy setup in the channel. And therefore -- and our rule of thumb is 8 to 10 weeks. That's our rule of thumb. So we'd like to basically be abundantly cautious and not overload the channel. That's why we gave the revenue guidance from $310 million to $350 million. Also another reason for our reduced Q4 guidance is we had about $70 million of safe harbor pulled in from Q4 to Q3 as customers wanted the product before the U.S. Treasury guidance in Q3. So we beat the guidance handily for Q3, but we are more cautious for Q4. Colin Rusch: I'll take the clarification offline. With the new battery, can you talk about pricing dynamics? Are you being able -- are you able to push through incremental price increases with the incremental functionality? Or are you using some of that functionality as a way to pick up share? Badrinarayanan Kothandaraman: Yes, we are not raising any prices. In fact, I'm sure you know over the last 2 quarters, there have been tariffs. So we pay approximately about 40-plus percent tariff on the cell packs that are coming from China, as well as the cost of making batteries in the U.S. is quite expensive. So -- but on the other hand, what we have done is not change our pricing. And our position is basically to capture share. You see our gross margins are already pretty healthy. Our gross margins for Q3 were 49% despite us paying or despite us including a 5% tariff in that 49%. So our gross margins are good. The way our gross margins will become even better on batteries is we are working on our fifth-generation battery, and that fifth-generation battery will take the cost down significantly. It is a 100 ampere hour cell pack. It is a much higher energy density, almost 50% compared to the fourth-generation battery. And it's got -- the power electronics is actually collapsed into one single board. So it's a very elegant form factor. It is a stackable battery. You can put 20-kilowatt hours and you will not -- and it will appear like a monolithic structure on the wall, not as four boxes. So we are going in the right direction on batteries. The fourth generation, we expect to make a dent with it because what we have done, and we have said this very clearly before, our third-generation battery was very good for grid tied backup, which is prevalent in California due to NEM 3. However, our fourth-generation battery can do both grid tied and backup for almost the same cost. Backup comes with a little more, slightly more because of the addition of the Meter Collar, which is a few hundred dollars only. And we introduced that product into the channel. We started shipping in June and installers basically started originating around that time frame. And it takes installers anywhere from 60 to 90 days from that origination time to start the installations. In addition, we introduced the domestic content fourth-generation battery in August manufacturing in the U.S. So -- but we are on a very healthy clip. Just as a statistic in Q3 of our total battery shipments into the U.S., the fourth-generation battery constituted 40% of the overall U.S. shipments. Operator: Our next question comes from Brian Lee from Goldman Sachs. Brian Lee: I had 2 just kind of around the guidance. One is the non-U.S. revenue, I know you -- Badri walked through some of the European country-by-country statistics. But I mean, it's really the lowest, it's been since 2021 non-U.S. revenue. So I'm just trying to understand a little bit what's going on. I know there's seasonality in Europe. I know the market is weak, but it seems like you're underperforming peers. So is there something company-specific going on, whether it's product shift or market share or pricing? And then can you give us a sense of kind of what the go forward is? Is 4Q going to be about the same? Is it down further? Just trying to understand what the recovery path looks like given this low base we're at now? And then I had a question on margins as well. Badrinarayanan Kothandaraman: Yes. You're correct on what you said that Europe has got seasonality in Q3. So we are seeing a portion of that. But the markets we are in, basically, Netherlands, I described the dynamics to you. It is the end of net metering in Netherlands. So it's an uncertain time for solar. There, what recovery looks like is we just announced a large partnership with Essent. It's a huge opportunity there. We have 475,000 homes with solar. And unlike the U.S., their energy contracts in Netherlands expire, are only valid for 1 to 3 years, for example. So when they have the new energy contract at that time, their utility bills for people who have bought solar are going to be higher. In order to prevent that situation, there is a very elegant option there, which is buy batteries for self-consumption for the customer while the utility pays you in order to support imbalance for the utility. So it's really a beautiful option, which should spur our battery sales throughout 2026. So basically, weak solar market due to net metering going away, but has got the potential to become a strong solar plus battery market. That's in the Netherlands. In France, what has happened is, again, in 2025, the feed-in tariffs, France used to be quite healthy. France used to have net metering and the feed-in tariff was also quite good, which is -- the export incentive was not as high as an import incentive, but it was pretty good. That export incentive has now been reduced to a very small amount. So in France, also self-consumption is the name of the game. And because of that, the market in France has reduced quite significantly. As you know, Enphase has more than 50% market share in France. And so we see that. However, what we are doing there is basically to sell solar plus storage to end consumers. Their payback is going to go up compared to what they had before, but will be manageable of the order of 8 to 10 years. For people who cannot afford to add batteries, we are also coming up with a solution to steer their solar and not export it back to the grid. Steering the solar can be diverting the solar to an EV charger, diverting excess solar to a heat pump or diverting an excess solar to a hot water heater. We have introduced all of those solutions as well. So in France, it is the elimination of the 5.5% VAT tax for sub-9 kilowatts, installation should give a boost, but it is not giving today because of an added criteria of low-carbon content panels. The industry is trying to meet that by ramping on low-carbon panels that may take a little bit of time, but we expect the market to recover. However, it is going to be a solar plus battery market. It's not going to be the same as what it was before. Similarly, in Germany, there have been various start stops. There have been reduction of feed-in tariffs. In Germany, our performance is a little better because we work with a couple of the leading installers in Europe who are headquartered in Germany. So we are doing okay there. In U.K., we have a strong partnership with one of the top REPs. The same thing there. It's a solar plus storage market. We just introduced backup capability as well. So that market is stable. So really, what we are talking about is Netherlands and France. We have clear plans there. I would say, because of the big reduction in the TAM, there is a lot of competition. I do have to acknowledge that competition. So what are we going to do? We believe our response to the competition is innovation. What are we going to innovate on? Our -- today, our third-generation FlexPhase battery is the mainstream battery in Europe. In a couple of quarters from now, we are going to have the fifth-generation battery, which is going to take the costs down significantly. And it is going to add a lot of value. It is the -- an AC-coupled battery with modularity, with high quality, with superior serviceability and now it is going to be stackable with an outstanding cost structure. So in addition to that, we are also going to be introducing IQ9 starting early 2026 for residential microinverters. IQ9 with GaN also can support up to 10% higher power for the same cost structure. So cost per watt for the installers is a big deal, and we are going to make sure that their system cost is reduced significantly. So I talked a lot, but that's how the trajectory looks for us in Europe. Brian Lee: No, I appreciate all that additional color. Maybe just one on the margins. The guidance at the midpoint, non-GAAP gross margin guidance, 43.5%. I mean it's lower than you've seen in some time. You did the 49% this quarter. Can you kind of help bridge the gap why margins are down so much? And then what sort of additional margin decline should we expect on the $250 million revenue low point that you telegraphed for Q1 next year? Badrinarayanan Kothandaraman: Yes. The -- our margins basically are impacted, as we said, by a 5% reciprocal tariff. So that's the straight answer. Without the reciprocal tariff that was introduced in 2025, we would be at 48.5%, which is a reasonable number. Now where -- on which products is that affecting us? It's mainly on batteries for us because the batteries have a 40% tariff. We have diversified our supply chain well enough on microinverters in the last 3 to 5 years that our microinverter impact is not that high as compared to batteries. So what does recovery in gross margin look like? The recovery in gross margin is when our battery costs come down. And that is by moving to non-China sources, which we are going to move by early 2026 when we plan to ramp up our non-China batteries as well as our fifth-generation battery, which will result in a step change in costs. So at this time, it is too early for us to talk about our Q1 gross margin. But look, I mean, you can see that we have managed the last 2 years. In fact, with our gross margins quite stable. Our gross margins have been in the 45% to the 50% range all the time in the last 2 years where there has been significant pressure in revenue. So we expect to manage like that. It's too early to talk about Q1 guidance. Brian Lee: Just a super quick clarification. So I think 3Q, you said the gross margin result included a 4.9% tariff impact. So you're saying there's an incremental 5 percentage point impact in the 4Q guidance. So it's not flat impact Q-to-Q, it's an incremental 5%. Just want to clarify that. Badrinarayanan Kothandaraman: Let me say like this. In Q3, we shipped a lot more microinverters because of the $70.9 million safe harbor shipments, which was all microinverters. So therefore, our gross margin was elevated. And yes, that is correct. Our gross margin was 49%. And if we did not have the reciprocal tariff, the gross margin would have been 54%. What we are saying in Q4, our gross margin is 43.5%, and that reflects more a normal mix. We have not yet indicated any safe harbor right now at this point in time. That could change. But with the current mix, we are talking about 43.5%, including a 5% tariff impact. That means without that 5% reciprocal tariff impact, our gross margin would have been 48.5%. Operator: Our next question comes from Phil Shen from ROTH Capital Partners. Philip Shen: I wanted to ask if we could get some more color around the safe harbor approach using the physical work test. Thus far, historically, at least through this safe harbor season, you guys have done more safe harbor, I think, or all safe harbor with the 5% of FMV with your customers. And so with the physical work test that you guys announced or talked about today, can you talk to us about how you're helping your customers satisfy that test? In the past, I've heard something about a customized bracket or something. And so I was wondering how you guys are helping your customers do that. And then from a revenue contribution standpoint, I think typically, the physical work test likely is less revenue as it's not buying the full microinverter versus the 5% safe harbor efforts. So I just was wondering if you might be able to talk through that as well. Badrinarayanan Kothandaraman: Yes, I cannot talk about the details because it is customer-specific on the physical work test, but we are in very active discussions with all our TPO partners. And the concept is quite simple. It is a custom product that needs to be done for them with higher performance than the standard product and with a custom component that is not in our normal inventory. So that's the high-level view. So in fact, it is -- if they are comfortable, meaning the TPO partners are comfortable, their tax folks are comfortable. This is not a bad way to do safe harbor because it reduces their cash outlay. At the same time, from our perspective, we do not like all of that revenue in a lump sum manner, too. It is -- it reflects that they only buy that custom component from us, and therefore, they will come back to buy the main microinverter from us at a later stage when they really need it. So it's really the best of both worlds. It is for us, it represents a classic linear revenue -- quarterly revenue with no lump sum, which is what we like. And then for them, it represents a possible 10x reduction in the cash that they have to pay compared to the 5% method. So it's all goodness. And when do they do it? When do you do the 5%? You do the 5%, perhaps, and I'm not an expert in it, if you want to safeguard 2028, 2029 and 2030. And of course, as always, the 5% as well as the physical work test has to be approved by their tax partners. Philip Shen: Shifting to the prepaid lease concept we heard from Tesla on the last -- their last earnings call that I think they're launching a PPL. And I was wondering if you can talk through some of the efforts that you might be seeing out there -- is this something that you guys might actually participate in on your side? And on a different topic, C&I, it seems like the outlook might be kind of improving there. In the sense that a lot of small resi EPCs that historically were dependent on the 25D, maybe shifting over to the small-scale C&I market and I was wondering if that might be a source of strength for you guys as some of these smaller EPCs, maybe the megawatts are down in resi, but they can gain some of that back in, again, that small-scale C&I. Badrinarayanan Kothandaraman: Got it. Yes, there has been a lot of talk about PPL or prepaid lease in the industry. We have heard independently of us that a few companies are looking at PPL and going to offer PPL. We are also working with a few partners closely. Our opinion, this is our opinion only. We think that the PPL with a loan could be very attractive. The consumer has the option of ownership after year 5. The TPO gets the 48D tax credit, while the consumer gets a lower monthly payment with no escalator. So this has the economics of a loan structure with the 25D tax credit. So we believe that there is a promise for this structure in order to revive, we all talked about the 25D deal loan market will go away. But with the prepaid lease with the loan may help that market to be revived. That's our opinion. Of course, it is going to take some time to introduce this to get everybody comfortable. But our job, what's our job in it? Our job is to support our TPO partners. Our job is to basically bring our long tail of installers and give them access to such a structure. Our job is to help them in O&M, operations and maintenance because we are really the right people to do it. Our job is to help them in solar graph, where modeling of such a prepaid lease can be done in a relatively simple manner. In addition to things like safe harbor support, or tax equity support. So we are looking to work -- looking forward to work with our partners to bring that structure. While all the communication will come from those partners, it will not come from us. Our job is to help and support them. Let me leave it at that. Philip Shen: Just a quick follow-up on that. As it relates to your job. You mentioned tax equity support. So could that mean you could provide some of your tax liability? And from a financial standpoint, how much might you guys contribute to this effort? Badrinarayanan Kothandaraman: Yes, we are not going to give a number. Also, you asked about -- I realize, I forgot to answer the question on C&I. C&I, we're very excited. It's the first time Enphase has done a 480 volt 3-phase product. And really, if you look at the small C&I market, 80% is 480, 20% is the 208 volt 3-phase. With gallium nitride, we are now able to do the 480-volt market. It's 480 volt line-to-line to 77 line-to-neutral, the advantages of the microinverter are the same. Exceptional reliability, exceptional thermal performance, rapid shutdown compliance. U.S. manufacturing, domestic content, CARB compliant. So really an excellent product, and we are going to be selling and marketing this very aggressively, and we expect this to make a dent. As far as what you've said, we are also seeing the same thing. Some of our residential installers are also considering to get into the small commercial solar opportunities because that is a more stable market right now. Operator: Our next question comes from Praneeth Satish from Wells Fargo. Praneeth Satish: Maybe just starting on the Q1 '26 outlook of $250 million. Can you provide any more detail on how you're sizing the expected decline in the U.S. post 25D? So is that based on consultant forecast or I seem to recall, you have kind of a real-time feed of demand. And so are you seeing any change over the last few weeks now that it's presumably too late to secure the 25D credit? Badrinarayanan Kothandaraman: Yes. I mean, we're not going to give you any numbers on that. We thought we will give you a preliminary look and that look is $250 million. The -- that's not guidance, but that's a preliminary look. The way our forecasting -- let me describe the forecasting process is, we run a process in the company, which is a rolling 6 quarter forecasting and we look at it on a monthly basis. So every month, the job of every sales guy is to go look at his accounts bottoms up, talk to his customers and then roll up the view for the headquarters and then we have a meeting about it and decide what to do. So I'm not saying we have a 100% certain view, but we usually understand the trend reasonably, and we can make some informed decisions. And that is how we decided to give you our preliminary look today. Praneeth Satish: And then maybe just following up on that. On the battery side, can you comment on like why in the Q4 guidance, it's showing a 50-megawatt hour drop. And then for the Q1 '26 outlook, recognizing it's preliminary, but is that based on the Q4 battery level? Or is it -- assume any pickup market share gains tied to the 10C launch? Badrinarayanan Kothandaraman: Yes. I think it's mainly a function of getting into 2026 with a healthy channel. That's it, for the 140 to 160 guide. For Q1, we expect to do well in batteries. Batteries, we don't expect batteries to be impacted too much next year. And that is because the batteries are still in reasonable shape on -- as far as 48E is concerned, the batteries have a much longer lease of life. And we are well positioned in batteries. We have CARB compliance. We have domestic content. Our IQ meter color is now qualified with 39 utilities, arguably similar to our leading competitor there. And we are able to cut cost of installations for backup quite significantly. We're very excited about the battery. The installation times are also pretty small. I'm talking physical installation time as compared to the third-generation battery. The only thing about the batteries is the tariffs are high. And we have not made any -- we have not increased prices. We have held the pricing. We want to gain more share there. The tariffs are high, and I describe how we are going to improve the gross margins of batteries. I'm not going to go there again, but that's our strategy. Operator: Our next question comes from Christine Cho from Barclays. Christine Cho: Just a follow-up on that $250 million revenue number for 1Q. Would you say that this is kind of what you're expecting sell-through to be? Or would you expect some destocking to continue in the first half of next year? Badrinarayanan Kothandaraman: I would expect equilibrium there is what I would expect. I would expect maybe slightly higher, but it's too early for me to say. Christine Cho: Slightly higher what? Badrinarayanan Kothandaraman: Yes, sell-through is slightly higher than $250 million. Christine Cho: Okay. And then apologies if I just missed this, but with the prepaid lease structure that you've been talking about that you're going to launch with partners, when should we expect like an update with more detail? And with respect to safe harbor for this entity, should we think that it's going to be Physical Work Test here or would it be 5%? and if the latter, how would you and the partners go about forecasting annual demand for this product, just given that there hasn't been great historical data to lean on? Badrinarayanan Kothandaraman: Yes. I mean that's a lot of loaded questions there. So quite simple. The prepaid lease will be announced by our partners. So -- and we are not going to tell you an exact date. You'll see it when you see it. That's one. Hopefully in Q4. Yes, hopefully, in the current quarter. Number two is, again, too early for me to talk about safe harbor Physical Work Test or 5%. But let me give you some general color. We are talking with all TPO partners about both farms. There was a misconception that Enphase will not do 5% physical work test. They will -- sorry, Enphase will not do physical work test, we'll do only 5% safe harbor. That is not true. We do whatever the TPO partner wants and whatever the TPO partner is comfortable with. So options of physical work test, and I already described in detail when people use Physical Work Test, and when people use 5%. So we work -- with all TPO partners, we work on both methods of safe harbor, and we plan to do that even with the PPO. Operator: And our next question comes from Dylan Nassano from Wolfe Research. Dylan Nassano: I appreciate the early look into 1Q '26. I guess my question is, are you expecting to have to take any further actions to reduce OpEx heading into that? And can you just give us some color around what kind of OpEx model you're considering for 2026 just given the uncertainty around how demand could ramp through the year? Badrinarayanan Kothandaraman: Yes. I'd just point you to how we have managed OpEx again in the last 2 years of the downturn. So this quarter, for example, with almost half the revenue that we once had, we are talking about 49% gross margin. The OpEx was approximately 19% and 30% is our operating income. So we are laser-focused on operating income, laser-focused on operational excellence. So our run rate today is $80 million a quarter, non-GAAP. It is safe to say we are going to be looking at our expenses to trim down spending in order to track revenue. And it's also safe to say that we won't compromise on any innovation activity or anything that affects customers adversely. Dylan Nassano: And then just my follow-up. If we can go back to the conversation around the PPL, Badri, I think you were saying that how Enphase is well suited to offer the O&M service. Can you just clarify, is that expected to be like an enhanced revenue stream for you guys? And if so, could you just kind of level set us on what that could look like in terms of margins or how much you could get? Badrinarayanan Kothandaraman: Yes. It is too early for me to talk about any numbers there, but the concept is quite simple. We -- if the TPO partner uses our equipment, we are the best ones to do operations and maintenance. We have a very big data analytics team who basically looks at problems, identify trends, fix problems online and, if necessary, send our field service technicians on sites. There is a reason why our NPS is 77% with the call wait time of 2 minutes. So we are really the best. In our partnership with the TPOs, they find this one attractive. Like, for example -- in a market like Puerto Rico, for example, if we are able to come in and help in terms of O&M for batteries, that's something that TPOs would welcome and similar opportunities elsewhere. So it also helps us to structure partnerships where we might offer incentives on the O&M too. So each TPO partnership is unique, we cannot generalize it, and at the same time, it's too early for us to give you color on the numbers. In addition, there is Solargraf as well. Now we are -- I mean, we've been in the design and proposal and permitting business. Solargraf has become very robust. We have worked on the platform for 3 years. We have a lot of installers using the platform. And we are building all of the TPO partners, they all can be accessed through the platform. Similarly, the PPL can be accessed through the platform and can be sold at the kitchen table by the installer. Of course, there is a lot of work that needs to happen for that. But we are there in order to do that work, so Solargraf integration, operations and maintenance, safe harbor support and tax equity support on -- with -- on an as-needed basis. Those are the benefits that we offer. Operator: Our next question comes from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Appreciate it. Look, maybe to follow up on this $250 million. Obviously, you guys are speaking to the year-over-year trends here. How do you think about that annualizing? Like what's the early expectation about the offsets here, right? Like be it PPL plus loan or what have you, that would otherwise mitigate it, right? You described it as a seasonal trend and an exacerbated seasonal trend of 1Q. But what's to suggests that, that doesn't persist, right? I mean if you adjust your 1Q '25 for the safe harbor, it looks like it's down almost 20%, which is kind of consistent with industry trends that are contemplated for the full year '26. Can you speak to maybe the cadence of '26 what you're seeing? You talked about these early strong developing trends on PPL, is that supposed to mitigate in the back half of next year, for instance? Badrinarayanan Kothandaraman: Yes. I mean we -- it's impossible now for me to provide any quantification. But what we said is the following. We, in fact, said we are constructive on the balance of the year. We said there are 3 external drivers that support recovery. One is the power pricing, which you're aware. It is increasing by 5% this winter with additional increases expected in 2026. AI is going to make these increases even more. Second, the interest rates are declining, easing the affordability I think there is multiple interest rate cuts for next year. Third is the PPL. New attractive financing solutions are entering the market to help offset of the loss of the 25D. And really, the PPL with the loan could help there to offset the loss of the loan portion of the 25D. These drivers could enable a decent recovery in the second half. That's what we think. That's our view. Then in addition, we see several Enphase specific revenue drivers. I'm very excited about the progress with the fourth generation battery, 40% of our shipments in Q3 into the U.S. belong to the fourth generation. Installers are just getting their hands on and starting to install the product. And we are qualified now at 39 utilities with the meter color. The major color is indeed a differentiated install because it reduces the cost of backup significantly. Next one, we are entering the 480 volt commercial market, which we didn't have with IQ9 GaN microinverter, which we expect to ship in December, which is a couple of months from now. This is going to further ramp in '26. So that's Enphase specific. Third is the strategic partnerships that we recently announced to capture the battery retrofit opportunity in Netherlands. Fourth, our newest IQ EV chargers, along with the bidirectional EV chargers. The bidirectional EV charger alone is a game changer. That is a beautiful way to do vehicle to home, which is backup, or home backup and vehicle to grid, which is grid services with a very simple product, a color and the charger. The charger has got our 3 of our GaN microinverters in there. It's 11-kilowatt charge, attached directly into the DC port on the car. We are working with a couple of OEMs there, and we will announce them when we get ready. Then the last one really is the most exciting one is our fifth generation battery. I can't stop talking about it. The -- our fourth-generation battery uses a 64 ampere hour cell. Our fifth generation battery uses 100 ampere hour cell. Energy density is 50% higher. It's a very compact form factor. Although each modular unit is 5-kilowatt hour, there can be 5 -- 4, 5 kilowatt-hour batteries, 20-kilowatt hours, which can be stacked one on top of the other. It's got excellent serviceability, which means you never need to remove the entire battery off the wall. You can simply remove the battery for to replace either the battery management circuit or the microinverter, you can just simply do a swap. So most important there, the system cost is going to drop a lot because our architecture helps us to reduce the cost significantly. And we are going to pass that cost on to the homeowner, while maintaining our gross margin because the cost is low. Similar IQ9, for example, IQ9, the first flavor that we are releasing this December is 427 watts. The next one that's coming is 548 watts. That will come in middle of the year. The 427-watt product we are able to achieve the same dollar cost structure for 10% more wattage. So therefore, we expect to drive those costs continuously down. And also the more power for the microinverter, we do get more PTC. So those all are going in the right direction. So there's a lot of Enphase specific drivers. There are the 3 general market drivers. The combination, we see revenues growing in the back half. Julien Dumoulin-Smith: Quick follow-up there, if I can, just that in response to the earlier comments. Just with respect to the battery in the Netherlands, can you comment a little bit around what the total opportunity is? Like how would you quantify the 475,000 household and the potential for battery retrofit? Like how would you begin to quantify that for '26-'27 in terms of like the rate of adoption there? Badrinarayanan Kothandaraman: I'm not going to quantify it right now, but I will tell you a way to think about it. It's 475,000 homes. If each of them were to get, let us say, 7.5 kilowatt hour battery. We are talking about 3 gigawatt hours, I think. And then if you -- but if you say there is only a 10% attach of that, you can do the math. And so it's significant. And what we need to do is to make that 10% happen through strong partnerships, and that's not a done deal. It's not easy to do. 10% take rate is tough to do because customers have their own way of deciding what is good for them. What we need to do is to -- is these VPP partnerships. One of the big drivers of demand there is a utility like the partnership that we announced, Essent, paying consumers for their battery, paying consumers up to EUR 122 a month for a battery, which is 20-kilowatt hour battery. I think that's a big deal. Programs like that can significantly reduce the payback, but they need to be with other utilities too. This is one utility. It is the largest utility, but it needs to be with the others, too. So lot more things coming there, but we are excited by this opportunity. It's a tremendous opportunity for us. Operator: [Operator Instructions] Our next question comes from Maheep Mandloi from Mizuho. David Benjamin: This is David Benjamin on for Maheep. I know we talked about Europe. Can you talk a little bit about the international markets that side, specifically, in the past, there's some enthusiasm about Japan. Where does that stand today? Is there still a strong outlook there? Badrinarayanan Kothandaraman: Yes. We introduced the product into Japan in April. That's when we introduced the product. We are very excited by that market. What is the driver there? Tokyo. Tokyo has got a mandate that all new construction needs to have solar. And what's unique about Tokyo is small roofs of the order of 2 to 3 kilowatts in regular sizes shading. And therefore, microinverter is really a beautiful, beautiful opportunity that it is the best product for the Tokyo roofs. In fact, Japan has recognized that, and we do -- the homeowner gets an incentive for the microinverters, which is, I think, almost $0.13 a watt, if I remember. So it's a big incentive. But all of you know that the Japanese market is slow to react. We have a great partner. Our partner is ITOCHU and we are working -- now we are working with that partner to train a lot of installers. We are in the training phase. We are meeting with several of them. We have established an entity in Japan. We will have a big office there. We will have approximately 10-plus people in Japan by early next year. So we are making all of the necessary investments there. We are making further a couple of more new products for Japan in order to sunlight backup, which is a feature that they would like to do. So lot more to come. The revenue growth will be slow and steady. There, don't expect any hockey stick. Similarly, in Australia, Australia is actually a great story. And from July, there is a rebate from the government. It's very similar. It's not a tax credit, but it's a rebate. but it's similar to the 30% amount that we are used to in the U.S. So that significantly reduces the cost of batteries that is causing people to buy a lot more batteries than what they would. The attach rate in Australia has gone from approximately 10% to 20% to 80% to 90%. And we are starting to see that in our -- both our sell-through data, activations data. How are we reacting there? We are introducing -- or we just introduced the flex phase battery, which can do 3-phase backup, which is required in Australia. FlexPhase battery also has got the ability to adjust the power according to DSO requirements. Many of them originally felt the power of our battery was too high for Australia. That is a 5-kilowatt hour battery has got 3.84 kilowatts of power, and that's scaled. So we now have options that can help them scale the power all the way, even half of that amount. And that is taken care of during commissioning of the battery for the newest 3-phase battery. So we've introduced that new product in Q3. We are ramping up on that. Our teams are very excited. They are, in fact, right now at a trade show in Australia. In addition to that, we introduced our IQ8P product, which is, IQ8P is 480 watts AC. As the panels start to become more than 500 watts. Our 384-watt AC products is no longer enough. Therefore, we introduced a 480 watts AC and that's been received very well. We introduced our latest IQ EV chargers there. And now we are planning to introduce hot water heater capabilities. So they have the entire ecosystem. It's one system. It can be Enphase solar, it can be Enphase battery, Enphase EV chargers, hot water capability, it's a complete system. So we are very excited. We hope to make a dent there shortly. David Benjamin: And then I know there's also a lot of enthusiasm around Balcony Solar. Is there any -- are you still continuing to see that growth in that product? Badrinarayanan Kothandaraman: Yes. Balcony Solar, we just introduced the product. We've had some hiccups in Balcony Solar. And we resolved all of them. We are ready to ramp again. We are going to be introducing several variants of that product, more focused towards the end consumer. B2C is an area where we need to learn a little bit more. And we are doing exactly that. We are launching an e-commerce team. We are doing aggressive things there. We hope to ramp on that throughout 2026. Operator: And our next question comes from Vikram Bagri from Citi. Vikram Bagri: Badri, I wanted to understand the framework to think about 2026 revenues or outlook historically or previously, you've mentioned that installs in the U.S. may be down 20% year-on-year. But when I look at the inventory reduction in third quarter, circa $45 million and potentially more inventory reduction in first quarter of next year. It seems like you're preparing for a 30% -- 25% to 30% decline in installs from an inventory reduction standpoint. Is that, one, my understanding of inventory reduction right? Two, do you know more about the outlook today than you did before? That's why the inventory reduction is so high? Or there is conservatism in that inventory reduction? And then finally, is it a function of new product launches, so you're clearing the channel? I'm trying to compare what you said historically about decline in U.S. residential installs year-on-year versus the magnitude of the reduction you're looking for in the channel inventory. Badrinarayanan Kothandaraman: Right. If anybody tells you that they know what is going to happen in Q1, they're wrong that. It's not many people know. But what we gave you a preliminary view of our number, $250 million. However, you should think about historically Q1 has been down even for a normal, let's say, there is no 25D happening, Q1 is historically down by 15% as compared to the prior quarter Q4. This time, there is additional pressure from 25D. So the industry as a whole expect anywhere between 20% and 30% reduction in the overall market. And that those are range numbers because different folks believe different things. But the reduction comes from one thing. The reduction comes from the fact that the cash and the loan market are the ones to see that decline because for them, the 25D, 30% tax credit is going away. That is why financing structures, financing solutions like the prepaid lease with the loan can alter that trajectory, can alter that assumption. So right now, we are assuming that Q1 will be stressed, but the numbers we have seen on the prepaid lease with the loan, make us believe that a portion of the loan market, which was thought to be gone has got a good chance to come back. Operator: And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Badri Kothandaraman for any closing remarks. Badrinarayanan Kothandaraman: Thank you for joining us today and for your continued support of Enphase. We look forward to speaking with you again next quarter. Bye. Operator: And ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good morning or good afternoon all, and welcome to the Aston Martin Lagonda Q3 2025 Results. My name is Adam, and I'll be your operator today. I will now hand the floor to Adrian Hallmark to begin. Adrian, please go ahead when you're ready. Adrian Hallmark: Good morning, and thank you, Adam. First of all, a warm welcome to everybody, and thank you for joining the call for the Aston Martin Q3 2025 results. Before we take questions on the line, Doug and I would like to provide a summary of our operational and financial outlook during the last -- sorry, review for the last quarter and outlook for the rest of the year. Recognize that we already updated the market earlier this month, much of what we will share today, you'll be already aware of, but it is important that we focus now on what we're doing and building forward to highlight some of the actions that we've already taken in response to the challenges that we face. Let's start with operations, the heart of our business, and that's essentially our cards. As we said at the beginning of this year, we remain focused on refreshing our core models available to customers. Aston has a long-standing tradition of using the S suffix for the high-performance derivatives of core models, and we've continued that tradition this year by adding the Vantage S, DBX S and most recently, the DB12 S. We now also have the Valante or Roadster models available for all of our sports cars, and we recently celebrated the 60th anniversary of the iconic Valante name with the release of limited edition, Q by Aston Martin, DB 12 and Vanquish models. There will be much more to come in 2026 and each of these small product events providing an opportunity for communications, product relaunch and customer engagement on a global basis. Valhalla has been a monumental and groundbreaking product for Aston Martin. It's our first mid-engine PHEV in series production, and it's set to transform the business. I'm delighted to confirm that this week, we commenced initial deliveries of Valhalla to Europe. We've achieved homologation there and the first cars have been shipped and will be ready to be delivered to customers in the coming days and weeks. So that's just the start. We will continue that process through the end of this year, and we expect to deliver about 150 cars before we close out 2025. In parallel to this, there is an extensive customer driving program where some 600 customers, existing and new, are testing the vehicle around the world. This week, the team are in Miami and the feedback has already been incredible. I can only concur with the positive feedback that we've had, having driven the car myself, both on public roads around Warren Shire, but also at pace on the limit again, and the car is truly phenomenal, and that's the feedback we get from all participants in these events. As you're probably aware, already more than 50% of these cars are already deposited and sold for the full lifetime of the vehicle. That means that any new orders that we generate over the coming days, weeks and months will be delivered successively towards the end of 2026. This level of direct customer engagement is the platform that we will use going forward for the rest of the core range. We've seen fantastic response actually from these Valhalla supercar buyers when testing the advantage on the same tracks before they go in the high-performance car, we've actually sold core models as a result of them being tested before the main reason for those visits. A clear example, the getting behind of the wheel of the Aston makes a truly unique threading experience and surprises the unconverted. However, as we flagged earlier this month, our performance this year from a financial and operational point of view has been challenged by some significant macroeconomic headwinds, sustained impact of the U.S. tariffs and continued weak demand in China, compounded by a change in luxury taxation in the second and third quarter of this year. This trend has also been noted by other premium and luxury automotive peers, but obviously, we have to respond in our way to our specific situation. We've taken decisive and proactive steps to strengthen our position. First of all, we've passed through a second 3% price increase in the U.S. from the 1st of October to offset more of the impact that we've been absorbing due to the tariff increases announced earlier this year. As we said at the half year results, we provided support to dealers in China in order to accelerate sales, clear stocks and get us ready for a strong '26. Unfortunately, this new luxury tax slowed that process down, but we redoubled our efforts, and we're making strong strides to ensure that we recover the situation by the end of '25 as originally planned. What we're also doing is taking a long hard look at our OpEx and CapEx plans, both for '25 and in subsequent years. With that in mind, work is underway to review our future cycle plan with the dual aim of optimizing capital investment, while continuing to secure innovative products that meet customer demand in our plan and, of course, meet regulatory requirements. We will not mortgage the future. We will merely reprioritize, retime and refocus that CapEx to make it more efficient going forward. We'll give you more details on that as we get to the full-year results, but you can expect that the 5-year CapEx envelope instead of the previously indicated GBP 2 billion range will be more in the GBP 1.6 billion to GBP 1.7 billion range, a significant shift, but without damaging our future prospects. We'll continue to build on our current strengths of exquisitely designed high-performance cars, GTs and SUVs, together with V8 and V12 engines. This is at the heart of Aston Martin's strategy, and we need to embrace this and ensure that we have a business fit for today and the future. With that overview, I'd now like to hand over to Doug, who will take you through the key financials before we take questions from the invited guests. Thank you. Doug? Douglas Lafferty: Thanks, Adrian. Good morning, everybody. Overall, our Q3 performance reflects the position that we announced earlier in the month and really predicated on the lower-than-expected wholesale volumes. Our Q3 wholesale volumes of 1,430 were down 13% compared to the prior year period and below our previous guidance of expecting Q3 to be broadly in line with the Q3 of last year. This volume performance reflected the heightened challenges in the global macroeconomic environment, including the ongoing effects of tariffs, weak demand in China and the planned delivery of fewer specials versus last year. Year-to-date revenue and total ASP also reflected the lower specials volumes, when compared with the prior year period. As a result, revenue decreased by 26% and total ASP decreased by 22%. However, year-to-date core ASP increased by 4%, driven by improved mix, including both Vanquish and Vanquish Valante as well as continued strong options contribution stable at around 18% of core revenue. Core ASP was lower sequentially in Q3 compared to Q2 this year due to the additional dealer support, including in China that we mentioned earlier, foreign exchange and mix within the sports car portfolio. The fewer special deliveries and to a lesser extent, the lower core volumes also impacted year-to-date gross profit and gross margin. The margin also reflected the impact of the previously communicated warranty costs and other investments made in product quality earlier in the year as well as the elements impacting the core ASP I've just mentioned. We expect to deliver an improved gross margin performance in Q4, benefiting from additional core derivatives and the contribution from around 150 Valhallas. Year-to-date adjusted EBITDA decreased against the prior year period by GBP 105 million to GBP 8 million, reflecting the gross profit movement. This was partially offset by a 24% decrease in adjusted operating expenses, excluding D&A, as we continue to focus on optimizing our cost base and to drive operating leverage. Here, we've taken further action and now expect to reduce full-year 2025 adjusted operating expenses, excluding the D&A, to around GBP 275 million from GBP 313 million in 2024. Year-to-date adjusted EBIT decreased by 42% to minus GBP 172 million, with D&A decreasing by 23% to GBP 180 million, primarily reflecting the lower specials volumes ahead of Valhalla deliveries commencing in Q4. Capital expenditure of GBP 254 million was below the comparative period, and we've taken action to further reduce full-year 2025 CapEx to around GBP 350 million, down from the initial GBP 400 million guidance at the start of the year and the GBP 375 million referenced at the Q3 trading update. Free cash outflow in Q3 was GBP 94 million, and from a liquidity perspective, and as previously announced, we received the net proceeds of GBP 106 million for the sale of the shares in AMLGP, which resulted in total liquidity at the end of Q3 of GBP 248 million. Whilst we announced at the beginning of the month, our expectation that we'd no longer be free cash flow positive in H2 2025, we do expect to deliver an improved sequential Q4 performance for the reasons already outlined. As we move into next year, we expect to complement the current core portfolio with additional derivatives and to deliver around 500 Valhallas with our production and delivery cadence established at the end of 2025. This, in addition to driving further operating leverage and being disciplined in our approach to CapEx supports our outlook for materially improved financial performance in 2026. With that, I'll hand back to Adam, so we can start to take some questions in the time we have remaining. Operator: [Operator Instructions]. Our first question today comes from Henning Cosman from Barclays. Henning Cosman: I have 3, please, if I may. Really good to see the further action on CapEx and OpEx, but I have to ask, how do you manage to do that with no effect to cycle plans or so on? Obviously, you're telling us the cycle plan is under review, but do you have that leeway headroom to cut these costs? Perhaps, in other words, why wouldn't you have done that anyway? That's the first question. What are the effects? Second question, it's also great to see these new variants come through, S variants across the model range, but what levers do you really have to stimulate demand because I believe these variants, they tend to take up quite a large share of the overall model mix and don't really tend to be that incremental over and above the existing unit sales. Perhaps, you could remind us, what levers you're foreseeing to increase overall unit sales? Finally, third question on the liquidity. I don't know, Doug, if you can give us a feel for where you think you might be ending the full-year '25 in terms of liquidity? Perhaps, also a feel beyond 2025, perhaps not the time to talk about whether you're foreseeing free cash flow breakeven next year or not. If you could just give us a bit of color if you think you can stay well within that GBP 200 million to GBP 300 million liquidity range without any need for further debt or equity, that would be great. Adrian Hallmark: Adrian here. I'll kick off, and I'll pick up on the demand and variance and their influence, and then we'll come on to the financials. I think, first of all, the idea of the variance without giving a detailed forecast of next year's volume, even without incremental volume, the variances are a better average selling price and a different product proposition to the products that we've sold in 2025. The levers that we have are they're new models. They offer new performance, new features and a different price value relationship. They give us some reason to go back to existing customers, which is clearly a significant opportunity for resell and upgrading through their life cycle, but also an opportunity in a platform to recommunicate the nameplate because there's still people that don't know every model that we do in the world and get new business to. It's an ASP activation. It's an existing customer repurchase opportunity. Of course, it's comms up to get more awareness for each nameplate and keep the brand salient in between the big life cycle changes on new product launches, so that's the basis of those. Just in terms of the mix of them, to clarify that point, as we move through the year, we intend to essentially switch most production to these new models so that the existing core range is ordered on demand and is a much smaller percentage of our total mix. That also helps the residual values. Douglas Lafferty: Okay. I'll pick up on the questions 1 and 3, Henning, which I think was kind of linked to be honest with you. Obviously, from a cost and CapEx point of view, you can see that we're taking the action that we outlined that we would when we updated the market early in October, and indeed, on the cost front, so on SG&A, it's really a continuation of the action that we've been sort of taking all year. I think you can expect SG&A at the end of this year, as I said, around GBP 275 million. Hopefully, a little bit improved versus what we previously indicated. Then our job is to try and obviously offset the impact of any inflationary or other impacts on the SG&A cost base as we move into next year and try and make sure that we do deliver operating leverage. From a CapEx perspective, it's really about having a really good long hard look at the product cycle plan, making sure that we do it in the most efficient way that we possibly can, a little bit of rephasing with the benefit of electrification moving to the right, as we've already outlined earlier in the year. We're already running at the kind of rate that I would expect CapEx to be in the window of next year, so we're guiding to circa GBP 350 million this year. I think next year, it's probably likely to be somewhere between GBP 300 million and GBP 350 million. We're focused on ensuring that we don't impact any near-term revenue-generating products with the rephasing of the CapEx plan. That's how we'll go about doing that. Of course, those 2 things are then linked to your third question around liquidity. Of course, we're absolutely laser-focused on ensuring that the company has the liquidity it requires. That GBP 200 million to GBP 300 million window that I've talked about previously remains the sort of goal and the avenue that we're operating within. We were around GBP 250 million of liquidity at the end of Q3. Look, we're targeting to make sure that we stay in that window as we move through next year. Operator: The next question comes from Harry Martin at Bernstein. Harry Martin: I have 2 questions on the Valhalla to start with. The first one, with the activation going on right now and in the coming months, would you expect to be fully sold for the 2026 build slots by the year-end of this year? What is your updated expectation for the full 999? Then the second question on the Valhalla is just how many of the 150 deliveries in the guide for this year are earmarked for the U.S. if we do get an ongoing government shutdown there? Adrian Hallmark: Okay. Harry, so I'll start with the easy one first. The number of cars going to the states is around 40 in the final quarter of this year, 4-0. In respect to the government shutdown, the certification process that we have to run is complete. The documentation is all being submitted. Until about 10 days ago, we were still getting responses from them until they ran out of funding, so it is tight. We no longer have a significant risk on quotas. We're not belieful about this, but the unfortunate and critical situation that JLR found themselves in has probably taken significant pressure off the quota allocation risk for quarter 4. So yes, you're right, we now just still face the certification risk, but until a few days ago, we were still in active contact. The work has been done. The documents are submitted. We're cautiously optimistic that, that will flow, and we should know in the coming weeks how that looks. In terms of the sellout of Valhalla, I mean, it would be great if we could sell them all tomorrow. By the year-end, I think certainly, we will have sold the majority that will be available in 2026 because we've already sold most of them as we sit here today, if you add the total numbers up. Yes, and in terms of the 999, that's still a plan over the 2-year period or the bit year period while the car is in the marketplace. We are encouraged by the fact we've got more than 50% -- we had more than 50% of those sold before anybody saw the actual car or drove it, so we have a high number of people that are currently specing, negotiating and finalizing arrangements for the car. I won't predict exact numbers and exact dates, but it's looking positive as we open up the marketing channel. Harry Martin: Then I wondered Adrian, if I could just ask for an update on some of the strategic agenda. It's totally acceptable with a lot of the market issues hitting demand for the luxury manufacturers out there, but when you came in, you highlighted opportunities versus peers in terms of option availability and more personalization revenue and also on optimizing manufacturing and supplier processes. I wondered if you could share any data points that you have, maybe the personalization rates on those new S variants or any other data points that you have on some of those strategic goals that you had when you came in? Adrian Hallmark: Yes. I think if we start from the really good news, if you think of, I don't know, 6 or 9 months ago, the condition that we were in operationally as a company was pretty dire. The first-time or right first-time performance in manufacturing was nowhere near industry norms. I think we quoted 55%, 65% of vehicles being right first time out of the factory, massive shortages from suppliers, problems with production and launch of cars, etc., some of which is caused by external and some by internal factors. The good news is we fixed all of that. If you were to sit in the regular reviews that we have on a weekly basis, supply stability, manufacturing KPIs are normal, 96% to 98% right first time and 4 or 5 suppliers that we are monitoring or working with on a weekly basis to ensure that things move smoothly compared with 30, 40 critical ones going back a year. I call that business as usual. The quality process at the end of the line, the quality flow to dealers, we've seen massive reductions in demerits and in issues in that part of the process. From an industrial operational point of view, I would say, we have done the turnaround. We have a balanced production system and it works. We've also taken huge cost out of it. We mentioned the transformation program, which covers cost of quality, material costs, etc., all of the 39 fields of action that we've defined are well underway with huge amounts of energy and effective activities going on across the company. That's partly the reason why we've been able to cap the SG&A this year, and we're, again, quietly confident that we can sustain similar levels of SG&A next year despite the inflationary effects. The underlying efficiency and capability of the company, we have made a step change with. If I look at the external side and the added-value and incremental value per car, I have to be honest that the rate of development and launch of those incremental options to catch up with competition has been slower than we originally planned, and it's for 3 reasons. One, these derivatives that we've launched, bear in mind, we didn't have any of these assets, all of them take time and effort. They didn't have -- or sorry, they took a lot of the resource effort that we had in engineering and in the whole process chain last year, and we, I guess, underestimated the effort that would take. Together with the significant quality improvements that we've made during the period, it meant that there was more limited resource to be able to really boost those options. We have added circa 15, but we didn't add the circa 40 that we wanted. The derivatives have been done, body styles as well as these performance and character models. Options, that will continue, and it will ramp up during this year and watch this space for that. Operationally, strengthened market ASP and customer attractiveness, derivatives are very successful. About 1/3 of the incremental options that we wanted this year have been delivered, but we will play catch-up next year. Operator: The next question is from Michael Tyndall from HSBC. Michael Tyndall: Just the one for me. If I look at your guide for shipments, it feels like we are again expecting a very strong Q4. I guess the concern in my head, I can see that Valhalla is incremental, and that's part of why we're going to see that sequential lift, but it also feels like there's a big lift in the core volumes. What confidence do you have that we don't end up in the same situation we were this year where first half of next year, you are then trying to unwind that inventory? Adrian Hallmark: Okay, Michael, thanks for the question. The first thing I would say, if you look at the inventory development through the year this year, we've also been pretty effective at bringing that down significantly. As we get towards the year-end, you're right, we have a disproportional reliance on Q4 for various historic reasons, but the market is also stronger in Q4 than other quarters and particularly December. If I separate 2 elements, if I look at the retail rate for this year, we will see a step-up in retail rate in quarter 4. That's predicted, and we're again, quietly confident that, that will occur. As we stand today from the low point that we've seen in stocks, we do and can imagine that by the year-end, that total stock in the pipeline will go up again to somewhere between the low point and the start of the year, but not at the level of the beginning of the year. That's based around the combination of retails and the phasing of those wholesales. You're right that those late Valhallas in particular, we will be able to invoice them, but some of them will be so late that maybe some customers won't take delivery in this year, so the wholesale will happen, but the retail may be held off until the 1st of January for residual value reasons. Looking forward and part of our planning that we've done for the CapEx, OpEx and outlook, we have made sure that for next year, we have an even more balanced approach throughout the 4 quarters and that we continue this trend to bring the stock down in line with norms and market expectations. Final thought, we have been quite prudent, at least on the baseline planning for next year. on core models, and we have already preplanned production, sales and stocks accordingly. Operator: [Operator Instructions]. The next question comes from Akshat Kacker from JPMorgan. Akshat Kacker: Akshat from JPMorgan. Two quick ones, please. The first one, coming back to the core portfolio. Given the product cycle plan review, and as you mentioned, electrification is moving to the right, could you just give us some more insight on what that means for the core portfolio going forward? How are you thinking about powertrain derivatives or probably if there's a new generation of core cards that is within that CapEx plan of GBP 1.7 billion over 5 years? The second question is on the underlying demand trends. I see you have talked about an order book that is still at 5 months of sales. Could you just give us more insight on the regional demand that you're seeing, specifically in the U.S. as you have implemented a second price hike in the region? Also, if you could talk about some demand trends in Europe? Adrian Hallmark: Thanks for the questions. I think first, powertrains, it's pretty consistent with what we said in that we will be predominantly between now and in 2035, if you use that time window, we will be predominantly combustion engine and electrified combustion engine dominated. We will have BEVs in the first part of the 2030s, but it will be -- in total, it will be a low proportion of the volume over that 10-year run. We believe high-performance ICE and ever more efficient EU7 engines, both V8 and V12 should be our foundation stones for the future. Between now and the relaunch of the current core models, we will also be launching a number of specials based around the various technology stacks that we have available to us. Without going through those today, each of them sequentially and well timed will give us an ASP and a cash boost each year between '26 all the way through to 2030, 2031. That's as far as we planned the specials at this stage. In respect to the core programs, which is key, I can absolutely confirm that the period between late 20s and early 30s in the next 5 years, we will refresh all of our core nameplates with new models that are both exterior, interior and powertrain and e-architecture and technology renewed from the ground up. That is secured within the CapEx plan that we've indicated in this GBP 1.6 billion, GBP 1.7 billion range that we've now defined. As Doug mentioned, how we've done that is ruthless prioritization of the specials and efficient use of technologies across all programs, SUVs and sports cars and changing the way that we buy and create that platform in the next generation of cars. I think in terms of demand and the outlook, the U.S. is interesting. Overall, we definitely can see there's a little bit of holdback or more competition because of tariffs. It has created inflation and it's created a bit of macro uncertainty, which is making customers slower to make decisions. We still have good footfall. We still have great interest in the products and helped massively by the great press that we get on everything that we launch, including DBX S being ranked better than the Purosangue, which was fantastic. The general demand is strong, but the conversion rate is slower than we would normally expect and competitors are working a lot harder to keep their customers. China is very difficult and remains very difficult. U.K. is pretty strong. Europe is in line with our expectations. Between the 2, we're slightly above. Middle East remains an area that we want to develop in the future, but there's particular reasons why we can't fully activate the brand potential there, but that will be an area of focus for us in 2026. Finally, India, with a trade deal at least highlighted or outlined, we're working with government and within the team to look at what can we do to get ready for that opening up of India, which could be quite significant as a result of the drop in import tariffs on cars built in the U.K. is a significant opportunity. That's the outlook for the next 12 months. Operator: We have no further questions. I'll hand the call back to the team for any closing comments. Adrian Hallmark: Just thank you for your time and the clear questions and look forward to seeing you for the year-end call. Thank you, very much. Douglas Lafferty: Thanks, everyone. Have a good day. Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Magnus Grenfeldt: Good morning, and welcome to Oslo and Hotel Continental. We are here to report Smartoptics' Q3 financials.  We have been doing this. This is our 18th quarterly report. It is the first one as a listed company on the Oslo Stock Exchange. So I'd like to welcome all new friends, shareholders, and followers to this session. Through this period of 18 quarterly reports, we have more or less been talking about the opportunity that we are living in right now. Our story has never really changed dramatically. The opportunity has been there, and we have executed according to our business plan to reach our targets, and that is the intention to continue with.  So today, of course, starting off like we always do with some highlights of the quarter. It is a remarkable report in all aspects. So I'm going to let the numbers speak a little bit for themselves here and try to focus on what I believe are the key things in this report. So starting off on the customer end, and our market, and what kind of business we are doing. And I think if we roll back time 3 or 4 quarters, I was talking about an emerging market related to AI infrastructure and the AI boom that all of you read about every day, and see on TV probably every day.  Back then, I was talking about AI potentially driving our business with a certain certainty from a number of perspectives. Number one, being another contributor to the ever-growing demand for bandwidth that has always been there, and that is foreseen to always be there. For us, being a supplier of high-capacity transport of data, it doesn't really matter what grows. Of course, some elements in the market are growing quicker than others, and that's important to understand, to acknowledge, and to develop our products to suit those segments. But in general, whatever grows when it comes to bandwidth, it's good for us.  So that was number one when I talked about this 9 months ago or a year ago, the ever-growing demand from bandwidth, having a new best buddy called AI. The other thing that I talked about was much like any other compute technology that we have seen over a very long time, it starts off in a data center. The majority of the transactions in any clustered data computer environment goes on within one data center. And sooner or later, you will come to a point where you need to distribute your infrastructure.  I foresaw that, that's going to happen with AI, too. And I think today, we have proof points that it has happened and it will continue to happen from now on. And that's important for us because the majority of our business that we do is to connect data centers with each other. And as AI grows out of one data center and all of a sudden sits in several data centers in a city like Oslo or any other city, that is very, very good for us.  We have secured orders for these particular applications. And we have seen how NVIDIA has released new products supporting that distributed model in a completely different way than they happened in the past over the summer. The orders that we have secured, among others, from so-called neo-scalers or neo-clouds, that is a very important thing to note in this report, because this new breed of companies, I'm going to come back to them in a while and explain what they are, are expected to be a really important piece of this puzzle in the future.  Also growing in that space that I just talked about, of course, the United States of America is an important market. And you can see now that the U.S. continues to drive our revenues as it has over some quarters and as I have been saying for the past 4 years or so. An interesting new thing in this report is that we are growing in all our business areas. That's another thing that's important to note, I think. And I'm super pleased that we see traction from the efforts that we have put into our business area, optical devices. I will come back to that, too.  Profitability is good. It is not quite where we want to be in the long term. We want to continue to push this upwards. But having said that, the last couple of quarters gives us an awful lot of confidence in our business model and what we are doing. And of course, continuing to invest, probably investing a little bit more than we initially thought, moving into the next year, is a good thing for us. So to capture the future. I want to remind you that in my job, all perspectives matter. This quarter matters, next quarter matters, but what matters most is the long-term success of the company, no doubt.  For the new audience, I want to take us one step back and talk a little bit about our product offering and the customers using our products to really give you a chance to pick up on the knowledge that we have tried to convey over the years. So what is it that we do? Well, we develop, design, manufacture hardware and software, and associated services to build network solutions that are transporting multiple terabits per second of capacity.  So, as you understand, this is not consumer technology. This technology is used for connecting data centers. It's used for connecting cities with each other. It's used to, as for instance, connect mobile base stations to the Internet or to the cloud or wherever it's going, rather than focusing on the consumer side of the network. So these are really the super backbones of the Internet that we are talking about.  Who buys that from us? Well, we categorize our customers into 3 customer segments. You see them top left on this slide. So, enterprises, this is a market that's kind of Smartoptics' home market. This is where we're coming from back in 2017, '18, '19 when we started off the new journey for the company with the new products and the new strategy. It was a large part of our business with enterprises building data center interconnect networks.  So an enterprise, whatever vertical have their data centers and wanted to outsource backup and security systems and so on to another location. That was the majority of the business. It's still a very important business for us. We're receiving orders every week from new customers in that segment. And as I said, it's really anything. We have a lot of healthcare, hospitals. We have a lot of manufacturing companies. We have trading companies. We have banks, we have government. Yes, everything really.  The second customer category here, network operators, is something that we started to develop products for in 2018, 2019. Why did we do that? Well, to build a business where our re-occurring revenue would be stronger. When network operators select the technology to work with, they roll it out over many years, and the volumes are much greater. We got success quite early on in this segment and started to roll out products already in '19, '20, and it is today the largest part of our revenue.  The second customer category here, network operators, is something that we started to develop products for in 2018, 2019. Why did we do that? Well, to build a business where our reoccurring revenue would be stronger. When network operators select the technology to work with, they roll it out over many years, and the volumes are much greater. We got success quite early on in this segment and started to roll out products already in '19, '20, and it is today the largest part of our revenue.  The third, which has been the smaller of the 3 segments over the years, that I expect are going to grow on the back of what I talked about on Slide #1 is cloud and AI. So really, the application here is the same as I talked about in the enterprise community. It is about connecting data centers to each other in major metropolitan areas. The difference here is that it's not 2 or 3 data centers, it's probably 3, 4, 5, 6 data centers in each metropolitan area.  We have global customers that have rolled this out over several years. When we last looked at it, I think this market segment was around 20% of our business, maybe 25% some quarters. We don't track this every quarter because we have so many purchase orders that we need to go through and look at the segmentation. So we do it typically once per year, and we'll come back when we report Q4 with a view on this. But I expect this to continue.  You heard me saying data centers there several times. And what's important to understand is that data centers is driving growth in all of these segments. When the hyperscalers are building infrastructure in a particular geography, new data centers popping up in any state, Texas, wherever, our operator customers are getting orders for capacity in and out of those data centers, and they are building new networks and modernizing the networks they have to support that growth, and that is across the whole planet. So data centers are tremendously important for our business.  So when we started this journey, we set out to be the low-cost alternative in this market, low cost by design, choosing the ASICs that drives down the cost, implementing the most modern of protocols and standards rather than supporting the whole legacy of telecom technologies that are out there. That was in our DNA, and it is still in our DNA. And the majority of the business that we have won over the years is due to that fact that we have been the cost-effective alternative compared to very large companies.  That changed about a year ago when customers started to come to us and say, we have selected to work with Smartoptics because your software platforms, you can see it down on the left corner here, and orchestration software for networks is so much better. The ease of use it offers is way ahead of your competitors, and the simplicity of managing traffic in the network as a for instance, exceeds all of your competitors. So that was a good day for me because this is a product that I have held dear to my heart for a very long time, and I believe it's going to be a key element of our offering from now on and all the way into the future.  So very important. Software is driving our revenue, too, and software is making us a more attractive partner for our customers. We have very low customer churn. This is something we also look at typically once per year. And when we do, we see that a very large part of our revenue, typically more than 50% of our revenue, is coming from customers that we had 4 and 5 years ago. And we're adding new customers every year and new partners. So very stable in that sense.  We have a global sales force, I should say, global with a pinch of salt because there are, of course, markets where we choose not to operate, Mainland China, Russia, and so on. Our sales force is spread across EMEA, Americas, North America predominantly, but also South America and parts of APAC, but certainly not everywhere.  A strong asset in Smartoptics is the global network of business partners that we have, reselling our products, distributing our products, taking in our products, rebranding them to their products, and so on. It's a wide range of business partners in here. The market that we are addressing, the global market for optical transport, is estimated to be around $16 billion. We are addressing a growing part of that $16 billion, meaning our products are suitable to be used for certain applications, but not all applications.  Typically, we are stronger in the metropolitan areas, in the regional networks, compared to the really long-distance networks, and especially things like subsea under the Atlantic or things like that. But we are developing our products. We have introduced an awful lot of technology into our products to sort of put us a little bit into that long-haul market, and we are winning fairly large networks now. I think the longest single network we have installed is in Mexico. It's about 1,300 kilometers, all optical without any electrical regeneration. So that's a pretty sizable network. So we're growing into that. And we've typically said that we address around $5 billion of those $1 billion, and I think that's growing day by day. So that was an overview of the company. I'm going to take you into the Q3 and look a little bit at the revenue before Stefan comes on and talks about the financials.  As I've already said, the U.S. is remarkably strong. The most important thing for me here is that we have had 2 strong markets, and now it seems like we're developing a third market that is meaningful, APAC. APAC has been growing very nicely from very small numbers over several quarters. Now we have more contributions again from Australia in this quarter. So we can see revenue jumping up a little bit. But that's good. APAC will continue to grow and will eventually become an important market for us.  Looking at this slide, I mean, the obvious thing that stands out is Americas. I will talk a little bit more about that on the next slide. Having said that, EMEA looks weak. I'm not so worried about EMEA. We have secured a couple of really nice projects in the quarter where we have really started to deliver hardware and software, but those are projects that will run over several years, build-outs of networks across Europe. We have a strong pipeline in EMEA with, yes, at least 5, 6, 7 really good projects that are multimillion-dollar projects that we are working on that will contribute to our 2026 revenue. So I think that EMEA will come back and will contribute nicely in 2026 and onwards.  Why are we so strong in America? And so, a little bit back to education here to talk a little bit about the customer segments. I talked about operators, I talked about enterprises, I talked about clouds. So over the past couple of years, we have developed a number of new verticals, new markets for us, new customer categories. And the 3 that I'm listing here have grown in importance for the company quite dramatically. And this is on top of the business that we are doing with enterprises and various other mobile backhaul, as an example, devices, and a lot of other verticals. I'd like to start by just going through what I think about these 3 segments and then give a little bit deeper explanation on at least one of them.  So regional operators is something that we have talked about in the framework of our large account strategy for several years. Today, we are servicing somewhere between 5 and 10, depending on where you set the revenue bar of customers like this in the quarter, and in past quarters, we're seeing three, four of them delivering meaningful revenue. These are accounts that will be with us for a very long time. They are constantly rolling out new bandwidth into the networks, and they have large networks. So this is, from a revenue standpoint, a very important piece of our business today and will be into the future as we continue to grow these types of accounts and continue to add more accounts like this as our customers. In terms of what they do, they have an awfully broad product offering to their customers. One should know that this is typically business-to-business, meaning that they are delivering bandwidth to enterprises, data centers, other operators, and so on, rather than to households, fiber-to-the-home, et cetera. And an important driver here are the data centers that are growing up like mushrooms all over the planet, cloud connect services. When a new data center is built somewhere, everyone in the area needs to get access to the content in that data center, and everyone will start ordering capacity into that. Data center to data center communication for the hyperscalers and others, et cetera. So large customers of our regional network customers are the hyperscalers. So very much an indirect drive from hyperscalers. Good revenue contributor now and into the future. Neo-Clouds, Neo-Scalers, this is a new thing for most people listening to this. It's a new thing also for me since about a year ago when people started to talk about these types of companies. It's really a new class of cloud providers that are exclusively building their infrastructure based on NVIDIA GPU technology. They are offering basically GPU as a service. So for enterprises and whoever really needs to run jobs in a GPU cluster. So you have a couple of examples of the services that they do there. In what way are they different than the hyperscalers? Well, clearly, they are, they have a more narrow product set. They are not a one-stop shop for all cloud services, but they are specializing on this. I think another important distinction is that they are predominantly software companies having their algorithms and things like that as their core competence, meaning a company like us become a very relevant business partner. They will go out and look for best-of-breed, lowest possible cost ways to connect their data centers. We have secured three of these now. Who are they? Well, there's many out there. If you Google who are the top 10 Neo-Scalers, you will find the three that I'm talking about on that list. Most likely, I'm sure there are several lists, but the ones that I've seen, all of them are on there. And we are working on a couple of more at the moment. So hopefully, we will continue to succeed here. It's going to be important for us to have a footprint in this world as it's expected to consolidate over the years. So being with the leaders here is going to be important to us. So really good potential, not necessarily super important for our revenue in the quarter, but really, really good potential. The third market that I would like to talk about is the rural operators. Why do I want to talk about that? Well, it has potential. It's about 1,000 operators in the U.S. servicing communities around the country, typically in the rural areas, selling things like fiber to the home, but also services like mobile backhaul, middle mile, interconnect, data center to data center, et cetera. But their core existence is around servicing the population in rural America. There is 1,000 of them. We probably are approaching something like 5% of them being our customers. The important thing here is that this has potential to become yet another enterprise business where we every week get new multi-hundred thousand dollar orders from this community. And once you're in there, once you're servicing that community, there are many people to support, and we have really set out to focus on this community. That's important. So this is where you see the government funding. It is in this market. Most people are familiar with BEAD, which is a CapEx program offered by the U.S. government to help them to build fiber infrastructure, electricity infrastructure facilities, data centers, and technology for servicing the community with broadband. BEAD is a big program. It's great for some, and it's not great for others. The feedback that I'm hearing about BEAD is that there is quite a lot of red tape around it. Once you step into BEAD, you have rules and regulations to comply with that they may not have capacity to work with. And the other thing is the fact that it is a one-time CapEx support. There are better programs for this community. One is the USF, Universal Service Fund, which is really a tax that all Americans are paying to fund this community. And that's long-term operational support for the rural parts of America. I would say all of these 1,000 service providers are getting government funding through the Universal Service Fund. It's been there for a very long time. So it's probably the more important of the two. So to finalize, over and above where we have been, we have developed a number of new customer segments that have significant future revenue potential, where 1.5, I should say, are contributing also in this quarter significantly. This is a slide that I'm very happy to present. It is how we are doing in our different product areas. Most of you who have followed us is nearly everything I've talked about up until today, up until now has been about solutions, software, and services. Those are two product areas that are nearly one-to-one 100% associated with each other. When we sell our solutions, we sell our software and services. We typically don't sell our software and services when we don't sell our solutions and so on. The difference between the two is, of course, software and services is a continuous service that people buy for many, many years. Some people do that with networks too, others buy project by project. So a little bit different pace on the two, but certainly talking about the same thing. The fact that those two are growing really nicely, not a big surprise. They have always done that since 2017, '18. That's also where we have made all of our investments up until, or rather the majority of our investments up until about 1.5 years ago when we said, look, we have this third product area, optical devices, where we are selling, we act as a very advanced distributor of some optical components where we have software to enable support for those optical components in a very broad application space. It's always been a great market for us. We receive several thousand purchase orders every year. We ship 300,000 products. So it has really been the stable piece in the early days, and it has always contributed with profitability. About 1.5 years ago, we said, look, we cannot have a situation where this product area is dragging down our growth. So we employed Mr. Björn Andersson to lead that product area for us with the intention to have it growing at the same pace as the company overall. And this quarter, it clearly is. So we're starting to see the product area business -- optical devices catching up and showing its potential. With that, I would like to hand over to CFO, Stefan Karlsson, to take you through some of the numbers. Welcome, Stefan.  Stefan Karlsson: Thank you, Magnus, and good morning, everybody. We see the revenue increased by 46.2% to SEK 19 million compared to SEK 13 million last year, and mainly driven by strong Americas sales with SEK 10.9 million compared to SEK 5.7 million last year. The gross margin amounts to 49.5 percentage points compared to 47.4% last year, and is related to product mix, and that we are seeing increased tariff compensation in the U.S.  The EBITDA was $2.4 million compared to $1.1 million last year, an increase by USD 1.3 million, of which $3.3 million is related to revenue increase and a slight margin increase. And then we have 1 million negative that is related to increased employee benefit expenses up to $4.8 million from $3.8 million, and that's driven by organizational growth of 8% from 124 to 134 full-time equivalents. We have an FX impact of 6% and inflation, and increased variable compensations due to positive development in sales.  Then we also have other operating expenses has increased by SEK 0.9 million, of which SEK 0.7 million is related to the uplisting to Euronext Oslo Bors, corresponding to 3.9 percentage points in margins in the quarter and 1.4 percentage points year-to-date.  The Q3 margin was then 12.6% compared to 8.3% last year. And excluding nonrecurring costs for the uplisting, the EBITDA margin would have been 16.5 percentage points in Q3 and 13.2% for the 9-month period of '25.  The operating cash flow in the quarter was negative SEK 0.4 million compared to a positive of SEK 5.6 million last year. And the big drivers to this is that inventory has increased with NOK 3.2 million in the quarter, and that's mainly due to longer lead time for components driven by increased global AI-related investments. We also see that trade payables has decreased with NOK 1.7 million in Q3 due to timing of the due dates. Net collections of trade receivables in Q3 improved the cash by NOK 0.8 million.  So, looking on the balance sheet, we have an equity ratio of about 55% compared to 59% last year, which is a result from a growing balance sheet. It comprises of noncurrent assets of NOK 8.8 million compared to NOK 7.7 million last year, and includes our new ERP of NOK 0.6 million that we will amortize over 5 years, and that we start to amortize now in Q3. Current assets is NOK 40.3 million compared to NOK 30.6 million last year, and it's mainly inventory and trade receivables. The cash is now at NOK 1.7 million compared to NOK 9 million last year and is down NOK 1.4 million from last quarter. We have available credit facilities of $7.5 million, equivalent to NOK 75 million. And we have increased focus on the cash and mainly inventory activities, and continued management of our trade receivables.  On the liability side, we have noncurrent assets of NOK 0.3 million compared to $1.2 million last year, and this is mainly lease liabilities. We don't have any long-term loans at the moment since all are due within the year. Current liabilities, excluding the deferred revenue, is $11.3 million compared to $10.6 million, and that's mainly trade payables, tax liabilities, and personnel-related expenses. Deferred revenue is $11.1 million compared to $7.5 million last year. And the increase is related to a stable high revenue share from the business area Software and Service, and our growing revenues.  The working capital is now SEK 18.4 million compared to SEK 13.3 million last year and is mainly driven by the revenue growth. Inventory is now SEK 20.0 million compared to SEK 14.6 million, and it was SEK 16.8 million in the last quarter. And it's, as I mentioned before, mainly driven by longer lead times on components. And the higher level of inventory is also, therefore, good for the short term to secure future sales. However, the goal is long-term to reduce the inventory over time. But despite these high levels, we are seeing a very low risk in inventory. Trade receivables increased to $19 million compared to $14.7 million last year, and is actually down from NOK 19.8 million last quarter. So we have good collections in Q3 and high sales in the current quarter that define that level. And we see no risk in our trade receivables.  Trade payables are NOK 6 million compared to $4.2 million, down from $77 million last quarter. And the lower level is related to timing of due dates of our liabilities. Net other short-term liabilities increased to $14.6 million from $11.8 million, and that's mainly related to the increase in the deferred revenue that is now, as I mentioned, $11.1 million compared to $7.5 million. There are also some small tax liabilities of $0.6 million included in this number.  Thank you. And back to you, Magnus.  Magnus Grenfeldt: Thank you, Stefan. All right. I just want to talk a little bit about how we see our future evolving, what big plans we have ahead. This is a slide that we released in quarter 2, where we thought that talking about the next 5-year period for the company is more meaningful than talking about a few quarters. And what we introduced back then was a couple of new growth drivers that you see on the right of this slide. Of course, focusing on our home markets, focusing on what we do, focusing on the stuff that I have talked about earlier today, is critical and will be critical going forward. We do not intend to abandon any customer segments at all, but rather build on what we have, pretty much as I explained earlier.  Having said that, committing to major accounts is something that we have started to do. And I'm not really talking about our large account strategy here. I'm really talking about how do we build a company that can service the largest customers on the planet. Those are typically Tier 1 operators and hyperscalers, and similar organizations.  So, building the backbone even stronger in areas like governance, IT security, and a broad range of areas is something that we have set out to do quite a while back, and we have come a very long way. We are scoring very high in things like EcoVadis rating and so on, but we want to continue to build a stronger backbone in the company.  That's really the key thing there to make us an attractive player for the largest accounts in the future, well underway. Expanding our efforts in new geographies, also well underway. We have a team in South America. We're winning business in Mexico, in Colombia, in Peru, and a few other spots in that market.  We have our first employee in Japan with us since a couple of months. We have employees in Malaysia with us now supporting our business there. We're making additional investments into Asia by moving more resources out there to be there locally to support our customers.  So, another area that is really well underway. Africa is also an interesting continent where we have started to do business predominantly in South Africa, Kenya, Namibia, and that area. But there are other places in Africa that are of interest and will be of interest going forward. Maybe the most important one here is the top right corner, where we're talking about AI and software automation. So, AI is many things to us, as I said. Maybe the most important one is the fact that it's driving demand for our products. But other areas include how can we incorporate more automation, more data streaming, and more AI into our product offering, not only to make our products more attractive as they are, our software platforms more attractive as they are, but also to start generating new revenue streams from that side of the business. This is something where we are early stages, but building our strategy and our plan.  The third area where I think AI and automation is important for us so look, when you are a company of our size, it is very easy to overdo the OpEx part of your business. It's very easy to start to see the need for various functions in the company that you previously, for instance, relied on partners, legal, HR, and whatever it might be.  And I think also on the operations side, we see those type of phenomenas happening. And we are, and I am committed to avoid that rat hole, to be perfectly honest. And our means to do that is to now heavily invest in software tools within the company. We want to create an AI company out of this. So, it's not only going to be a team of AI architects that we already have in place. But that knowledge, that competence is going to spread across all functions in the company to maximize the advantage of this. It's an opportunity that has never been there before to run efficient companies. But it requires software skills, and we have software skills. So, we are extremely well-positioned for that.  The fourth area that we talked about in Q2, I have kind of grayed out here, not to set any expectations, and that's M&A. We are interested in it. We talk to our customers predominantly about it because they are a good source, meeting a lot of people, meeting a lot of interesting companies, and they can help us. They can guide us to interesting conversations as we move forward.  But we have not created an M&A strategy. We do not know what we want to buy. We have a pretty good idea on what we don't want to buy, to be honest. And I think buying companies that look exactly like us. Well, first of all, there are no such companies out there so that would fit our profile, our modern software platforms, et cetera.  So that's probably a no-go, but it's going to be something relevant to expanding our technological footprint. We will see what that is. When the time comes, we will talk more about it. We will probably zoom out of this for a while now and focus on our organic growth because, as you can see, it's working really nicely. We have the ever-growing demand for bandwidth behind us or around us. We have AI, the AI infrastructure investments going on around us. We don't really need M&A at this point, in my opinion. So where do we want to go? Well, we talk about market share because it's more interesting to me than to talk about a specific number. But the way you should read these numbers is we're in a growing market. And as you can see, the piece of the market that we measure ourselves against, those SEK 5 billion or so that I talked about earlier, is foreseen to grow by about 6% every year. We will see what happens with that. Maybe it will grow faster. I don't know. The future will reveal that.  In that market, we want to double to triple our market share, and that means probably triple to quadruple the company. We want to do that maintaining our profitable growth ambitions, and we want to scale back to where we have been for quite a number of years in the history of the company, targeting EBIT levels of 13% to 16%. Having said that, we are done for today with the reporting, and I'll be happy to take questions. Do we have any questions in the room?  Stefan Karlsson: Good. Then we have Christoffer Bjørnsen from DNB Carnegie on the call.  Christoffer Bjørnsen: Congrats on the great quarter, exciting times. I think just can we start off on the comment you made that you've seen now some initial order momentum with the Neo-Cloud part of the market. Maybe kind of you already touched upon it, but I came in a bit late here. Just expand a bit on like what the size of this opportunity is and how we should think about that into next year and so on.  You kind of previously had a target of reaching $100 million of revenues for '25 or '26. You kind of then left that target, but now it seems more profitable, I guess, at least for '26. So, I guess, start with just like your thinking around this whole dynamic and what it actually means for you guys. It's kind of new.  Magnus Grenfeldt: Sure, Christoffer Bjørnsen. Absolutely. May I just first clarify, we never left that target. What we said was it's not meaningful to run a company with that target. It is simply too low. That's the reason why we don't talk about it. And I've said for the past 4 years that the opportunity is there to reach it. So, within the time frames that we have talked about. So, we'll see if we reach that old target or not. What matters to me is the new target and the momentum that we have in the company when we reach that target.  So, having said that, what is the potential with the Neo-Clouds and Neo-Scalers? And my answer is I wish I knew. This is a new market. It's a new breed of companies. It's completely new services that are offered, basically GPU as a service to simplify things a little bit. What the potential is, we shall see. I said that they are not super critical in our revenue in the quarters. I think to date, we're probably done 1 million or 2 million with that segment.  But listening to peers in the market, listening to industry analysts, clearly, they are seen as a new breed with really good potential. There are several of them. I said Google the top 10, and you will find the three that we have done business with. But those top 10, there is a long tail of other people who are entering into this business now. So I'm kind of expecting, based on what I'm hearing from the industry, that we will see consolidation in that space. We will see some people really succeeding, blowing the roof off of the expectations. We will see some people probably not succeeding to the same extent. So I will have to come back to that. And I think we will probably know in a year or two what that market really looks like. Christoffer Bjørnsen: And then following on with another question on this dynamic ish, I think is, as far as we understand, one of the secrets of your success as a business, especially in the device business is how you've been able to make your, let's call it, third-party optical pluggable interoperable with more complex, bigger systems from some of your competitors in terms of how you program these transceivers. So can you just expand a bit on what kind of moves you made there in the last half year or so, if you added any interoperability with new systems from anything that's relevant to the Neo-Cloud and so on? Magnus Grenfeldt: Specifically in the device business, yes. So what moves have we made? Well, we -- I mean, it's basically a very large part of what you're talking about is happening in our partner community, where we provide the software and the manufacturing environments and the products for them to go and do this business. What have we done? Well, I would say on the optical device side, we have a punch list of probably 10, 15 areas that we are now to varying degrees done or on our way to improve. And of course, our manufacturing environments, software platforms for doing what you described, is one important element of that. When it comes to supporting new technologies, I'd say obviously, a new thing since a couple of years or sorry, since the last year or so is support for 400, 800 gig in NVIDIA platforms and things like that, and we are supporting that right now. I should say also that the Neo-Scale business, the Neo-Cloud business that we have done is not on the optical device side. It is on the solutions software and service side. It is data center to data center networks that we have delivered to them. So it is unrelated to business area optical devices, where we have thousands of customers across the planet. Christoffer Bjørnsen: So you're saying is that you have, over the last year or so, you've gone from not having interop with the NVIDIA ecosystem to now supporting it? Magnus Grenfeldt: Correct. Christoffer Bjørnsen: And given that devices haven't really seen any momentum in that area as of yet, that's kind of an untapped potential. Is that the way to read that? Magnus Grenfeldt: To an extent, yes. I mean the optical devices is broad, right? I'd say the lion's share of what we do is going into enterprise for general-purpose applications, some of it going to operators as well, of course. Data centers is a potential that we are going to work with, yes. Christoffer Bjørnsen: Okay. And then finally, from us, I guess everyone saw the news yesterday, last night that NVIDIA is taking a stake in Nokia. And I guess this is kind of resonating well with what we're hearing from industry sources that you're expecting that these AI workloads for latency purposes have to move closer to the edge. So people are talking about like it seems with Nokia and NVIDIA today, you'll have AI workloads running basically wherever there is a base station. Could you talk a bit about the implications for your business if this is kind of -- could potentially drive a new refresh or CapEx cycle among telcos who have prior to yesterday, planned to cut CapEx rather than grow it? Magnus Grenfeldt: Yes. So I mean, edge, AI, and that whole thing, I think, and I have to caveat here, I am not an expert at 5G, 6G technologies at all. But I think that from history and what we've seen over the years, 5G never really rolled out in the way that the big providers said it would. The importance of the applications that were talked about in 5G being predominantly low latency for real-time applications, slicing of the network, meaning quality of service, I mean, basically giving more priority to certain amounts of bandwidth for certain applications. All of those things, I believe, that AI could be the thing and edge AI, in particular, that really unlocks that whole opportunity. It could be the reason why we will see 5G becoming what it was supposed to be and 6G rolling out over time. I would recommend you listen to Ericsson and Nokia. They probably have a stronger view on that, but that would be my 0.5. Meaning, yes, what is the consequence for us, of course, Christoffer? So that means more mobile backhaul services, a faster adaptation of 100 gigabit technology to the base station routers, meaning more business. So coming back to whatever growth is good for us. Stefan Karlsson: We have a question on the portal as well from Daniel Albin. Are you able to scale up production with your EMS suppliers, or could that be a bottleneck? Magnus Grenfeldt: No. Our EMS suppliers, I don't think will be a bottleneck. We are with Kitron right now. It works really well for us. There are many alternatives if we, for some reason, would exhaust that relationship. So yes, moving around between the different EMS is absolutely feasible. We have no plans to do it. Kitron works great for us. But they are not the lowest-cost player out there. So we'll see. But for now, good, and I think Kitron is a great company. They have very good capacity. So that will work. What they do for us is things like circuit boards with standard components and mechanics, and all of that. Then we have our own production where we do the optical pieces of our products. I think we have great capacity in there, and we have ability to scale it way beyond where we are right now. So I'm not worried about that either. Of course, Stefan talked about our inventory. That is to a large extent, optical components with very long lead times. So I'm super happy that we are where we are now, having this inventory on stock that is more important than having a lot of cash right now to be able to support our growth. So no big concerns there, but certainly an area that we need to monitor. Stefan Karlsson: Oystein Lodgaard from RB has also joined the call. Øystein Lodgaard: Good morning and congrats on the super strong results. A couple of questions. Starting with the gross margin. You're winning now, of course, large deals with large customers. Do you see that leading to some pressure on gross margins that you have to give away bigger volume discounts? Or do you think that you'll be able to maintain margins around the current levels? Magnus Grenfeldt: If you buy the current levels, mean the range that we have been operating at for the past couple of years, then I would say, yes, absolutely. Are we offering better discounts to larger projects to win market share? Yes, absolutely. And it generally takes a while before we work back to the levels where we are now. But I would say in the broader perspective, I think the answer is yes. I would like to reiterate what Stefan said. If you compare Q2 and Q3, an important element of that is the tariff compensation, meaning when we charge tariff to our customers as a line item, for some customers, we have just lowered the discount or raised the price. But for some customers, it's worked better to charge tariffs as a line item. And we're seeing that we are simply better at that in Q3 than we are in Q2. Øystein Lodgaard: And you've quite, also I think, increased the range of your products also lately. If you can kind of now maybe discuss whether or not you are, you have products that are capable of doing kind of more long-haul type of projects. Does that kind of expand the addressable market for you? Do you see opportunities outside of kind of the core metro segments with these new products? Magnus Grenfeldt: Yes. The answer is yes. And I think it's very relevant for the group of customers that I talked about, the regional operators in the U.S. So if you are, as for instance, building a network across Texas, you need high performance on the products, and we can offer that performance now. We are modeling networks that are spanning the northern peak of Scandinavia down to the southernmost peak of Scandinavia, that's 2,000-plus kilometers with 400 gig signals traversing our networks all optically with no problems. So the performance of our products, which really started with our 34-degree ROADM technology a few years back, and now we've added things like Raman amplification to the product portfolio, the performance of our products is great at the moment. And yes, we can build a much bigger network. It is very much in line with what we have been talking about all along, expanding our addressable market. Øystein Lodgaard: Last question. Maybe this has been answered. I was a bit late to the call, but just thinking about costs going into 2026, can you say something? Do you expect to continue to invest at kind of the same level that you have done this year in the last couple of years into 2026? Or do you see kind of the scale benefits from the investments that you have made? Or how should we think around that? Magnus Grenfeldt: I think you should continue to think about it in the way we've talked about it. Our clear ambition, target goal, whatever is to grow our revenue faster than we grow our OpEx. Having said that, and I think you also should factor in what level of efficiency we can achieve over the coming years on our tools development for internal use. But I think at the moment, not continuing to invest would be foolish. There is a great opportunity out there. It's going to be there for a very long time. So we will continue. Most recently, we've added two new sales teams in America, as an example. And I think that's the right strategy to continue now and to do a little bit more than what I probably would have said a year ago. Stefan Karlsson: Okay. That was the last question. Magnus Grenfeldt: Then thank you very much. Have a nice day, and welcome back in three months.
Howard Andrew Digby: Good evening, everyone, and welcome to Elsight's presentation of our financial results for the third quarter of 2025. My name is Howard Digby, a Non-Executive Director at Elsight based here in Australia, and I'll be your host for today's session. Following the presentation by our CEO, Yoav Amitai, we will open the floor for a Q&A session, where Yoav and the leadership team will address your questions. Before we begin, I would like to remind you that today's presentation may include forward-looking statements. These statements are based on our current expectations, assumptions and projections and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For a detailed discussion of the risks and uncertainties associated with our business, please refer to the most recent financial reports and disclosures available on our website. Please also note that we undertake no obligation to publicly update any forward-looking statements unless required by law. As we go through the presentation, all figures are in U.S. dollars unless indicated otherwise. And our financial year is the calendar year, and we're discussing what has just been the third quarter. We encourage you to submit your questions at any time during the presentation by clicking on the Q&A button at the bottom of your screen. We will address as many as time permits at the end of the session. Now without further ado, I'll hand it over to our CEO, Yoav Amitai, to begin today's presentation. Over to you, Yoav. Yoav Amitai: Thank you, Howard, and thank you, everyone, for being with us in today's investor presentation. It's another exciting quarter for the company, and I'm really happy to be here and to share with the audience what we have to say and how we see the past performance and more importantly, the future outlook of how we see the business and what is the opportunity we have in front of us. I think it's a super interesting point in time for the company, for our employees, for our shareholders to be part of our journey. And I'm really happy to be here today and to share with you all what we have achieved and what we're looking forward to do in the coming months and quarters that we have ahead of us. Starting at a high level, for those of you who are new to the story, just to take -- very briefly about who is Elsight and what we do. So Elsight is coming from communication background. That's what we have done all of the years. And something like 5 years ago, we focused the business to be solely for uncrewed system, which include aerial vehicle, aka drones, ground vehicles, maritime robotics sometimes and so on. Basically, we're going after the market that moving systems without operator, human operator in the field that needs to have reliable communication. After doing a lot of market research and exploring the different market sectors, we chose this market to be our focus at the moment. And we'll talk about it later, but I think that having our super reliable communication device or solution that can help us go into many other directions, and we'll discuss it later in the presentation. I'll just leave you with that for now. In general, once we chose that we're going after the uncrewed systems, that presented us with a super interesting opportunity started in commercial market, doing a lot there from drone deliveries to inspection to agriculture, health care services, first responders and so on and so forth. Something like 2.5 years ago, we also started to have an increased exposure for the defense market. And today, we're playing in both the defense and the commercial market. And one of the nice thing about our product is it kind of one size fits all. We are using the same device, the same sets of features basically for both ground vehicle and aerial vehicle for both defense market and commercial market. And every feature or every capability that we are developing goes to all different kind of customers that we have, which makes it very, very interesting opportunity for us to continue and develop and to approach 2 different markets, very different markets, but to approach them with the same sets of features and capabilities. Looking on a high level about what we achieved this year, I think we're continuing to show the growth of the revenue and signing more contracts over the last -- over the third quarter, the third calendar quarter, like how I would say -- said. I think it's shown a very strong value proposition or product market fit within the market we're going after and also show how important and how good is our technology on the different use cases that are currently using our systems and our products, and that's what we wanted to achieve. When we were -- wanted to focus the business, it was about that. And now probably it started to be the right time for us to broaden that and to start to look into adjacent direction or parallel direction that will be on top of the very big opportunity that we have ahead of us. One super exciting point that we were happy to announce to the market in the last quarterly a couple of days ago was that the company become profitable. Like we estimated in the second -- in the first half of the year in the previous quarterly, we estimated that we're going to become profitable. And I'm happy to say that this quarter, we moved over the breakeven point into profit and profitable company. I would say as a side note or as a general note that while we are focusing on the top line and continue the growth because of the opportunity we have ahead of us, we're still talking about super high gross margin business that can create high profit margins, and that's a result of the uniqueness of the technology, the strength of the technology and our position against other players in the market that are offering different kind of solutions. That's all behind us in terms of what we already achieved. And looking forward, we'll stretch the pipeline of more than -- or $157 million of pipeline of tangible opportunities, not just addressable market, but actual opportunities that we have different levels of connection with. We'll go -- we'll touch about that during the presentation. Production capacity and our operational capacity in general and how resilient is our production line, that will be another point in the presentation. And speaking a little bit about how we are making it more or more profitable and enhancing the business model or make the business model better as we scale and as we deploy more and more units into the field. But starting with the numbers from beginning, comparing to last years that we had, so you can see that the massive jump or the massive growth that we had in the revenue due to the industry tailwind and due to the execution that we're doing as a company. It also plays into the operation cash flow and where we are positioned in terms of the cash flow of the business and same for the cash receipts from customers. So we are seeing how we are building cash position basically and making this a positive cash flow business and also profitable business, which allows us to do more and to execute better and to press the pedal to the metal being more aggressive in our go-to-marketing and sales and new initiative development that we're doing in different directions. I think another interesting element or trend that we added to the -- to our presentation this quarter is how we are beating the records quarter-over-quarter in the last 3 quarters. The reason we mentioned 3 quarters because those were all-time high quarters in Elsight, and you can see how we are growing that. And looking into the future, we also see how we continue this trend and how we can continue to take those numbers higher on a quarterly basis, which that's connected to the point that I made before about having this -- or being focused on growing the top line of the company while enjoying, let's call it, the bottom line of having high profits and positive cash flow as a business in general. So that was to give you a very wide perspective about where we're at. Now starting to deep dive into why it's happening, why us and why now, starting from the macro picture of what is currently going on in the market. And starting from the defense market, I also stated in our previous presentation, looking on the different trends that we're currently seeing in the market. So what you see here, the chart shows the expense of governments -- the NATO governments on defense over the years. The light blue is what was the actual expense in 2014. The dark blue is what was -- what is the estimated expense or investment, I should say, in 2024. And this red dash line that you see on the top -- that's the NATO country's commitment to increase their defense budgets from 2.2% to 5% until 2032 or 2035 depending on the country. Now there are 2 main trends that we're seeing, and that's not only in NATO country. We see it across the board in many different governments. One is the amount of capital or the amount of the budgets that are currently allocated to defense and the growth of those budgets of governments that are understood that they need to have their own industrial base. They need to have their own supply chain, and they are starting to build these capacities and getting ready for something that might happen in the future or something that is already in the present. The second interesting trend that we're seeing is how much of those budgets are allocated into uncrewed system, which is exactly our market. So that's another interesting trend that -- we're seeing it all over the world. Just to give you an example that I read, it's not even here in the presentation. I just read it after we released the quarterly about Greece. Greece is a country that I personally never have any title about what is their defense investment in general. And just last Sunday, I read that Greece had said that they're going to do 1,000 drones per month in the next couple of years to build their own capacity, and that's Greece. Now that's just an example of something that I literally just read a couple of days ago, and that plays across the board, like I said, seeing what is the position that those kind of systems are taking in the modern warfare, and that's in the defense market. Looking on the commercial market, we also see a lot of advancement happening in the commercial market. And I think the best example of -- since the last quarter presentation is the FAA, the American aviation -- Civil Aviation Agency that released what they call Part 108. Part 108 stands for the new legislation or the new framework, let's call it, for BVLOS, Beyond Visual Line of Sight application or how drone service provider or drone users can now do Beyond Visual Line of Sight application with their drones. And it doesn't matter if we're talking about last middle mile logistics for drone deliveries or inspection, like I said before, or agriculture or drone as a first responder or you name it. It's not fully legislated yet, but there is a framework. And today, unlike a couple of months -- just a couple of months ago, service providers know what are the boxes they need to tick and what is the process they need to follow. And we do expect or the industry in general, not only us, expect that will be a strong catalyst for the market to start and do more and more commercial deployments and more and more commercial application. I would say that over the last quarter, we also saw that a lot of our commercial customers are starting to ramp up their production. It's still not in a high -- multimillion dollars contract. It's in the hundreds of thousands of dollars, but we really see how it's getting there. A good example of it will be Flock Safety company in the U.S. doing drone as a first responder, also called DFR. Basically, what they do, they put in drone and rooftops across cities in the U.S. and providing police services as a service basically for local police department and being able to provide them with real-time situational awareness. They just launched their new drone last week in a big conference, Chief of Police conference in the U.S. And the Halo is a big part of the -- of this new drone of this program of how we can control those drones for long distances and doing BVLOS, Beyond Visual Line of Sight missions. So that should give you -- that just to give you examples from the tailwinds that we are seeing or the trends that we're seeing in the market, both in the commercial and the defense market and what we're doing there. And I think that create kind of a perfect storm for us of having the experience in both markets, having a lot of ad hoc features that are specifically developed for those kind of customers and having the market reach or the brand name within this market to be able to play a very interesting role within this industry next growth stage. And I think we also see it in our own numbers of pipeline opportunities of actual revenues of actual contract -- new contract that has been signed that are not yet being delivered. I think all of these are factual truth basically to show where we're at and how the future will look like. For those of you, again, who are not familiar with what we actually do, so Elsight started, like I said, as a communication solution, providing highly reliable wireless communication solution. And the challenge is with all those systems, whether they are in the air, on the ground or overseas, how a remote operator or a control center can control all those different platforms and assets that are traveling around the globe. And that's basically what we are solving. Now there are a lot of different communication solutions. All of you are probably familiar with them. There are the satellite solutions. There are the radio frequency kind of point-to-point, like the old RC remote control devices that we used to have as children's maybe, some of us at least, private and public cellular networks that are part of the global infrastructure available. Our approach is that these infrastructures are great. None of them provide the ultimate solution of what those systems require in terms of mission continuity and communication resiliency. So on the bottom line, what we are providing is what we call connection confidence. We're not talking with the customers about communication. We're talking with the customers about mission completion because if they lose communication, and it doesn't matter what the mission that those drones and robots need to perform, that will be a game over for many of them. And we are assuring that the mission will be able to complete and rather it's to deliver diapers for someone backyard via drone or to do an inspection for a power line or to do ISR mission or logistics mission in front lines or any other mission. Those are examples of how we enable those platforms to complete their missions basically. And being able to change or we are seeing in many cases, how we changed the whole concept of operation of our customers and how it's completely changed their end users' approach of how they can utilize those systems. So taking on one hand, the market opportunity or the trends that we're seeing in the market, like I just said 2 slides ago, with our strengths and experience and more than 450,000 flight and drive hours of experience that we currently have, taking all of these together with our technology, I think that just showed the perfect storm that we're in the middle of it, and that's self-explanatory for those of you who are reading news and seeing what is the place that those kind of platforms are currently taking in the front stage. And I truly believe based on the reaction, the feedback, the traction that we have coming from customers and prospects, I truly believe that Elsight is in a super interesting spot to take over this opportunity and to become a meaningful player within this environment or within this ecosystem. Talking a little bit about our business model and gross margins. Like I said, we're talking about highly profitable business model. So first of all, just to explain to, again, those of you who are not familiar with our product, we're talking about hardware-software combination. I always said to all people, customers and investors the same that we are -- Elsight is a software company that happens to have hardware. We do have our own hardware. You won't be able to find this hardware manufactured by anyone else. But our core IP, our secret sauce is in the software and not in the hardware, but still we're part of our -- it's still part of our solution. It's a feature. It's not a bank that we have in hardware. And today, we are enjoying the fact that we have it. It's also helped with the stickiness of the product. So the business model works the following. First of all, we have the unit sales, the onetime unit sales that we're selling for a couple of thousands of dollars per unit. So every drone is equipped with either one or more systems depends on the level of redundancy that the customer needs on the drone. Just to give you again a ballpark, on the hardware side, we're today doing around an average of 80% gross margin on our revenue that we are bringing from there. So we have $0.80 from every dollar we're selling remaining as profits basically on the hardware part, which is exceptionally high if you compare it to any other hardware solution. And I think it also shows where we're at in terms of competition and in terms of us being ahead of the game basically. The second element, which is also mandatory inherent part of the solution is what we call the AllSight cloud. So every unit that's being deployed in the field needs to be connected to this AllSight cloud. For government use and it doesn't matter if it's defense and homeland security, those data centers will be on the customers' premises. For commercial use, many of them are utilizing our own survey infrastructure, all of them paying the same fee of between 10% to 20% of every sale is going to the recurrent revenue per annum. So as long as those customers would like to use their systems, their robots, their drones, the whatever they are using, they will have to pay this recurring fee. And again, going to gross margins, you can see that here, we're talking about 82% gross margin. Just to explain why it's as far as my concern, relatively low margin for a software solution or for a software product. The reason being is because we build an infrastructure that can support a lot of units. And as we scale and as we add more and more units, those gross margins are going higher. We started the year on Q1, if you look on the presentation we released that was 51% gross margin. And today, we're in the end of Q3, we're already in 82% gross margin. The reason is because we are deploying more and more system on the same cost base, so the margins are going higher, and that's part of how we leverage our software capabilities and the fact that a lot of our value proposition sits within the software. On top of that, like I said before, we are utilizing all the different networks, the satellite networks, the cellular networks, private and public. And one of the challenges or friction that we have seen with our customers is that it's very hard for many of them to provide the airtime, the SIM cards, the Telstra and Optus SIM cards or the airtime coming from the satellite provider. And today, part of what we're doing, we're also providing a one-stop shop with the airtime, with the SIM cards, with the satellite airtime. And that's kind of a resell model that we're providing a bundled solution, kind of a one invoice, one-stop shop that you had all your communication need in one invoice, and that's the value proposition or that's the user experience of what we wanted to create, and it's playing very well into our revenues -- different revenue stream of what we were having, and that's become a very interesting revenue stream. So overall, if we take the -- not the average, but if we take the number of the gross margin over all these bundles today or in the third quarter, like we put in the quarterly, we have between 78% and 80% gross margin on all these offering together, partially onetime, partially long term. And that's related to what I said before of creating super valuable solution to our customers, solving real pain that they are willing to pay for it and to pay for a premium price. And this is what you see in our gross margin, and that's where we are positioned at the moment. Talking a little bit about pipeline and what we're doing to mature this pipeline. So just a comment that I received after releasing the presentation. For those of you who don't know, in the previous presentation we put out, we had $151 million on the pipeline. And today, we -- or in this presentation, we introduced the market with $157 million. And there is one point that I think is important to notice. First of all, the bottom line here, the order book that we have last -- on the previous quarter, that was $11.5 million, and now it's $10.2 million. But we -- as you all know, we announced in the quarterly that we have done $8.7 million in revenue in the third quarter. It means that not only that we converted part of the pipeline into actual sales, we also add on the top of the funnel or the top of the pipeline, more opportunities. So the difference is not only this $6 million difference, it's also baked into it all the different opportunities that was already converted into actual revenue, and that's how we are accelerating or that's how we are converting pipeline into revenue. I think another important point to mention, and I get that feedback after releasing this presentation is that this pipeline is -- I don't want to say conservative, but I would say that this pipeline represent tangible opportunities of people or companies more accurately that we have connection with. It's not all the news that we see online and we collect them into pipeline. Those are real tangible opportunities that we are seeing how we can mature those in the next 18 to 24 months like we put in the presentation. And that's super important because it's not just wishful thinking, it's more of a tangible opportunities, while the lower end of the pipeline is with existing customers in different stages of relationship, let's call it. And the top of the funnel, the top 2 tiers of the funnel, that represent prospects that we're currently in different stage of the sale process of maturing this pipeline into actual revenue. In the next slide, I will talk about how we accelerate both pipeline growth and pipeline conversion. But the important point that I wanted to present in front of you all is that those numbers we're seeing on a quarterly basis, how those numbers are translated into actual revenue. And there are orders that are not included even in this pipeline, and they are happening. Just to give you an example, in the third quarter, we had 2 or 3 different orders that was in the hundreds of thousands of dollars of revenue that wasn't even in the pipeline, and we didn't announce it in the market just because it's below the noise level for us today. But those orders are keep coming from return customers that are deploying more and more systems into the field. And we are -- based on our design win strategy, we are getting the POs on every new drone that they put -- those customers are putting out to the market. So that just to give you a good picture about our pipeline and how we convert it. Where we are focusing at the moment in terms of sales and marketing efforts. So like I said in my previous presentation, we're seeing the biggest opportunity in the North American, mainly U.S. market and the European market. We are recruiting people in both markets to have boots on the ground in multiple countries in Europe and multiple places in the U.S. to be closer to the industry, to be closer to the end customer with the objective of doing 2 main objectives: one, to grow the top of the funnel, the pipeline basically top line to make sure that we're continuing to bring new -- next new opportunities into this pipeline but equally important, also to help to accelerate this conversion of pipeline opportunities into actual sales and into signed contract. And again, I think that we are seeing the progress happening there in both, by the way, working with -- directly with the government and with different OEMs. The reason we're working directly with the government is because of our go-to-market strategy of being able to speak with the end users to create the demand and at the same time, speaking with the OEMs with the system integrator who will essentially provide a full system to those customers. And this is the go-to-market play of speaking with both ends of the user chain, let's call it, or the supply chain. And by that, accelerating our or the way that the market accepting us or the traction that we're getting from the market. And that's true, by the way, for both commercial and defense market, like I said, seeing all the different opportunities and all the new budgets that are now being prepared to be deployed in the field, this is what we're looking for, and we are expecting to have recruitments before the end of the year like we expected in the previous quarter. We are in a very advanced discussions or process with different candidates to become our representative or business development people on the target market. So that's where we are focusing at the moment in terms of go-to-market strategy and sales and marketing efforts. We are -- right now, as we speak, we are in the high season on conferences since beginning of September until late November before the holidays, we're literally having a almost every year -- every week, sorry, having a conference somewhere around the world, making sure that our name is out there, that people are familiar with us, that people know what is our value proposition. So we will be able to leverage into actual sales in the future -- in the present and as well as in the future. A little bit about supply chains and what we're doing there, starting from the fact that, as I said before, we are a software company that happens to have hardware. And I'm saying it with pride that our hardware is pretty simple to be manufactured. Today, we're using only contract manufacturers. We don't have our own manufacturing facility. And for us to increase the capacity is basically to go to the contract manufacturers and said, we need more, we need more capacity. And what we're doing in parallel to having our 3 different contract manufacturers that we have today, we're also broadening that and open it for more. Again, like we presented to the market in the previous quarters that we are now onboarding a new contract manufacturer that will be good for NATO countries, mainly for diversity and to reduce friction, but it will also result in -- sorry, in a higher capacity to be able to support our long-term plans or our long-term pipeline of opportunity that we will need to deliver them. So we're still expecting to have this new manufacturer that we already have the first engagement with them, and we are considering what will be the right timing to start and actually do manufacturing there. There are a lot of factors into this discussion, but that's basically where we're at in terms of updates versus the previous quarters. Assuming that some of the question will be around IP protection. And since we have here the title about the IP or the patents that we have, I want to touch about that a little bit. Starting with the obvious protection of IP of having patents. So we do have our patents. We still have a long time until those patents will be expired. So it's not anything close. But as far as my concern, patents are great, but they are not a very, very strong protection because of reasons. I think that today, the biggest moat or the deepest moat that Elsight have around our technology is, first of all, having the long experience of, like I said, more than 450,000 flight hours of enhancing our algorithm of collecting a lot of data and learning from this data, what we can do better and how we can enhance the product, which takes a lot of data from the actual deployment to learn the algorithm of how to do their work better. And also looking on how we do a lot of our features or a lot of our value proposition to our customers and basically how we can make the product sticky or as sticky as possible within their operation. And by doing that, that will block some of the competition by having what I call before design win strategy means that we would like the customers to use as many tools as possible or as many features as possible that we put out. So we will be a central part within their operation or within the way they are doing their job basically. So that's how we are protecting our current existing competitive advantage. So besides investment in sales and marketing and operation and being able to deliver in full on time with a super resilient supply chain, we are also looking forward and seeing how else we can expand our revenue, not only by providing -- by bringing in new customers or going into new regions or new sectors. We're also looking about how we are broadening our product portfolio and increasing our product reach to the same customer base or to a new customer base. A great example for that is a feature that we started to deploy with first Alpha customers over the last quarter of our patent-pending technology for positioning and navigation around non-GNSS solutions. For those of you who don't know, GNSS stands for Global Navigation Satellite System, which basically is what we know as many of us know as GPS. And today, that's as big as a problem or as a challenge like the communication solution that we feel that we have a superior solution there. We do think that with our capabilities and with our products, we can provide a very, very good and interesting solution for this non-GNSS challenge. And like I said, today, we started to have first deployment with Alpha customers just to get feedback to understand what we need to do different, what is the best -- what is the value proposition, what is the right pricing for this product. And we do expect to have sales from these products, specifically, again, as an example, during calendar year '26, and that will be another catalyst for our revenue and another product we will have around our portfolio, where we are going to our existing customers or to net new customers to convince them that that's the right path to go. So that's just an example of how we are developing our product portfolio horizontally and not very vertically to be able to offer more solution basically to our existing customer base and by that, increase the revenue per unit or the revenue per customer of what we're offering today and having a more full solution that we want to position ourselves as the tech stack provider for unmanned or uncrewed systems. And again, it doesn't matter if we're talking about on the ground, in the air or overseas. In addition to that, that's also another new initiative that I mentioned already in our previous presentation. We started to recruit the first people to this new business unit and it's still in stealth mode. I'm sorry in advance that I assume that in the next quarter, it also will remain in stealth mode just because we highly believe that we will have a very strong first-mover advantage in this market. We already recruit the head of this new business unit, Roie Gross, who joined us a month ago and start to promote this business. We're now working with the engineering team to start and build and shape and design the actual product on the technical level while we are approaching customers. We want to get as fast as possible in front of customers or design partners to be able, same as I said, in the positioning solution to start and get feedback from the real customers and understanding or sensing the willingness to pay and so on. But this is going to go after $20 billion total addressable market, which is super mature market that have different solutions today. And we believe that we can come with a new solution that will, in many ways, will disrupt this market. Just about setting expectation, I don't think that in 2026 calendar year, this product will generate millions of dollars of revenue, but I definitely expect that to start and be presented and being used by customers with the plan of starting having material sales in '27 and beyond. And I believe that if we will execute correctly, this new business unit, we will be able to -- or this business unit will might become bigger than the whole Elsight business today, and that's super promising. It's still in hypothesis, let's call it, that we need to prove to ourselves that we have the right assumptions and we can follow them. But I think we were able to prove to the market that we know how to execute, and that's another initiative that we have to execute on and to see how we take it to the market and how we get market traction and market to support us while we are building this new initiative that will generate revenue in the future. So taking the full picture or looking forward, like I said in the beginning, I think that we are currently in a super interesting point in time of having the perfect storm around us, having all the capital that we have that we need to accelerate our growth and to make sure that we can execute our plans to make sure that we keep our gross margin based on where we are in terms of other competitors or alternatives that are available in the market, seeing the opportunity that we have in front of us, both in commercial market and defense market, also looking into other kind of markets that we're currently exploring and looking to. I think that I'm saying it for many years now, but I truly think that today being part of the Elsight story is being part of a success is being part of pioneers that are pushing together this industry forward. And the opportunity is just huge. I truly believe that the opportunity in front of us is much bigger than what we had in the past. With that, I will hand it over back to Howard, and we'll open the floor for any questions you might have. Howard Andrew Digby: Thank you, Yoav. [Operator Instructions]. Yoav, if I might start, we've had a lot of questions asking what are your competitors? Yoav Amitai: So like I said during the presentation, our competitors, we're looking on many of them not as direct competitors, but as, I'll call it, alternatives or providers that provide different kind of solutions that are sometimes complementary to ours. I think that if we will look on the point-to-point radio frequency, point-to-point RF solution or on the satellite solution, on the cellular solution, that might be considered as a competitor, but I don't think that if you will ask those companies and looking at it from our perspective, we also don't see them as a competition. I would say that today, our bigger challenge than competition is market education and making sure that we are educating the market basically with how solution like ours can disrupt or can change the old concept of operation. So while all of these different kind of technologies are alternatives because in the end of the day, the system engineer or the software -- the system people that needs to build the system, if they have to choose between different alternatives. So that's kind of -- this is kind of competition. But it's not a direct competition in the means that today, we're not aware for someone who have TRL 9. It means production level technology like ours that offer the same value that offer the same capabilities. And today, like I said, we're not aware of anyone or any company that offer it in the market. We do see some companies starting to talk about it in their marketing material, which for me, it's a good sign. It means that the education or the needs in the market is growing. And I will also mention or add that some of those new companies that are talking about those kind of solutions are talking with us to be their engine under the hood. So in terms of competition, we are feeling very comfortable, and we have a long -- we're ahead of the game in terms of where we're at and where the maturity of technology is, and we're feeling very comfortable in this position. Howard Andrew Digby: Another question I have -- you kind of answered this in terms of the margins and the business model, but the question is simply what is the unit pricing? Yoav Amitai: So for obvious reasons, I'm not going to get to specific pricing. I'll talk more broadly. But as I said, we have 3 main revenue streams from the units we're selling. Two of them are mandatory part of the product and another one is kind of a complementary or offering that we're offering to our customers. On the hardware level, just to remind you, I said -- as I said during the presentation, that today, we have their 82% gross margin. Just to give you a ballpark or order of magnitude of the dollar amounts that we're receiving, we're talking about thousands of dollars per unit U.S. dollars per device. Then each one of those devices will have to pay the subscription fee for the software part, which is usually around 10% to 20% of the hardware cost. And again, not getting into specific numbers, just because of competition, because of market dynamics. But on these customers will pay hundreds of dollars per annum for the subscription fee. And that's, like I said, as long as they are using their platform. The third element, which is the data, the airtime, like I said, the cellular networks, the Optus and the Telstra of the world, this is -- there is a big range there because those prices is dependent on the use case and the consumption of data of our customers. So it's very hard to say this is the revenue that is coming -- well, we know it very well, but it's very hard to put it into a model and to say this is the portion of revenue that will come from data because there is a big variance there. But that's basically how the pricing model works. Again, without getting into the specific numbers, but I hope it gives you a good picture of the business model and of the unit economics. Howard Andrew Digby: We had a few questions about our market focus about foreign governments, although everyone is a foreign government. But also about European and U.S. governments. And also, do we expect further repeat orders from European drone defense? And there's a sort of similar related question about do we expect any announcements before Christmas? Yoav Amitai: So starting from the first part of your question about additional geographies, let's call it, that we're working. Like I said during the presentation, and that's what we have said for the last 1.5 quarters, let's call it, that our current focus is mainly Europe and the U.S. We think and we see actual deployments of budgets in those regions, and we believe that this is where we have the biggest opportunity in terms of access to the market and also in terms of the value proposition of what we're providing. In both markets, we're currently -- like I said, we're in the final stages of recruitment people to have boots on the ground to accelerate both top line of the pipeline, to bring net new opportunities into our pipeline and also to help with accelerate the conversion of this pipeline into actual revenues. So that's the effort that we're currently doing in the sales and marketing. We are currently -- or the end of the third quarter, it's always the conference season. Since beginning of September until mid-November pretty much, we are literally on a weekly basis on industry conferences and government conferences, doing a lot of progress with those pipeline and with these opportunities and bringing people that will be boots on the ground on those areas will accelerate those processes. And we're doing a lot not only with having people, but also having the infrastructure that will help us kind of localize our production, localize our go-to-market and everything. And that will reduce a lot of the friction that we might have in the sales. Going to the second part of the question about additional contracts and continuity of those programs. The answer is yes. We're definitely expecting to have more of those existing customers coming from them. They are part of the pipeline as well. And the last point about having more updates before Christmas, that also will be, yes, we do expect to have more news coming to the market before Christmas. Howard Andrew Digby: We had some questions about the analysis from Bell's, the announcement. I mean partly a comment but also a question maybe for Bell's, but please feel free to comment. Bell's recent coverage on ELS is, in my view, a disappointing report. Figures are wrong, and they use a materially different times earnings ratio than they do for DRO and EOS. What was the analyst rationale -- that was the direct question, although you want to comment on that? Yoav Amitai: Yes, that's probably a good question to ask the analysts directly. Like you know, it's not something that we're affecting. They're taking the numbers. We're just proving the facts and making sure that they are following. There were some misalignment, I will call it, or some places that was currency mistakes, but those were fixed on the update that they released on Monday morning after we put out the quarterly, at least part of them. And about the way they're modeling and the way -- why they're doing those multiples for this company and why for that company, that's a question for Bell's analysts -- Bells and Potter analysts. That will be hard for me to answer those. Howard Andrew Digby: A related question, given that we're so cash flow positive, why do you feel necessary to raise so much to Bells, not a very sticky raise and post rise support limited? Yoav Amitai: So I'll talk in general about our cash position and why we build it and what is our plan to do with that. We all need to understand that Elsight, once we're starting to go to the big programs and once we're starting to get above the noise level, we've also been looked more on the bigger programs, and those programs required to show strength of balance sheet and to be able to show that we are here and we're here to stay and we're not fragile. So that's one. In addition to that, I mentioned a couple of initiatives that we're doing over the presentation from expanding our sales and marketing efforts in specific regions and target markets. R&D development that we're doing to come with new products and new capabilities. And also another point that I have not mentioned during the presentation. But today, we're also looking not only on organic growth, but also on inorganic growth opportunities. This market, the defense tech or in general, this unmanned market is super fragmented market, and we're seeing a lot of consolidation happening in this market. And from the very close relationship or very long-term relationship that we have with this industry, we believe that we can find the right companies or the right solutions or the right offering that are in the market and struggling to succeed and leverage our market reach and our market access and the customer base that we have built over the year we will be able to leverage those interesting technologies into better companies basically. That's one. The second point of why we would do those kinds of transactions, and we're not looking about very big transaction. Obviously, we're looking on small companies that will provide us this technology -- technical edge or will provide us with access to market that we currently don't have access to, and we would like to accelerate those processes. So we are both sourcing and looking for companies having a strategy in place of what we're looking for, looking for the best candidates. And obviously, we'll do it only when we will feel that, that's the right company and that's the right time, but it's part of what we do. So that's why we build this position, this cash position. It's true that we are cash flow positive. We have big plans. We're playing in the big -- in the Premier League basically today, and we need to make sure that we have what we need to succeed. Today, I definitely think we're there. And I think we also show it in our numbers during this presentation and the progress work that we're doing. So that's about that. Howard Andrew Digby: I'm getting some questions again about the product, but just before that, a couple of questions about the corporate side of things. Two questions about listing in other markets. One is -- I'll give you them both because it's a complete answer, I think. Have you considered a dual listing in Europe alongside DRO and EOS? And the other question is, any plans to list on the NASDAQ? I appreciate it's costly, but our valuation would increase threefold based on comparisons. -- which is, I guess, an opinion expressed alongside that question. Yoav Amitai: Yes. I would say -- I will comment this way. First of all, I would say that we are considering alternatives to be exposed to foreign investors, both in Europe and in the U.S. because of the place or where the defense tech thematic is taking today in global markets in general. So we do look for the right way to have this exposure. being listed in NASDAQ or doing some kind of this approach, not as -- I mean, some of those companies that was mentioned have OTC kind of interfaces and other that are lighter, not in terms of how much it will cost, in terms of management attention. And I think that's the main point. Today, Elsight, and it wasn't clear during the presentation, it's super important to mention it now. Elsight today is standing in front of massive opportunity. And today, for us to do moves that will distract the management focus from execute and deliver on those opportunities will be short-term mistake or long-term mistake, sorry, to get short-term benefits. And I think, again, connecting to the point that I made before, we are -- like I said, we are considering all those alternatives, and we will do it when the time will be right or if the decision will be correct. Right now, we feel that the focus should be on executing and unlock more sales and more growth. And as a result of it, we will get to every place we want to get to. But that's the best comment I can give for that. In parallel to this, like I said, we are considering all the different alternatives to create exposure to these markets. Howard Andrew Digby: Another question coming to some corporate question -- some technology questions, perhaps here from new investors, it's good to go over this with everybody. What is the problem -- fundamental question. What is the problem that you are solving that others can't solve? Yoav Amitai: So on the technology level, I touched upon that a little bit when I spoke about the competition. In general, what Elsight approach is, is that there are a lot of great infrastructures in the world, there are a lot of different communication technologies. None of them are ultimate. And what we are providing we are providing kind of a logic abstract layer on top of all those physical layers on top of all those radio levels to be able to communicate in the best redundant, robust way. And we see the actual results in the field, in actual front lines, in actual industry test, in actual DoD test that we're going through. We are seeing how literally a lot of jaws are dropped because of seeing the performance that we are bringing with our solution. And that's, I think, what is special about that. And in terms of the protection or the IP protection, again, I touched it in the presentation, but I think that with all the experience we have accumulated and all the development that we have done, not only on the communication layer, but everything that is around this communication layer, I think it creates a very, very big competitive advantage. In general, I would say that big companies, if someone will ask why company like Lockheed Martin or Anduril or those companies will not get into your market and kick you out. I would -- my comment will be that, first of all, we have this moat around the technology, what I just mentioned. And also, I would say that those companies are usually buying the innovation and not creating the innovation internally. So that will be my comment on that and why we feel confident that we are ahead of the game, like I said. Howard Andrew Digby: I've got a question about another technology question. How does your product hold up against CUAS solutions? For everybody, that means counter drone -- effectively Counter-Drone solutions. Yoav Amitai: Yes, counter UAS. UAS stands for Unmanned Aerial System and counter UAS. So there are different type of counter UAS systems. There are the kinetics one or the laser one that just take the whole drone down. There is not much we can do about that. They just burn the old drone or they just literally shoot it down. There is nothing that the communication or any other tech stack technology can do. They just need to be in stealth as much as possible and not being detected by those systems. That's what we can provide with this challenge. But the other type of solution that are more of EW solution, electronic warfare type of solutions, in this case, that's exactly what we're doing. We're showing time and time again how we can overcome it by creating basically 3 dimension of communication, which is both doing frequencies hoping based on radio that are connected to us, but also going between different technologies, and this is how we overcome those systems. And again, I think we are proving it on -- in many cases, today, we have a lot of case studies showing how we overcome a lot of those EW challenges. And I think that's very much a very strong value proposition that we are offering to our partners and customers. Howard Andrew Digby: Someone has just asked a question, just popped up just to dive deeply into one part of that, and you may want to put some context here is that you mentioned the kinetic and laser type of solution. But isn't it a risk for you guys if the laser counter drone tech proliferates and grows? Yoav Amitai: If it's what, sorry? Howard Andrew Digby: Isn't it a risk for you if these laser counter drone tech proliferates and grows? Yoav Amitai: I don't think it's a risk for Elsight per se and knowing how those systems are being deployed, they are deployed to protect specific locations. And again, they need another system to detect those drones to know that they are coming. I don't think we'll see a day that we will have around every city in the Western world or the Eastern world or any world, we'll see laser all over the place and counter drone measure. It's just -- it's a huge CapEx investment that I don't see any government is doing it and looking at the market and what are the dynamics in the market. So I don't think it's -- let's say that I'm not seeing it as this risk in our line of sight as a company. Howard Andrew Digby: Corporate question. Given our growth trajectory, congratulations. Are there any plans to further strengthen the Board? Yoav Amitai: Straight answer is that we currently don't have specific plans around that. But we're constantly thinking what else we can do to strengthen the company in general. That include the Board as well. Howard Andrew Digby: And a question here, will there be -- it's probably got time for 1 or 2 more questions. Will there be dividends? Yoav Amitai: I think it's -- I think this question coming too early. But looking forward, and I think Elsight has proven this year, and I think we'll be able to proven in the years to come how profitable is this business. I'm not talking about gross margin. I'm talking about actual net earnings. And as a result of it, obviously, when the right time will come, we'll do that as well. I think that today, again, going back to the point that I said before, for us needing to show the strength of our balance sheet and take over the opportunity that we have in front of us, I think this is where we should focus. When the right time will come, we will definite it will definitely be part of our discussion. But that's -- Howard, maybe you want to add to that question as one of the boards. Howard Andrew Digby: Yes. Again, I would just endorse what Yoav says and something that we can communicate and update on as the capital needs of the business required. But clearly, it says that we see the opportunity to invest in our business as the biggest opportunity at the moment. Now I've got the last question here. [Operator Instructions]. But the last question here, does what Yoav is saying mean that Elsight system makes drones using their platform more resistant to EW counter drone devices. So just drilling in further, like, for example, Drone Shield, I think they're specifically asking about these kind of solutions. If you haven't answered it already, you may want to add a few more comments on that. Yoav Amitai: Yes. Without commenting on specific company's systems, the short answer is yes. The long answer is, again, I stretch different kind of counter UAS systems where Elsight solutions will be able to help in other places that Elsight solution or it's not relevant. They just take down the entire system. So there's not much we can do on software or hardware layers. But I mean, like I said, that's a big part of why we're winning contract today because we can show our resiliency for those -- some of those counter drones EW, Counter-Drone solutions, yes. Howard Andrew Digby: Okay. So thank you, everybody, for your questions. Thank you, Yoav. Thank you for joining us today and your continued interest in Elsight. Thank you to people who are new investors and are looking at following our story. We appreciate your time and thoughtful engagement. As you've seen, we're making strong progress in building a leading position in the rapidly growing uncrewed connectivity market. And we're excited about the opportunities ahead. We remain focused on executing our strategy, expanding our customer base and delivering sustainable profitable growth. In the last quarter, you've seen us demonstrate and consolidate a business that's highly cash accretive. It's capital light, but with the opportunity to deploy resources and capital for continued accelerating and even, as you heard Yoav said, step change growth in the future. If you -- as I say, if you have additional questions, please follow up through our Investor Relations contact. So on behalf of the Board and the entire Elsight team, thank you again for your support, and we look forward to updating you on our continued progress in the months ahead. Have a great evening. Yoav Amitai: Thank you, everyone.
Stefanie Wettberg: Good morning, everyone. Welcome to BASF's conference call for the third quarter of 2025. Today's presentation is being recorded. [Operator Instructions] Today's presentation contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward-looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors. They involve various risks and uncertainties, and they are based on assumptions that may not prove to be accurate. BASF does not assume any obligation to update the forward-looking statements contained in this presentation above and beyond the legal requirements. With me on the call today are CEO, Markus Kamieth; and CFO, Dirk Elvermann. Please be aware that we have already posted the speech on our website at basf.com/Q32025. Now I would like to hand over to Markus. Markus Kamieth: Yes. Thank you, Stefie. Good morning, everyone. Dirk and I welcome you to our Q3 conference call. In the third quarter of 2025, market dynamics for the chemical industry continued to be challenging. Upstream margins were still under pressure and customer buying behavior in almost all industries and regions remained cautious. Even in this demanding environment, BASF earnings came in slightly above market expectations and only slightly below the level of the prior year quarter. Let's start with a closer look at the sales performance of BASF Group compared with the prior year quarter. Overall, sales declined slightly on account of strong currency headwinds and lower prices. We were, however, able to achieve slightly higher volumes due to growth in the Surface Technologies, Chemicals and Materials segments. From a regional perspective, we recorded 12% volume growth in China, slightly -- slight volume growth in South America and fairly flat volume development in Europe. In North America, volumes were slightly down. Compared with the prior year quarter, prices declined in 4 out of our 6 segments, particularly in Chemicals. In the Surface Technologies and Nutrition & Care segments, we managed to achieve price increases. Currency effects dampened sales in all divisions and were mainly related to the strong depreciation of the U.S. dollar, Chinese RMB and the Indian rupee. Portfolio effects slightly supported sales growth. Reflecting this underlying sales development, EBITDA before special items came in at over EUR 1.5 billion compared with EUR 1.6 billion in the prior year quarter. Here is a snapshot of how the markets and our segments' volumes and specific margins developed in the third quarter. Due to a continued imbalance between supply and demand and the resulting pressure on margins, the business environment in our upstream segments remained challenging. Despite these market headwinds, the Chemicals segment achieved solid volume growth in both divisions. However, the segment faced significantly lower prices and sharply reduced specific margins. The Materials segment recorded slightly higher volumes despite the difficult market environment due to higher volumes in Monomers and stable volume development in Performance Materials. Prices declined in both divisions. However, our overall margins in the segments were lower driven by the Monomers division. The Industrial Solutions segment operated in a subdued market environment. Volumes declined slightly in both divisions. Specific margins declined considerably, particularly in the Performance Chemicals division. The market environment for Nutrition & Care became considerably more challenging in the third quarter 2025. Both divisions recorded lower volumes, but the segment achieved slightly higher prices. The specific margins in the Nutrition & Care segment declined. Lower fixed costs and improved margins in the Nutrition & Health division were more than offset by lower margins in the Care Chemicals division. Let's now move on to Surface Technologies and its main customer industry, the automotive industry. According to the latest data, global light vehicle production in the third quarter increased by around 4% compared with the prior year quarter, mainly because of considerable growth in China. For the full year 2025, we expect global automotive production to increase by around 2% compared with 2024. In this environment, the Surface Technologies segment recorded volume growth, mainly in the Environmental Catalyst and Metal Solutions Division, or ECMS. Overall, prices were up considerably. Specific margins in the Surface Technologies segment also increased slightly. Finally, let's look at the Agricultural Solutions segment. Crop commodity prices remained below historical averages, and financing costs were still elevated for farmers, resulting in unchanged and challenging economics for them. In this environment, the Agricultural Solutions segment recorded slightly lower volumes and prices compared with the prior year quarter. By contrast, the segment achieved considerably higher specific margins in a seasonally lower quarter. Let's now look at EBITDA before special items by segment. In Q3 2025, considerable earnings growth in the Surface Technologies and Agricultural Solutions segments as well as improved earnings and other were offset by lower earnings in the core businesses. Compared with the prior year quarter, EBITDA before special items in the Surface Technologies segment increased significantly due to Environmental Catalyst and Metal Solutions. The earnings increase in this division was primarily driven by significantly lower fixed cost, a strong precious metal trading business and volume growth. Lower fixed costs resulted from continuous cost improvement measures and U.S. government grants for which ECMS is eligible as a leading recycler of platinum group metals. Let me reiterate what we communicated at the Capital Market Update in Antwerp at the beginning of this month. After the successful carve-out, ECMS has a stronger setup, and we will keep the business for longer. Accordingly, we expect to benefit from strong cash contributions from ECMS amounting to a cumulative cash flow of roughly EUR 4 billion from 2024 to 2030. Turning to Agricultural Solutions. Earnings in this segment rose considerably, mainly due to improved margins, particularly the successful market launch of glufosinate-P-ammonium and lower manufacturing costs contributed to this development. We continue to expect that a slight increase in full year earnings is achievable. The Core business recorded lower earnings mainly due to the previously mentioned lower margins, which were partially offset by lower fixed cost. As the deviations from average analyst expectations were largest in Nutrition & Care, I will give you a few more details on this segment. Compared with the third quarter of 2024, the Nutrition & Care segment generated considerably lower earnings. The Nutrition & Health division increased earnings, mainly due to lower fixed cost, while the Care Chemicals division recorded a decline. The main reasons for this was continued margin pressure, which was particularly pronounced in Personal Care, where Asian competition is strong. I will now give a short update on our Verbund side in South China. Let me begin with what we communicated at the recent Capital Market Update in Antwerp. We will complete this mega project with capital expenditures around EUR 1.3 billion lower than originally planned. We achieved this CapEx reduction through tight budgetary discipline, scope changes and excellence in procurement. As a result of the currently long markets in China, we will have a slower-than-anticipated ramp-up of the overall earnings contributions. In the coming years, we expect most markets and value chains to rebalance. We, therefore, confirm the targeted EBITDA before special items of EUR 1 billion to EUR 1.2 billion by 2030. Now this slide illustrates the impressive progress the Zhanjiang team has achieved since May. This includes the successful mechanical completion of the steam cracker and downstream petrochemical plants. The infrastructure and utility plants are already in steady operation. Additionally, we have safely and successfully started up various downstream plants, including butyl acrylate, 2-ethylhexyl acrylate, formaldehyde, neopentyl glycol and glacial acrylic acids with more start-ups to come. Thus, we are transitioning the project from construction to operational readiness. These achievements mark steady progress towards the site's full operational start-up at the end of 2025. Let's now move on to the binding transaction agreement on BASF's Coatings business, which we announced on October 10. The agreement with Carlyle marks an important milestone in focusing our portfolio and unlocking the value of our Coatings business. It demonstrates our strong commitment to swiftly execute BASF's Winning Ways strategy and create a leading coatings company under Carlyle's operational leadership. The enterprise value of this transaction amounts to EUR 7.7 billion. Subject to customary regulatory approvals, the transaction is expected to close in the second quarter 2026. At closing, BASF will hold a 40% equity stake and will receive pretax cash proceeds of approximately EUR 5.8 billion. We will remain invested with a considerable minority share because we believe in the future, value creation of the Coatings business, and we want to participate in the upside potential. Together with the divestiture of BASF's Decorative Paints business to Sherwin-Williams, which we closed on October 1, BASF's entire Coatings division is valued at an enterprise value of EUR 8.7 billion. The implied 2024 EV to EBITDA multiple before special items of approximately 13x is evidence that we are unlocking value for this division. And with that, I will hand over to Dirk. Dirk Elvermann: Yes. Thank you, Markus, and good morning, everybody. Let me first address the implications of the Coatings transaction agreed with Carlyle in terms of BASF's statement of income and statement of cash flows. As of September 30, 2025, and until closing of the transaction, BASF will report the business in its P&L as discontinued operations. Therefore, sales and earnings of the business are no longer included in sales, EBITDA and EBIT of BASF Group, with retroactive effect as of January 1, 2025. The prior year figures have been restated accordingly. Income after taxes of the business is presented in the income after taxes from discontinued operations. Between signing and closing, depreciation is suspended. Regarding cash flows between September 30, 2025 and closing of the transaction, there is no impact or change. As before, the business will be considered in the respective line items of BASF's statement of cash flows. As of closing, BASF's minority stake of 40% will be accounted for as a financial investment under the equity method and will be reported in EBITDA and EBIT before special items of other. The cash inflow from the transaction will be reported in cash flows from investing activities in the line item payments received from divestitures. After closing of the transaction, dividend payments from the business to BASF Group will be reported in BASF's cash flow from operating activities. Within BASF's cash flows from operating activities, the equity result of the business will be eliminated. Now this table provides a comprehensive overview of the major changes in BASF's reporting following the classification of the automotive OEM coatings, automotive refinish coatings and surface treatment businesses as discontinued operations. In the quarterly statement published today, we provide all relevant financial figures on both a pro forma basis, i.e., with coatings still fully included in the segment result of Surface Technologies as well as excluding the discontinued coatings operations. It should be noted that the Decorative Paints business sold to Sherwin-Williams is not affected by the restatement. It remained part of the Surface Technologies segment until its divestment on October 1, 2025. This means that the figures for the Coatings division in the Q3 segment reporting refer exclusively to the Decorative Paints business, which was already classified as a disposal group in Q1 of this year. Now I would like to turn to BASF's capital allocation framework and explain how we will use the considerable cash proceeds from portfolio measures that we have already generated and are about to generate soon. As you know, we closed the sale of BASF's food and health performance ingredients business to Louis Dreyfus Company on September 30, 2025. This is reflected in the quarterly statement for Q3 2025. The sale of BASF's Brazilian Decorative Paints business to Sherwin-Williams was closed on October 1, 2025. The purchase price amounted to USD 1.15 billion on a cash and debt-free basis. For our Coatings transaction with Carlyle, which is expected to close in Q2 2026, we will receive pretax cash proceeds of around EUR 5.8 billion. At maximum, we assume taxes to be in the mid-triple-digit million euro range. We are also making further progress with the monetization of our oil and gas assets. In 2025, we will receive around EUR 200 million resulting from dividends from Harbour Energy and our participation in Harbour Energy's ongoing share buyback program. As we have stated on several occasions, we consider our participation in Harbour Energy to be a financial investment, and BASF's strategy remains to exit at the right time, being mindful of the value. There's also good momentum on the topic of federal investment guarantees. Wintershall Dea received a first installment from the German federal government in Q3 2025, and we expect a final decision soon. Proceeds will be distributed by Wintershall Dea via dividends and will contribute to BASF Group's operating cash flow in 2025 and 2026. As announced at our Capital Markets Day in 2024 and confirmed at our update earlier this month, we are targeting IPO readiness of BASF's Agricultural Solutions division by 2027 with a potential listing of a minority share as a next step. In other words, this cash event is beyond the 2025, 2026 window. Now, let's move on to the use of cash with a focus on the rest of this year and next year. We are clearly committed to paying an annual dividend of at least EUR 2.25 per share, subject to approval by the AGM. Furthermore, we will use a substantial part of cash proceeds to deleverage the balance sheet and secure our financial strength. The maturity profile of outstanding bonds will allow us considerable deleveraging in 2026. As announced yesterday, we will start buying back shares as of November 2025. This is a considerable acceleration compared with our initial plan to buy back shares from 2027 onwards. I will provide more details on the next slide. Large acquisitions are currently not in focus while smaller to midsized acquisitions remain possible. Capital expenditures will be significantly reduced in 2026 and beyond and will consistently stay below depreciation until at least 2028. Ladies and gentlemen, we are swiftly delivering on our Winning Ways strategy, and we are fully committed to attractive shareholder distributions. Therefore, and in view of our quick progress on the portfolio side, we have announced that we will start a share buyback program with a volume of up to EUR 1.5 billion in November that is scheduled to be executed by the end of June 2026. This is part of the share buyback announced at the Capital Markets Day in September 2024, with a total volume of EUR 4 billion until the end of 2028. The earlier start of the program demonstrates management's confidence in the underlying financial strength of our company. In our view, this is not fully reflected in the current share price. Now is the time to return capital to our shareholders and reduce the number of shares while bringing down debt. Let's now take a brief look at the financial details of BASF Group for the first 9 months of 2025 compared with the same period last year. All these figures still include the discontinued operations. At EUR 5.9 billion, EBITDA before special items declined slightly compared with the first 9 months of 2024. The EBITDA margin before special items, excluding metals, remained almost stable at 13.6%. EBIT before special items reached EUR 3.1 billion compared with EUR 3.4 billion in the same period last year. Special charges were largely incurred for restructuring measures as well as for the sale of BASF equity share in the Nordlicht 1 and 2 wind farms back to Vattenfall in Q1 2025. Special income from the sale of BASF's food and health performance ingredients business had a partially compensating effect. Net income declined by EUR 1 billion to EUR 1.1 billion. In the prior year period, net income from shareholdings included special income in connection with the transfer of Wintershall Dea assets to Harbour Energy. Cash flows from operating activities amounted to EUR 2 billion compared with EUR 3.5 billion in the same period last year. The decline was primarily driven by changes in other operating assets, lower net income and higher cash outflows from changes in net working capital. Compared with the first 9 months of 2024, payments made for property, plant and equipment and intangible assets decreased by EUR 1.1 billion to EUR 2.8 billion. This clearly indicates that we have passed the peak investment phase for our South China Verbund side. Free cash flow was minus EUR 868 million in the first 9 months of 2025. Now this slide shows some more details of our cash flow. I will focus on the development in the third quarter, shown on the right-hand side. In the third quarter of 2025, cash flows from operating activities came in at EUR 1.4 billion. The decline compared with the prior year quarter was mainly due to changes in other operating assets. Payments made for property, plant and equipment and intangible assets decreased by EUR 510 million compared with the third quarter of 2024. Free cash flow amounted to around EUR 400 million. With that, back to you, Markus. Markus Kamieth: Yes. Thanks, Dirk. Our assumptions regarding the global economic environment in 2025 remain unchanged. Likewise, our outlook for 2025 remains unchanged content-wise. Let me repeat this. Likewise, our outlook for 2025 remains unchanged content-wise. As a result of the reclassification of the automotive OEM coatings, automotive refinish coatings and surface treatment business, we have made a necessary technical adjustment. The adjusted outlook range for EBITDA before special items is now EUR 6.7 billion to EUR 7.1 billion. The difference compared with the previous outlook range of EUR 7.3 billion to EUR 7.7 billion reflects the expected full year contribution of the Coatings businesses that are part of the transaction with Carlyle and are reported now as discontinued operations retroactively as of January 1, 2025. So that is the sole reason for the different number in the outlook. The forecast for free cash flow and for CO2 emissions are unaffected by the restatement and thus remain unchanged. And now Dirk and I are glad to answer your questions. Stefanie Wettberg: [Operator Instructions] We will now start with Christian Faitz. We will then have Tom Wrigglesworth and then Tony Jones. But now it's Christian Faitz, Kepler Cheuvreux. Christian Faitz: Congrats on the results. Two questions, please. I guess all of us are fully aware that the current business environment is pretty bad to say the least. Yes, can you share with us some thoughts on current order income with October being the last really relevant month for the year? And also, will some major automotive OEM producers canceling their production on the back of the new chip crisis have an impact, particularly on your emission control business? And then my second question is on Ag. You cite adverse weather conditions impacting European sales in Q3. Can you please elucidate what happened there? Was this largely an inventory effect, i.e., BASF Agricultural Solutions buying back inventory from actually Q2 adverse weather conditions? Markus Kamieth: Thanks, Christian. I will take maybe the first 2 questions. We currently do not see any major changes in the macroeconomic environment and also relates to the dynamics going into Q4. As we have said in our speech, almost all verticals, I mean, everything outside of, let's say, semiconductors, everything around AI, data centers and so forth, everything else in the normal overall industrial sectors that we typically serve are rather slow and moving sideways. So no real negative or positive development right now that is also reflected in the momentum we take into Q4. As we have also said in the speech, the only exception on the volume side is China right now. China is growing quite strongly, overall macro, the chemical market in China is growing healthily. And we have also, I think, with 12% volume growth in Q3 have seen a good volume momentum and that also relates, for example, to the automotive industry. Your second question on automotive OEM, I'd say, shutdown there's, of course, now for a few weeks, I would say, high nervousness again in the OEM landscape, particularly here in Europe, I would say, we have not seen any adverse impact, and we're not expecting any major impacts from this. And please remember that in all of our automotive-related businesses, our source of strength right now and our source of growth is mainly our significant market share in China. And for the Ag question, I might hand it over to Dirk. Dirk Elvermann: Christian, on Ag, you're right, there was extremely dry weather conditions in part of Western European countries that were also impacting us. But I would say, overall, first of all, the third quarter is a seasonally low quarter for Ag. The results came in more or less as we have expected it and checking with the business going forward for the end of the year. I believe that Agricultural Solutions business will hit the forecast for the segment at least maybe a little bit better, but the business is fully on track to deliver the year-end result. Stefanie Wettberg: So we move on to Tom Wrigglesworth, Morgan Stanley. Thomas Wrigglesworth: So firstly, obviously, on the bridge you provided on Slide 5, in Surface Technologies, the EUR 179 million year-on-year improvement in EBITDA. Could you just break out some of the components of that, specifically this comment you've made around gaining subsidies and grants in the U.S. I guess we're keen to know what's an underlying improvement in this business versus what's a kind of onetime factor? And then second question is regarding free cash flow. Can you help us understand the moving parts, excluding EBITDA changes in 2026 that you expect to be influencing free cash flow. So the kind of the CapEx level and how that might drop. Obviously, the sale of coatings, what free cash flow net kind of loss that will be from the divestiture of that. And then obviously, the working capital buildup has been substantial this year in the China Verbund. What -- how should we be thinking about that? Clearly, with the sale of coatings, people are questioning the free cash flow generation of the business. So we're just trying to get a kind of post the divestiture, what that looks like. Dirk Elvermann: Tom, this is Dirk speaking. I'll start with ECMS. So the ECMS -- EBITDA for ECMS was significantly -- was up, and this was due to significantly lower fixed cost as you have rightfully pointed, but also on the back of a strong precious metal trading business and volume growth. So it's a multiple component effect that we have here. And the lower fixed cost, apart from the efficiency measures taken by the business are indeed also due to grants in the U.S. as we have clearly stated. Now what we are seeing in the third quarter is a cumulative effect from -- not only from 2025 but also from the years '23 and '24. And going forward, there will also be a positive effect, and you might think about this effect on a net basis as a low double-digit million euro amount per year that the business is benefiting from. In terms of free cash flow, indeed, we can keep our outlook here for the full year. Markus already mentioned that we are significantly below in CapEx numbers also from the investment in China, but also beyond. And we are now calculating as a company with a CapEx for the year of around about [ EUR 4.5 a little bit more maybe billion ]. So this will significantly alleviate the pressure on free cash flow. Apart from that, all the businesses are super focused on working capital management for the last quarter of the year. As you know, this is the cash collection quarter for BASF and everybody is also super focused on inventory levels. And with regard to the free cash profile of the Coatings business, I would say, so far, it is still a part of the group's cash flow, as outlined a little bit earlier going forward. We will then also show these data differently, but you can be assured with everything that we want to achieve strategically. The underlying cash flow will be sufficient to cater for our capital allocation ambitions. Stefanie Wettberg: So now it will be Tony Jones. We have then in the queue, Georgina Fraser and Chetan. But now Tony Jones, Rothschild & Co. Tony Jones: I have 2. Firstly, on currency and impact to EBITDA. For this quarter, my simple math got me to about a EUR 90 million, EUR 100 million negative to EBITDA. Firstly, is that in the right sort of region? And then secondly, what is now the dollar euro sensitivity. Could you give us an indication for the core businesses? And then my second question refers to the well-known oversupply of chemicals and materials, particularly China. How do you see this developing by region over the next year or so? So for China, do you think there's still going to be net capacity additions? Or will it slow in Europe, capacity closure seem to have paused. So what do you think is happening with that? And then North America, do you see any need for further capacity? And if there is, would you participate? Markus Kamieth: Maybe, Tony, I'll take the second part of the question, and then Dirk will answer the question on currency effects. Generally, I would say the oversupply situation is not changing quarter-by-quarter. So we can only repeat what we have said over the last, let's say, 2, 3 quarters, situation remains unchanged. In China, we have significant overcapacity in most chemical categories, I would say, upstream a little bit stronger than downstream. But for sure, everything is quite well available in China. However, we are seeing already, let's say, a slowdown of investment capacity, and we still see significant domestic demand growth. So overall, we continue to stay in our model that we expect a rebalancing of capacities over the next years, and that certainly will be supported also by the Chinese government in what they call supply-side reforms in -- to what level and to which extent we will have to see. But overall, I would say this is a slow-moving system, but it will re-equilibrate to some extent. That's at least our model as of today. In Europe, I do not necessarily share your view that the capacity adjustments have stopped because I think there is ongoing stream of announcements, and I also expect that over the next years, continued capacity rationalizations are going to be observed in Europe, just be reminded that from announcement to actually closing and shutting down a plant or a site 2 or 3 years can sometimes be necessary. So overall, we expect this to continue because we expect that quite a number of chemical assets in Europe are currently operating at not sustainable profit levels. And the situation in North America is that North American market, we expect to have modest growth also going forward for chemical products. It is a reasonably, let's say, midterm growing market. So capacity additions will certainly be needed in certain products, but we have no major plans now for big capacity additions in North America because also here, we're well invested. We have competitive assets all over the country. And with our latest investment project in the MDI expansion in Geismar, I think we have done the 4 BASF most attractive step right now. So also in the U.S. for the next foreseeable future, we expect a positive development, supply demand overall, and we don't have any major investments planned for the next couple of years. Dirk Elvermann: Tony, on your more technical questions, FX impact on the earnings side, third quarter, your assumption is right, rather EUR 90 million than EUR 100 million negative. And for the sensitivity, mid-double-digit per U.S. dollar cent change. So let's say, roughly EUR 50 million per U.S. cent change compared to the dollar. Tony Jones: That's great. That's very, very helpful. Stefanie Wettberg: So now it's Georgina Fraser, Goldman Sachs. Georgina Iwamoto: I've got 2 questions. One on Care Chemicals. I was a bit surprised to see the negative volumes, but prices up in the segment, and we also saw margins deteriorate a lot. Could you explain a little bit more of what's going on there because it's an unusual dynamic? And then the second question is a follow-up to Tony. So if I take your answer on the overcapacity situation, it sounds like it will be resolved by a growth of demand in China, and capacity rationalization in Europe. Given you've already announced a lot of your own capacity rationalization, could you talk about value chains you think are most likely to see meaningful consolidation that BASF would be able to benefit from on the other side? Markus Kamieth: Yes, Georgina, I will also take the second part, give Dirk some time to think about the first part. It's hard to pick and pinpoint, I would say, certain value chains. But it's sure that if you look at capacity rationalization in Europe, in particular, you're looking at energy-intensive product or energy-intensive value chains where, let's say, the asset base is often also subscale compared to what is -- how things are produced in other areas. And that addresses 2 of the, let's say, sources of uncompetitiveness is, number one, the relatively high raw material costs, especially natural gas, other feedstocks in Europe compared to other regions. And second of all, also the age and certainly, the capacity of some of these assets compared to offshore assets that we have. So I would say in the area of high raw material and energy intensive production upstream, this is where certainly the hotspot of restructuring efforts will be. And if you see the announcements of the last, let's say, 12 to 18 months, a lot of that has been circled around upstream assets, cracker, cracker plus 1, especially in nonintegrated setups where often a lack of integrated value chain is happening at the site. So that's certainly the area where I would expect most. And if you look at the setup of BASF, like we have also discussed at our Capital Markets update. This is often not a setup. We are operating in Europe because we have at least on the commodity side often highly integrated structures in Antwerp and Ludwigshafen, where we have a significant value add beyond, say, the cracker and cracker plus 1 step. So I don't say that our assets are necessarily totally shielded by this, but we, for sure, have a higher resilience compared to other companies when it comes to running these assets because we provide significant value-add downstream. And that if you look at the chemical industry, it is not the case for many of the more isolated and nonintegrated assets that we see. And with this, Dirk, Care Chemicals. Dirk Elvermann: Georgina, I'll take your question on Nutrition & Care. I'd say the entire segment, including Care Chemicals has EBITDA significantly below previous year's quarter, and it is mainly driven by lower contribution margins. And this is mainly on account of high price margin pressure, but also lower volumes. You see that in many areas, it's hard to pick an example here, but you could take, for instance, UV filters. You see here and there higher price developments, but this is not a margin expansion widely, but rather on the back of higher raw material costs. And finally, for Q4 for the outlook, I would not expect a fundamental change in the market dynamics for the rest of the year. It's only 2 months still ahead of us. So I would assume that the current trend is also following us for the rest of the year. Stefanie Wettberg: We will move on to Chetan and then we will have James Hooper, followed by Laurent Favre and Geoff Haire. So now Chetan Udeshi, JPMorgan. Chetan Udeshi: Again, I just wanted to discuss Surface Technologies and maybe in the hindsight, we should have seen some of this metal trading benefit come through because a few of your peers have also indicated the same. But just it would be useful to just remind us how is your business in terms of PGM different from that of Umicore or Johnson Matthey? I think you have a much bigger trading operations rather than refining and recycling. So I think in a nutshell, the question is, are you much more exposed to the trading volumes rather than the pricing? And in that context, is the trading volume uplift that you saw in Q3, more one-off? Or is that something that you think can sustain if prices remain high? That's one. The second question is, just going back to the government grants. You said it's about low double-digit million per annum sort of a benefit that you expect going forward. But because in Q3, you've seen the benefit, which has been accumulated or it's the benefit of a number of years. Are we talking about the benefit in Q3, specifically more closer to EUR 100 million then? Just curious in terms of the magnitude in Q3 from that contribution? Markus Kamieth: Yes, Chetan, Markus here. To the second point, I think Dirk has given you already quite an indication here, I would say. And please also understand that the government grants are also linked to our specific business model that we run and which is slightly also different than maybe what our competitors do. So we would not like to disclose more as Dirk has said, and let me repeat this, that this was an accumulative effect of roughly 3 years. And on an ongoing basis, we expect a low double-digit million euro range. And I think you can do the math and get into the right ballpark here. So with respect to the difference to our competitors. Also here, I would like to not go too much into detail. I do not think that we have a fundamental different setup and business model. Of course, the size, especially of recycling operations are different, especially since one of our competitors or actually both competitors have significantly larger scope in terms of metal recycling, they recycle more metals than just PGM metals. We are focused very much on PGM. However, we have, of course, a leading position in the recycling of actual emission catalysts. So we have a much more integrated loop, if you want, on this side. And on the relative size of the trading business, this is -- I don't actually know this by heart, but I would say this also always depends a bit on the market conditions. So this is also not something that's carved in stone. So I'm not sure that this is a very helpful answer for you, but I would also not like to give much more details on this. And I think if you follow our competitors as well, you will do -- we will be able to do the read across of it. Stefanie Wettberg: So now James Hooper, Bernstein. James Hooper: I've got 2, please. The first one on Nutrition & Care. Can you provide a little bit more color on the kind of care chemicals and the Asian competition margins and whether that's imports, exports or any reason specifically? And how do you expect capacity situations in those markets to change? And also just on Nutrition & Care as well. Can you provide some updates on the dynamics of the vitamin markets and your production ramp-up? And then secondly, on Zhanjiang. On Slide 6, just looking at the -- from next year, the negative ramp-up cost bar seems slightly larger than the blue positive one. Should we be reading this that Zhanjiang will still be a negative contributor in 2026? Or do you have levers to potentially reduce losses here? Markus Kamieth: Yes, Markus here. The second question, I mean, we discussed this already on the Capital Markets Update in Antwerp that there is, of course, now with the ramp-up being late in the year 2025, we will have significant start-up efforts still in 2026 because you can imagine that ramping up a steam cracker plus 20-plus downstream plants is not happening within a couple of weeks. And that, together with, of course, a challenging -- currently challenging margin picture, which could change within a few quarters significantly. It's very difficult to predict now with all these moving parts, an accurate number for 2026. We will try to do our best, giving you this as part of an outlook in February. But we have indicated this so because there is a likelihood that this number will be negative next year and there's a good likelihood that it could be positive next year. And this is the most honest and most transparent indication we can give you right now. And yes, that's basically also our state of knowledge right now. We're compiling all the numbers for '26, but we are expecting this to hover around the 0 range, slightly positive to negative that's why we painted it this way. Dirk, any comments on Nutrition & Care and the moving parts? Dirk Elvermann: So to the moving parts in Nutrition & Care, maybe no particularities here for China to be told. But maybe on the volume picture here, as we have already indicated, volumes decreased in both divisions. And if it comes to vitamins, you also saw here the decrease which was compared to higher than maybe even expected inventory sell-offs for the last previous year's quarter. I would say, position and outlook for Nutrition & Care, very much in line with the other chemicals divisions here. We expect high uncertainty for the fourth quarter. We expect still ongoing weak demand and ongoing price margin pressure to persist globally. And therefore, also in Nutrition & Care, we are very much concentrating on our self-help measures, which for the nutrition part is certainly our efficiency program plus the further ramp-up of our vitamin production. And in the Care Chemicals, we also have a running efficiency program. As you know, so this is currently the main focus point for us and also for the rest of the year. Stefanie Wettberg: Now we move on to Laurent Favre, BNP Paribas Exane. Laurent Favre: Yes. Can you hear me? Stefanie Wettberg: Yes. Laurent Favre: Sorry to go back to Chetan's point on ECMS. But I'd just like to understand, I guess, where the improvements in the trading side are mostly linked to realized gains? Or is there also a component of inventory mark-to-market. So this is more of an accounting, I guess, a question. And I'm wondering whether, therefore, we can assume that if everything stays the same, there might be a further improvement into Q4? And the second question is more about the guidance, I guess, I know that last year, you kept the guidance, Markus, you mentioned that you had a fighting chance of getting there. I'm wondering whether it's something similar this year, i.e., if we have a abnormal seasonality into Q4, you would feel confident with the guidance? Or is there something else that gives you that confidence to reach at least the low point, if not more? Markus Kamieth: Chetan -- sorry, Laurent, I'll take the second one. We are expecting Q4, as I said earlier, to stay more or less similar to Q3 in dynamics plus the normal seasonality that we have in our businesses. So in ag, of course, an uptick in activity in some of our more seasonal businesses that are, for example, construction-related serving downside, and we expect normal year-end behavior of customers. So this is our expectation. And based on this, we feel comfortable with our range. But we all know the volatility in the world is right now is very high in news can change this every day to the positive and to the negative. We know that this week, the U.S. President and the Chinese President are meeting, so who knows what's going to happen. So we are basing this on a rather stable outlook compared to Q3, and this is also what all our customers are telling us is going to happen in Q4. So we feel this is a robust outlook and -- but we certainly cannot exclude any surprises on both sides of this. Dirk Elvermann: Laurent, to your -- to your ECMS question, trading. This is a real trading result. There's also some valuation effects, which are -- but anyway, as you know, largely hedged. So this is a decent trading result we are talking about. Laurent Favre: Okay. And when we -- maybe a follow-up, we now have disclosure for the last 2.5 years. So we can see ECMS -- well, I guess the wider Surface Tech division printing EBITDA between EUR 70 million and EUR 170 million and a big step-up in Q3. If you look at the last 2.5 years, in those 6 quarters prior to Q3, was there any abnormally low result from trading? Or were all those quarters roughly normal and it's just that Q3 is so good this year? Dirk Elvermann: Not that I'm aware of. No. Stefanie Wettberg: Now we have Geoff Haire, UBS and the final speaker will be Sebastian Bray from Berenberg. But now Geoff Haire. Geoffery Haire: I want to ask a slightly longer-term question. Given the volume environment we've had now for what the best part of 3 years in terms of very lackluster volume, are you concerned that the industry is going to start chasing volumes, particularly in more downstream products. You've obviously seen big price declines in upstream. But what is your fear that, that moves into the downstream area and we start to see effectively a price war for volume? Markus Kamieth: That was it? All right. Only one question, Geoff. Thank you very much. Actually, I'm not scared, but I'm conscious that this is already happening. If you look at the commentary of also, let's say, more singular downstream competitors, more in the specialty area. They all will tell you that margins are compressed compared to what we have seen in the past. So competitiveness, race for competitiveness and with this also, let's say, a further competition on who has the best asset setup is also happening downstream. And this is why also we have addressed the Capital Market update also that we have restructuring need also in some of our downstream divisions because in general, the chemical company -- the chemical industry gets more competitive and that's true upstream and it's also true downstream. I would say, in general, downstream, of course, pricing cycles are much slower. There's also a lot of pricing and value components that go beyond the physical product, it is application know-how, it is innovation opportunity. So there's not a direct let's say, correlation between what's going on upstream in commodity areas and in downstream business solution type areas, but the trend that most of the businesses in the chemical industry become more competitive because a number of competitors are increasing and let's say, capabilities are commoditizing. That's certainly true, but that is also part of our outlook for the industry. That's part of our strategy because we bank on all of our businesses, especially also in the core being on top of the -- on top of the pile, so to say, when it comes to competitiveness and innovation capabilities. So we're not afraid of this, but it's a trend that is certainly materializing over the last 10 years, I would say, already. Stefanie Wettberg: So now a final question from Sebastian Bray, Berenberg. Sebastian Bray: Congratulations on a good set of numbers. I have 2, please. The first is on agriculture. The -- how is the company thinking about the pricing moving into '26 because some of this was starting to slip in Q3. I appreciate there's a danger of reading too much into 1 quarter, but I'm curious about the view on this. Can I also ask a secondary question on the terminology that BASF uses for describing its ambitions to IPO the business. Why does the company always use the term partial IPO rather than, let's say, full IPO? Is the ambition to remain indefinitely a long-term shareholder in this business or to divest completely eventually? And related to that, if we are looking at available proceeds, let's say, the German government insurance program pays out, the company has got more than it expected, probably 1.5 years ago for Coatings, is EUR 4 billion a firm number for buyback by '28? Or is it a number that offers some upside if cash proceeds continue to roll in? Dirk Elvermann: Sebastian, I'll take your questions then. First on the Ag business. The Ag business and the agricultural industry altogether is still suffering from low soft commodity prices. There's, as you know, also uncertainty, particularly in the northern hemisphere with the farmers with regard to their purchasing power. So this is the more critical part. On the other hand side, I would say we have a healthy channel inventory. So demand substantially we see for our products. This is also why we are optimistic for the rest of the year that the Ag Solutions segment will deliver on its plans. Going forward, we see the business really in a competitive shape because we have last year taken a lot of measures, the restructuring of the glufosinate ammonium, which is now paying off and other efficiency measures taken in the division, which really give us a good competitive position. So I would say, despite the low price levels that we currently still see in the business, we feel good about the business also going into the next year. But certainly, it will be helpful at one point in time if the soft commodity cycle is then gaining momentum to the upside again. So with regards to the partial IPO, we are saying it's a partial IPO because we have no intention to launch 100% of the shares at the inception. We use the term partial IPO to show and to say that this business also beyond the IPO event will be a business that is consolidated into our group financials, and it's a business that we also like. We have not set any definitive portion of shares that we are going to launch on IPO at this point in time. We will do so at the right moment in time. And then what happens over time remains to be seen. But clearly, at inception, it will be a partial IPO, and this is what we are clearly saying. With regard to your question on proceeds, you are right, we have announced a EUR 4 billion share buyback program. I think we have confirmed it. And at the same time, we are now accelerating a substantial part of it, which I think should be a good sign of strength of the company. And this is it for the time being. I'm not excluding anything, but I'm also not changing anything here. It's the EUR 4 billion until 2028. And we said always this is the minimum. But let me also very clearly say that apart from share buybacks, the company has a job to do next year, particularly to deleverage the debt, and there's a good opportunity next year to do that because next year, we will have maturities of roundabout a little bit more than EUR 2.5 billion, and that will be also a priority for the use of funds that we will significantly deleverage the company in 2026 alongside the share buyback program that we have announced. Stefanie Wettberg: We are now at the end of today's conference call. Let me take this opportunity to draw your attention to a dinner with BASF Board members that we will host in London on Wednesday, December 3, we will send out invitations to investors and analyst next week. Should you have any further questions regarding our Q3 reporting, please do not hesitate to contact a member of the BASF IR team. Thank you very much for joining us today, and goodbye for now.
Frank Maaø: Good morning, and welcome to Telenor's Q3 results call. I'm Frank Maao, Head of Investor Relations here at Telenor. And presenting today are our CEO, Benedicte Schilbred Fasmer here; and our CFO, Torbjorn Wist. Before we get started, just a few quick notes. So unless we say otherwise, all growth rates are organic and made on a constant currency basis. And when we mention EBITDA, we are referring to adjusted EBITDA. [Operator Instructions] And with that, I'll hand it over to Benedicte. Benedicte Fasmer: Thank you, Frank, and good morning, everyone. This quarter, we've seen a challenging external environment. Hybrid warfare, extreme weather and a high level of cyber threats have all impacted power and communications. And these events are a reminder of how crucial robust digital infrastructure is. And at the same time, they give us opportunities to help customers build resilience, thanks to our strong network and technology foundation. Today, we are reporting another solid quarter, mainly driven by strong results in the Nordics. Our commercial strategy and ongoing transformation efforts continue to pay off with EBITDA in the Nordics up 8% and 50,000 new mobile customers added. In Asia, however, we do see a bit of a more mixed picture. On one hand, we grew service revenues and EBITDA by 4% with positive contributions from both Pakistan and Grameenphone in Bangladesh. On the other hand, we continue to expect challenges in the region, as Torbjorn will get back to, including the macro economy and headwinds tied to the cost of supporting data growth, including spectrum. Thanks to the dedication of our employees across the group, we have delivered an EBITDA growth of 5.4% and a free cash flow before M&A of NOK 4.2 billion this quarter. And this represents a 50% year-on-year increase due to higher EBITDA, prudent CapEx and supportive working capital management. And with 3 quarters now behind us, we are reaffirming our expected performance for 2025, and we are tightening our guidance ranges. So let me walk you through the key developments in the Nordics and Asia before Torbjorn takes you through the financials in more detail. The Nordics continued to deliver strong results with momentum across all business units. Organic service revenues in the Nordics rose 2.1% as OpEx declined by the same percentage year-over-year, driving the 8% increase in EBITDA. Breaking it down, gross profit improved, supported by upselling, pricing, product mix and increased wholesale revenues. Ongoing transformation programs helped lower OpEx even though we spent more on sales, marketing and business resilience. And again, Norway remained our top performer with 2.3% service revenue growth and 9.2% EBITDA growth. And that was also supported by the national roaming agreement announced last year. In Sweden, top line growth was flat due to our fixed transformation initiative, but EBITDA grew 7.5%, thanks to improved gross margins and OpEx efficiencies, especially in customer service. We made good progress in the mass market mobile segment, increasing both ARPU and our customer base, though the enterprise segment in Sweden remained very challenging. In Finland, DNA grew service revenues by 2% year-over-year. This was supported by net additions of 28,000 mobile customers and 3,000 fixed customers during the quarter. For this quarter, DNA grew EBITDA by 5% and quite a bit more on an underlying basis. Denmark delivered 5% growth, powered by strong mobile and fixed wireless access. EBITDA was up 4% despite strategic channel shifts and a huge transformation effort. Overall, the Nordics delivered a strong performance. In Asia, we continue to make operational progress despite a tough external backdrop. Grameenphone delivered growth in both service revenues and EBITDA, though the upswing was softer than hoped. The macro context is still fragile and data price competition is intense. During my recent trip there, I could genuinely feel a sense of optimism building up among the people as the election approaches early next year. Telenor Pakistan delivered 17% year-over-year EBITDA growth, which is actually great to see. Nevertheless, a key milestone for us was the competition authority approval for the sale to PTCL. We are now awaiting the last approvals and aiming to close the transaction during the next few months. In Malaysia, we recognized NOK 0.5 billion adjustment to our share of CelcomDigi's second quarter results. This was due to the financial profile of its associated 5G network company, DNB. And Torbjorn will cover that in more detail. In Thailand, True continued to improve profitability and reduce leverage in Q2. Next week, a first ever interim dividend is expected to be proposed with payment in Q4. On October 1, we announced a strategic procurement partnership with Vodafone. And this collaboration brings together the scale and expertise of 2 global leaders serving over 550 million customers across 23 markets. And by combining the strength of our 2 organizations and an annual spend of altogether NOK 300 billion, we can unlock significant value within sourcing. As we gradually phase this in towards the latter part of this decade, we expect this partnership to provide meaningful value creation. And for Telenor, this translates into enhanced competitiveness and improved cost efficiency. It also strengthens our attractiveness to suppliers and partners while bolstering supply chain resilience. A very critical capability in today's evolving geopolitical and technological environment. The partnership is also grounded in a shared sustainability commitment, reinforcing our leadership in responsible sourcing and business practices. Ultimately, this partnership is about creating long-term value for both our customers and shareholders. And with that, I'll hand you over to Torbjorn for more on the financials. Here you go, Torbjorn. Torbjorn Wist: Thank you, Benedicte, and good morning, everyone. Let's dive straight into the Q3 financial highlights. Group service revenues in the quarter reached NOK 16.3 billion, which is up 2.7% year-on-year. The adjusted EBITDA was NOK 9.5 billion, up 5.4%, mainly driven by the strong 8% EBITDA growth in the Nordics. In Q3, adjusted EPS was NOK 1.85, down 3% from last year, mainly due to the NOK 0.5 billion accounting adjustment for CelcomDigi that Benedicte mentioned in her remarks. Without this adjustment, the EPS growth would have been 18%. Now we generated a solid free cash flow before M&A of NOK 4.2 billion during the quarter, which is up 50% year-on-year on the back of our EBITDA growth and slightly reduced CapEx. The group CapEx to sales ratio was 13.3%, 0.7 percentage points lower than in the same period last year. The leverage ratio ended up at 2.3x within our target range, and this was supported by both the free cash flow profile as well as slightly favorable end-of-quarter currency movements as the Norwegian kroner strengthened against pretty much all our currencies. As previously stated, driving return on capital employed over time remains a top priority for us. Return on capital employed came in at 8.6% for the last 12 months, up 0.6 percentage points from last year. If you exclude all our noncontrolled companies, the group return on capital employed would have been close to 14%. Let's zoom in then on the top line. The group service revenue growth of 2.7% year-on-year remained constrained by weak macroeconomic conditions in Bangladesh. The Nordics were the main contributor to group growth with service revenues up 2.1%. If you exclude the NOK 56 million adjustment to the first half service revenues in DNA, underlying growth for the Nordics would have been 2.6%. Nordic Mobile service revenue growth of 3.2% was mainly driven by Norway, Denmark as well as DNA in Finland. Pakistan continued its strong momentum and Grameenphone contributed positively for the first time since the second quarter of 2024. If we turn to OpEx, Telenor Nordics delivered a solid reduction in OpEx in the third quarter, declining 2.1% year-over-year, driven by lower personnel costs and a successful transformation activities with Sweden standing out as a key contributor. FTEs across the region were reduced by 3%. Denmark saw higher OpEx largely attributed to the higher commissions in recent quarters as well as higher costs linked to its ongoing and important IT transformation effort, while Finland benefited from lower personnel costs and positive effects from a minor reclassification. Overall, the rise in sales and marketing expenses was driven by amortization of subscriber costs. For the Nordics, this resulted in a 5% year-over-year increase in sales and marketing spend. OpEx in Asia rose 3.7% year-on-year, mainly due to higher O&M costs as well as personnel costs in Grameenphone as well as Telenor Pakistan. Amp recorded a 21% increase in OpEx, reflecting growth initiatives as well as the transfer of 2 businesses from Telenor Norway, as we mentioned in Q2. Overall, there was a modest uptick of 1.3% in group OpEx in the third quarter, underscoring our progress of transformation activities, cost discipline. Then turning to EBITDA. EBITDA for the group was up 5.4% in Q3. Asia contributed positively, partly offset by group effects similar to the ones we have discussed before. But the main driver this quarter was the performance in the Nordics. And in this business area, EBITDA grew 8% in Q3. And as you can see on the right-hand side of the slide, Telenor Norway was the cornerstone this quarter. The performance in Norway was driven by service revenue growth as well as wholesale revenues, mainly from the national roaming agreement highlighted during our Q2 presentation. On a side note, we still forecast the full year revenues from this contract to be more than NOK 0.5 billion for 2025 as a whole. Together, these factors paved way for a 9.2% year-on-year growth for Norway. Now DNA also had a reported EBITDA increase of 5% despite booking of catch-up items, and this was driven by strong gross profit. Sweden reported an EBITDA growth of 7.5%, supported by growing gross profit and a solid OpEx decline. So with that, let me move to Asia. Our 2 consolidated companies in Asia delivered service revenues of NOK 4.3 billion and EBITDA of NOK 2.5 billion, representing organic growth of more than 4% for both metrics. This was mainly driven by Telenor Pakistan's continued high EBITDA growth, supported by ARPU uplift and lower energy costs. Grameenphone returned to growth in both top line and EBITDA, which is good to see, though the upswing was softer than hoped despite the easier comparables due to the impact of the regime change we saw in Bangladesh in Q3 last year. As you know, the market is gradually transitioning from voice to data, which is challenging as competition in data is quite intense. Grameenphone has had subdued 4G investments with CapEx to sales of 9% over the past 4 quarters due to the macro situation. But given the data demand from our customers, we will eventually need to dial this up a bit again to accommodate for expanded data coverage. Among our associates, True reported 2.6% year-on-year EBITDA growth for its second quarter and continued its deleveraging profile. The company nudged down its full year outlook following a network outage as well as some of the macro headwinds. True has stated plans to propose an interim dividend in conjunction with its Q3 reporting, which is due already next week. In the quarter, we received NOK 350 million in dividends from CelcomDigi as the company increased its dividend per share while also reporting 5G traffic costs. Taken together, Asia's profitability improved during Q3 despite the relatively challenging external backdrop. However, we do see some short to midterm risks and headwinds in Asia. Among the risks we see, we have touched on in the past, I would like to highlight 3 that will affect us. First, in Malaysia, the 5G landscape remains challenging. CelcomDigi's associated company, originally a 5G network for all telcos, is undergoing the final stages of privatization. Its recently reported financials suggest a lack of sustainable long-term financial situation in this associated company. We're working with partners to support restructuring with the aim of helping CelcomDigi ensure a competitive 5G company setup. However, the outcome of this process remains to be seen. The financial profile of the 5G NetCo is also the backdrop for the NOK 530 million adjustment to our share of results from CelcomDigi this quarter, as mentioned earlier. This quarter, we have only 1 year left until a major chunk of our spectrum in Bangladesh needs to be removed. This will entail a step-up in spectrum payments for up to 4 renewed licenses as these spectrum licenses were paid 4 years ago. As always, our spectrum resources web page on telenor.com gives you full details on our spectrum portfolio. In addition, spectrum pricing in the country has historically been 2x the global median despite a much lower GDP per capita in the country, as you can see in the graph in the middle of the page. We're hoping -- finally, competition authority clearance was recently granted to PTCL for the takeover of Telenor Pakistan. Very pleased to see that. We're hoping for a smooth process from here onwards and look forward to closing the transaction soon. Given the recent strong performance, we expect Telenor Pakistan to contribute around NOK 0.5 billion in free cash flow for '25. And note, of course, that this contribution will end once this sale is complete. Then moving back up to the group level, and let's look at the P&L, cash flows and leverage. There are 3 items in the P&L this quarter that I would like to highlight. First, we have the adjustment we've made related to CelcomDigi mentioned earlier. This reduces our share of net income from associated companies. Second, we booked a NOK 269 million reversal of impairment of our shares in True. Note that as we said in Q2, all of our shares in True are now directly owned. Finally, on income tax, we booked a NOK 312 million provision for withholding tax on retained earnings in associated companies. This is the main reason why the effective tax rate increased to 33% from 26% in Q3 last year. All in all, we generated net income to equity holders of NOK 3 billion in Q3 and an adjusted EPS of NOK 1.85 per share. Moving to free cash flows. The free cash flow in Q3 was driven by the strong operational performance in the Nordics. We paid almost NOK 1 billion in income taxes, of which 70% is in Grameenphone. As we have discussed before, we have seasonally lower interest payments in Q1 and Q3. And as usual, spectrum payments are very small in Q3. Net working capital contributed negatively by NOK 0.3 billion, mainly due to high activity in Norway and increased receivables. CapEx paid amounted to NOK 2.6 billion, in line with the quarter's CapEx booked. Other lease payments amounted to a total of NOK 1 billion, a figure slightly below the indicated average for the year. As Grameenphone and Telenor Fiber streamed up interim dividends, we also paid out a total of NOK 600 million to noncontrolling shareholders. On a side note, around NOK 0.1 billion of the Q3 Grameenphone NCI was staggered and is due for payment in Q4. Altogether, this led to the free cash flow coming in at NOK 4.2 billion, a solid 50% increase year-on-year. Then moving to the debt side. Net interest-bearing debt, excluding license obligations, ended the quarter at NOK 85 billion, which is down NOK 5.2 billion quarter-on-quarter, benefiting from a NOK 1.1 billion FX gain as the kroner strengthened against all our key debt currencies. At the end of the quarter, leverage stood at 2.3x, within our 1.8x to 2.3x target range. We maintain a resilient balance sheet and prudent maturity profile, and our dividend policy ensures predictable shareholder remuneration. Then let's move to our outlook update. Heading into Q4 and our upcoming Capital Markets Day on November 11, our full year '25 outlook pillars remain unchanged. We're tightening the ranges based on our solid year-to-date execution and our visibility for the year. For the Nordics, we see 2% to 3% service revenue growth, 8% to 9% EBITDA growth and CapEx to sales is confirmed around 14%. As we stated in Q2, on the decimal side, the CapEx number is more likely than not going to be somewhat on the north side of 14%, considering the investments we announced earlier this year with regards to resilience and fiber in Finland. For the group, outlook for adjusted EBITDA growth is tightened to 5% to 6% from mid-single digit previously. We maintain our view of around NOK 13 billion free cash flow before M&A. We believe that the contribution from Asia will probably be a bit less than 1/3. All in all, the updated outlook reaffirm our overall traction for the full year. And with this, Benedicte, I believe it is time to wrap it all up. Benedicte Fasmer: Thank you so much, Torbjorn. And to sum up, in the third quarter, we delivered consistent execution, strong performance in the Nordics, improving profitability in Asia and a robust cash flow. We also highlighted some expected headwinds in Asia. We are focused on customer experience, service reliability and security with transformation being key for both efficiency and future growth for us. Our financial principles emphasize return on capital, balance sheet strength and a predictable dividend trajectory. We achieved these results, thanks to the ongoing commitment and relentless drive of our great people across Telenor. The updated '25 outlook reaffirms our overall traction, and we are tightening the ranges and maintaining the free cash flow outlook. One final note. We are excited to remind you about our upcoming Capital Markets Day on the 11th of November. We look forward to welcoming you here at our Fornebu office. And please do not forget to register your attendance, whether you'll be just joining us in person or virtually. So with that, thank you all for your attention and continued support. We are now ready to take your questions. Frank Maaø: Thank you, Benedicte. And as a request to the analysts, we would appreciate if you would keep your question to forward-looking topics on 2025 only as the prospect for future periods will be covered at our CMD in less than 2 weeks. [Operator Instructions] So operator, please go ahead. Operator: [Operator Instructions] Our first question will come from Owen McGiveron, Bank of America. Owen McGiveron: So you flagged higher spending on sales and marketing for Q4 in the Nordics. This is a similar commentary to your competitors. I guess what I'm trying to understand is, is this comment in line with seasonally higher spending in Q4? Or do you think that this year is going to be particularly competitive? And where in the Nordics do you think you'll have to deploy this additional spending? Benedicte Fasmer: Thank you for your question. I think -- we have intensified our sales and marketing efforts. And I think that also adds to the quality of the OpEx as we can sustain a solid OpEx reduction while still putting more on the throttle on the marketing spend. And we see also that, that has given us good results. To what extent we intensify or not going forward, I think we will have to come back to. But we see that it's given us quite good results this quarter. Operator: Our next question comes from Ondrej Cabejšek from UBS. Ondrej Cabejšek: I wanted to focus on some of the Asia challenges that you flagged in your presentation and how you plan to approach them. I guess, are there any mitigating factors that you already have in mind? Are there some industry initiatives, for example, that you are taking with respect to like the 5G JV or the spectrum auction that you flag as unusually high in Bangladesh? And do you think that this could, for example, rationalize the markets that you're seeing the headwinds in to kind of promote higher growth to offset some of these headwinds? Benedicte Fasmer: Yes, please Torbjorn. Torbjorn Wist: In Malaysia, if we start with that, we are actively working together with our partners or co-shareholders in the company as well as the other parties that are invested in the 5G NetCo because obviously, this is a situation that is affecting everyone, and we want to make sure that we have a well-functioning 5G company. So these are efforts that are done at multiple levels through the channels where we have influence. But you can be assured that there is a lot of focus on this on the ground in Malaysia as well as with people in Telenor Asia to help resolve the situation. In Bangladesh, clearly, there is a voice to data transition going on, ensuring that we can compete effectively in that is important. And I think what we have been very good at doing in an environment, which has at times been challenging is to ensure that we can throttle and de-throttle also on the investment side to be in line with expected recovery in the market. And of course, we assume that this is a market that will improve post election, but that is obviously something we're watching keenly, and we will gas up or slow down depending on the situation. Ondrej Cabejšek: If I may follow up on the spectrum, you expect to be like not influenced by this election, I guess? Or is this something that you're flagging as potentially signaling a new approach to the sector in both spectrum auctions, but then also we've seen in the past that sometimes the regulators in Bangladesh specifically try to basically, I guess, extract a lot of value from the telecoms industry overall. Torbjorn Wist: Yes. No, I would delink the 2. When I talk about the election, there is an expectation that the market will recover. And I think we touched on this in Q2 that we expected earlier this year a recovery in Bangladesh in the second half of this year, but we don't see that -- we see that now more as a '26 event because the election is slated to take place in February of '26. So that, of course, is an important milestone for the country. With respect to the spectrum portfolio, we always take a prudent approach, and we obviously need to make sure that it makes sense. And we don't sort of talk too loudly about it, but we will, of course, consider our position when it comes to new spectrum, whether it be the renewal of the 4 licenses we're talking about or the low-band spectrum auction, which is expected at some point. Operator: Our next question comes from Christoffer Bjørnsen with DNB Carnegie. Christoffer Bjørnsen: So I just wanted to touch upon on the GlobalConnect transaction that you're now working on. So I appreciate you don't want to spill the juice before the Capital Markets Day. But given that that's already announced, it would be really helpful to kind of hear your high-level thinking around whether that investment is kind of incremental to your current fiber investment plans in Norway or if that's kind of an alternative to the plans you already have in Norway? It just seems like the investments in Norway are kind of slowing down in the fiber space. So just trying to understand your thinking around that, I guess. Benedicte Fasmer: When we hopefully get the approval, I mean, this is subject to authority approval. So we have to have that little caveat. We will increase our market share by around 7 percentage points. And we do see that our ability and our strength in the fiber market is important for us to be able to deliver connectivity in the different ways and forms that the customers actually want. And the reason for doing this by way of an acquisition is twofold. I mean, one is that it's a step-up in market share that kind of gives us a much stronger position in the market. And the second thing is, as you allude to, there is around 50% overbuild in the market that we see, and we have done very careful considerations around those elements as well, but we believe that this will give us very interesting synergies as well as a good market position towards the customers. So it should be good for our shareholders, I guess, that's the summary. Christoffer Bjørnsen: That's great. And just as my follow-up really quickly. Maybe you already mentioned it, I was a bit late on to the call. Just on DNA and that accounting adjustment. Could you just unpack a bit what actually happened there and how we should think about that, that would be helpful. Benedicte Fasmer: Which -- unpacked what in DNA. Christoffer Bjørnsen: Fantastic. I can do it. Benedicte Fasmer: The accounting [indiscernible], yes, please. Torbjorn Wist: Yes, very quickly in -- as we've touched on in previous presentations, in Finland, there has been widespread use of vouchers as an incentive to get people to lock into new subscriptions. Historically, these were taken as OpEx and then amortized on the OpEx over 5 years. But having considered that, we've taken that -- moving that now into a revenue effect, which is taken over 1 year rather than spreading the cost of each voucher over 5 years. So that pulls down the revenue by NOK 56 million in DNA. Benedicte Fasmer: And just to add a little bit to the effects, Christoffer. On a group level, the EBITDA effect was a negative of around 0.8 percentage points. On the Nordic level, minus 1.1%. And on DNA, it was as much as 5.5%. Christoffer Bjørnsen: So not really any changes in the competitive dynamics of Finland. Torbjorn Wist: This was an accounting adjustment. Benedicte Fasmer: This is just accounting adjustment. Operator: Our next question comes from Ajay Soni with JPMorgan. Ajay Soni: Mine just around the Swedish cost base. So you called this out in your remarks as being one of the key drivers behind your lower Nordic OpEx. I just wanted to dig into 2 areas. So firstly, around -- I know you're going through a fixed transition. But do you see -- have you seen any material change in your fiber wholesale costs? And then you also called out your customer service cost benefits. So what have you done here? And could this be rolled out into other Nordic regions? Benedicte Fasmer: Would you like to take this one? Torbjorn Wist: Yes, there were a few questions there. Yes, if we start with some of the sort of cost initiatives, there has been a very strong and focused effort to ensure that one cleans up the fixed portfolio a little bit, which is why you're seeing that service revenues is pretty flat due to that fixed is weighing down, but that is a very conscious choice. If you look at the gross profit and you look at the O&M development in the company as well as cost within customer service, those are, thanks to strong OE initiatives that have been running for a long time. I think in terms of whether this is something that we redeployed in other markets, let's postpone some juice until we come to the CMD in a couple of weeks. But I can, of course, say that we always look at ways to replicate things across markets. So let's just leave it at that for now. Operator: Our next question comes from Andrew Lee from Goldman Sachs. Andrew Lee: I just had a question around your data costs in Asia, which appears to be the key reason for the kind of negative surprise today. So it looks like it's a bit of an incremental negative from your perspective as well in terms of what you are anticipating. So I wonder if you could just talk through what the obstacles to your visibility in terms of your cost base in Asia, particularly around data and I think particularly around Malaysia and Bangladesh? And then how confident are you in your visibility now in your cost outlook for Asia, certainly for the rest of 2025 and 2026. If you could just give us a bit more of an understanding around what's going on and what's kind of precluding your ability to really have the visibility on that cost base, that would be helpful. Benedicte Fasmer: Should I start with Bangladesh and then you can cover CelcomDigi. I actually visited Bangladesh just a couple of weeks ago. And you're right. What we do see in the market is that there is a transition from voice to data, and that segment is highly competitive. But we also realize or very realistic that the number of actual phones and mobile that will have 5G capacity of data -- 4G or 5G capacity that will support this demand is quite limited. So what we're doing is we're doing software upgrades, both in 4G and some 5G in densely populated area. And we do it in a software upgrade manner, if I could call it that, to the extent possible. So it's a very careful development. But we do see that there is a transition from voice to data that is going quite rapidly as of now. And this is just the positioning in the market, answering that change. Would you like to cover the CelcomDigi situation? Torbjorn Wist: Sure. And just to add on to Bangladesh. Of course, the voice to data transition is happening. And of course, we want to make sure that we can get our fair share, of course, making sure that this gives us a good return on investment. And as we have said, there is spectrum renewal and some investments that will be required. But we always measure this in a prudent manner with a focus on return on capital employed. With Malaysia, a slightly different situation because here, as more and more people use 5G, of course, the cost associated with that 5G traffic is increasing. And of course, a concern here is that if you have a 5G NetCo, which at present is not in a good financial situation, that could result in increasing costs being transferred to the ServCos, if you can call it, call the MNOs. So this is something that is driving an extreme focus on making -- with our stakeholders there and partners to ensure that we have a strong, financially viable 5G NetCo following the changes that has been made to the 5G structure where the new company was awarded a license to build a network and was given some of the frequency or the spectrum from our 5G NetCo. So it is a complicated situation, but very much a key focus on the ground. Andrew Lee: And do you think you've got a high degree of visibility on that cost outlook now over the next, say, 12 months? Torbjorn Wist: Yes. I'm not going to guide today for anything beyond '25, as you would appreciate. So of course, this is a key challenge that one looks at addressing going forward, and we will come back to that at later points. Benedicte Fasmer: Andrew, I just wanted to remind you that the MergCos, as we call them, I mean, True and CelcomDigi and Grameenphone are all listed companies in their respective countries. So there is some limitations as to what we can do give of forward-looking statements. Operator: Our next question comes from Keval Khiroya, Deutsche Bank. Keval Khiroya: So one of your competitors flagged a tougher competitive backdrop in Finland during Q3, whilst another has also talked about wanting to stem some of the market share loss in Finland and Norway. Do you feel Finland was more competitive in Q3? And have you noticed any changes across your Nordic markets in Q4 from a competition perspective? Benedicte Fasmer: Yes. I mean that's a short answer, but I'll elaborate a little bit too. We did see -- we also saw an increased competitive -- or a more competitive situation in Finland in Q3, which was highlighted by our competitors when they published their results quite recently. And we believe it will continue to be quite tough in Finland. However, the intensity was more on the low-cost side on the mobile -- in the mobile market. And as I mentioned earlier on, we managed to increase our subscriber base with 28,000 customers on the mobile side. And I think it was 3,000 fixed or something like that. Yes. So -- but we expect it to continue to be tough. Keval Khiroya: And just by way of follow-up, have you noticed any changes in Norway during Q4? I think one of your other competitors flagged them wanting to rebound in Norway as well. Benedicte Fasmer: We've -- it's been actually quite -- I was about to say flattish, but not a significant change. We saw that the churn also has been a little bit up, but also leveling off. So no major changes in this quarter to mention. No. Torbjorn Wist: Short version is that Norway and Sweden are in sort of neutral to somewhat positive territory, whereas Finland and Denmark have a higher degree of competitive intensity, as we have touched on in the past. Operator: Our next question comes from Fredrik Lithell, Handelsbanken. Fredrik Lithell: I thought maybe we could spend some time on the Swedish market and what you feel you can do to improve your situation and get growth going again. It is -- we have seen a little bit of higher competitive pressure, I think. So it would be interesting to hear your description, a little bit more color on the Swedish market. Benedicte Fasmer: As I mentioned, I mean, we are -- if we take mobile first, there is, of course, an intense competition as always. But we are quite pleased with the growth we have in the B2C market. We are cleaning up our fixed portfolio somewhat. And if you look at that, and I think Torbjorn mentioned it as well that there is a little decline in the subs base on fixed. But if you look at the underlying fiber development, it's actually quite positive. And the gross margin is developing well. But what we also mentioned earlier is that the SME market or the corporate market is quite competitive still, quite challenging. Torbjorn Wist: I guess it's worth pointing out that as we see in other markets, calling the -- on the B2B side, there tends to be different developments. I think we see that SME, you can perform strongly because it's closer to the offerings that we do to the B2C side. So we do see some modest growth there as well in Sweden. Operator: [Operator Instructions] Our next question comes from Ulrich Rathe, Bernstein. Ulrich Rathe: I'm afraid, I have a video limitation here, apologies for that. So my question would be about expected proceeds from the Pakistan transaction. Are there any clauses in the agreement that would be related to ongoing operational performance of the asset? And would that potentially change the expected proceeds? That would be my main question. Benedicte Fasmer: I don't think there are any clauses on the performance side. And we've been managing the last 22, 23 months, very carefully the CapEx spend and also the OpEx spend and so on and so forth just to keep the business secured and float with a good quality, but not spending more than we have to in the situation of the sale. When we receive the proceeds from the sale, that would mainly go to diminish debt, right, Torbjorn. And of course, we have seen over the last 12 months that the tax authorities have been quite active, collecting tax claims. If you remember back in -- early in the year, we had to pay NOK 250 million extra in a disputed tax claim. So there is always risks tied to this, but I don't think there is any contractual obligations on that. Torbjorn Wist: The only thing I'd like to clarify is that under the licenses we have there, there are rollout requirements. And of course, since -- it's now been a protracted period since the deal was announced. It's now, what, 22, 23 months. And obviously, in the CapEx releases that we have done, it has always been focused on ensuring that we are in line with the CapEx commit and license obligations so that, that does not become a hurdle to the closing of the transaction. So that, of course, is key. We generally don't tend to -- this is a modest proceeds situation. But I guess to remind everyone, we also have to pay for GlobalConnect once that deal is approved. Benedicte Fasmer: Yes. And then in '25, we expect Pakistan to contribute around NOK 0.5 billion in free cash flow. So that will also fall away when the transaction is executed. Operator: Our next question comes from Siyi He at Citi. Siyi He: I just have a follow-up question on the comments on Bangladesh. I think, Torbjorn, in your comments, you mentioned that you see the CapEx investments in Bangladesh is a bit -- you underspend a little bit over the last 12 months. But it seems when you look at CapEx to sales, it has stayed at 12%, similar to previous quarters. Just wondering if you can comment on the underspending, whether this is the comment against the competitors? And also, I want to ask if there has been any discussions with regulator on potential spectrum payment installments with the upcoming auction renewal? Torbjorn Wist: Yes. The CapEx to sales in Bangladesh has been running at a bit south of that. So I think if you look at the country as a whole, during the macroeconomic and political situation it's been in, that has constrained investments into the country, not just from incumbent players, but also by other actors and other industries. And of course, we have been releasing CapEx in a very prudent manner in the country given this challenging situation to ensure that we get an appropriate return on the investments that we make. So we will not sort of guide specifically on what we'll be doing going forward other than the comments already made that there will be spectrum-related installments once spectrum is renewed. We will, of course, look at that in a prudent manner. And our discussions with regulators and stuff, that's not something that we talk about externally. But needless to say, we talk to regulators all the time as part of our normal course of business. Operator: This concludes the Q&A. Thank you for your participation, and you may now disconnect. Benedicte Fasmer: Thank you very much. Torbjorn Wist: Thank you.
Sophie Arnius: Hello, everyone. Welcome to this call focusing on our performance in Q3 2025. Also this quarter, we improved our margin in a challenging market, and that was thanks to commercial execution and cost control. And this was definitely evident for our Industrial business area. My name is Sophie Arnius, I'm heading up Investor Relations, and I will also be joined by our CEO and President, Rickard Gustafson; and our CFO, Susanne Larsson. And there will be, of course, opportunities to ask questions before or after their presentations. And there are 2 ways to do that. [Operator Instructions] With that, let's get started. It's a great pleasure to hand over to you, Rickard. Rickard Gustafson: Thank you so much, Sophie, and good morning, everyone, to this earnings call. And as you heard from Sophie, yet again, we are able to present a resilient and somewhat improved adjusted operating margin despite a rather challenging market conditions. And also, as you can see on this chart, after 8 consecutive quarters of negative organic growth, we are actually back to organic growth in the quarter. Actually, it's primarily driven by our Industrial business, where we have seen growth across our geographies, while Automotive is still more volatile and a more negative demand environment. This performance was actually slightly better than we anticipated walking into this quarter. However, though, the underlying market conditions has not significantly changed in this quarter versus the second quarter. And to some extent, we are also helped by favorable comparison figures compared to Q3 last year. When it comes to our strategic initiatives, we are making good progress. Our Automotive separation is progressing at a very high pace, and I will share some more lights on that today, but I will refer also to our upcoming Capital Markets Day in a few weeks' time on November 11 in Stockholm, where we will be able to share more lights on this. When it comes to our Industrial rightsizing initiative that we announced last quarter, it's also progressing according to plan at high pace. As we said when we announced it, we do not anticipate significant savings in this quarter, in the fourth quarter this year. The majority will come in 2026 and into '27. And then we continue on our strategic journey to invest in our capabilities and effectiveness. And this quarter, I would like to put the spotlight on an initiative that we have developed in Italy, where we inaugurated a new global Super-precision bearing center that we are pretty excited about, and I will share some more details around that shortly. But if we move on and start taking a look at the high-level numbers. Net sales ended at SEK 22.4 billion, representing an organic growth of 2%, as I mentioned before. The adjusted operating margin improved slightly to 12.3% in the quarter despite significant headwinds from FX and rather challenging market conditions. I refer them primarily to the tariff situation. The main reasons why we have been able to further enhance and make -- retain the resilience in our earnings is our ability to drive commercial capabilities and execution on commercial activities. It's our good cost control and also that we benefit from previous investments that we've done in regionalization and in world-class manufacturing. Turning to cash flow. Coming in short of the same quarter last year, primarily driven by higher items affecting comparability, where Automotive is the main -- or the Automotive separation is the main driver behind that. And you will hear more of this by Susanne very shortly. But if we then turn to our different regions. And as I mentioned in my opening remarks, I'm very pleased to say that we have growth -- organic growth in our Industrial business across the regions where we have some more variation on the Automotive side. But let's pick them one by one. Starting with EMEA, our largest region, where we have an organic growth of 1%. It's driven by our Industrial business, where some industrial verticals stand out and had very significant growth. I refer to Aerospace and Magnetics. While in general, demand in Europe is still at a fairly low level, industrial demand is fairly low level, but has clearly stabilized in the quarter, but it's not yet taking off. When it comes to Automotive, we're still in a negative growth territory. However, though, less so if you compare to the same quarter last year, and that is primarily due to a stronger rebounds in our commercial vehicles section. Turning to Americas. Also a low single-digit organic growth, again, driven by Industrial. And of course, in this region, the price/mix activities to manage tariffs is part of the organic growth journey. But also some industrial verticals are also standing out. And here, I'd like to mention marine and aerospace. Turning to Automotive, a weak underlying demand that we have seen and especially true for commercial vehicles in this region. China and Northeast Asia, mid-single-digit organic growth. And here, we see growth both in Industrial and Automotive. On the Industrial side, it's primarily our industrial distribution that is growing and also our renewable energy business. Here, I need to make the same comment as I did in Q2 last year. Some of the renewable energy growth is somewhat inflated for prebuys or policy-driven prebuys in China. On Automotive, the growth there is pretty stable. And again, we report and see very positive development when it comes to EVs in this region. India and Southeast Asia, also a region where we have growth both in Industrial and Automotive, where we see very good activity levels in India and Vietnam, as examples. And from an industrial point of view, agriculture and material handling stand out in a positive way in the quarter, while Automotive has a good development, both when it comes to vehicle aftermarket and commercial vehicles in this region. If we then focus in on our segments and start with Industrial that this quarter represents roughly 70% of our net sales and 90% of our adjusted operating profit. As I mentioned, we're back to growth here and we have an organic growth just shy of 4%. But in absolute terms, as you can see from the chart, we are actually declining some 3% this quarter versus same quarter last year, and this is driven by FX. However, though, the adjusted operating margin continues to improve and now reaches 15.5% despite significant headwinds from currency and also we've been able to manage a volatile environment and the tariff situation. And the main drivers here are the same as I repeat for the group. But again, our commercial capabilities have played a significant role here. We have very good cost control. We benefit from investments in regionalization and world-class manufacturing, as I mentioned. And then we have a small but not very sizable also contribution from the rightsizing program. But as I mentioned, most of the value from that program or benefit from that program will come later as we move into 2026. Turning to Automotive. This quarter, roughly 30% of sales and 10% of adjusted operating profit. As I mentioned, still in the negative growth territory, but somewhat different across the regions. The negative growth, as you heard me say, is driven by Americas and Europe or EMEA primarily. We have talked about the tariffs a number of times. And we said at the group level, we do believe that we will be able to largely compensate for the tariff impact, and that has been the case also in this quarter. We also said that the majority of the net negative impact from tariffs will be found in Automotive, and that is also the case. So with that in mind and also the fact that FX had a really significant impact on the earnings in this quarter, I do believe that the adjusted operating margin performance, not just shy of the same level as last year is a rather good delivery. The main thing, the positive thing I'd like to put your focus on here is the fact that we continue to see a lower material cost that enables us to offset some of those headwinds and maintain the margin. And this is not a onetime event. It continues to be driven by very solid procurement activities and also a better material mix in our production that is helping to reduce material cost. So that is something really positive. If we then turn our focus to our ongoing separation initiative. So it's progressing well and at a very high pace. It's still a large program and a lot of work to do. But in this quarter, we have some significant milestones that we have achieved. We have actually concluded a number of very important IT cutovers during the quarter, and they actually turned out fully in line with our plan and no negative surprises came out of those. Another key thing is what's happening in India, where you may know that we have -- our business there is listed also on the Indian Stock Exchange. And there, we have been able to complete the separation, and we are ready to list the new entity in India before year-end, another significant milestone. But to give you some flavor on why we talk about that this is a very tight schedule, and there are -- I mentioned a couple of times that there are always risks with this massive project like this or a program like this and a number of activities are on the critical path, and that has not changed. I don't have any red flags to report today. But to give you some color on this, we're talking about some more than 1,000 IT applications that we need to cut over. We're talking about more than 9,000 intellectual property rights that needs to be split. We're talking about more than 60 manufacturing lines that need to be transferred around in our footprint. So it is a sizable project. But as we said before, we believe we still stand for that we should be operational ready to list Automotive by mid-2026. Then turning to another item. And as I mentioned in my opening remarks, that we are investing in a product line that is named Super-precision bearings that we are pretty excited about. Today, it represents some 2% of our Industrial net sales, but this is a product line that goes into a number of important industrial verticals like robotics, advanced machine tools and compressors, all of them that also benefit significantly from some key megatrends such as electrification and automation. And why are these products? What value do they bring in these type of applications? Well, clearly, it's about accuracy and speed with minimal friction and exceptional running accuracy. And they also provide better stiffness and power density for these type of applications, enabling increased energy efficiency. Just to mention a few of the value creation that we have from these products. So what we have done and what we inaugurated in earlier in the quarter that we have now built a new global cross-functional Super-precision bearing center. It's based in Italy, in Airasca, close to our normal operation there, where we have been able to co-locate our R&D, our engineering capabilities and our production teams in under one roof. We have invested in a highly automated and digitized manufacturing capacity there that can be able to very, very short turnaround times and also increase throughput significantly. And the benefits that we get from this by getting this under one roof is clear that can drive cross-functional synergies. But more importantly, we can then co-create with our customers and help solve their needs in very critical applications. And I have the joy myself to be part of the inauguration ceremony. And I must say that was very rewarding to see the excitement among many of our customers when they saw our new capabilities in this field and what that could do for their business. So we do believe that this is an exciting opportunity where we will benefit from good growth and profitable growth also driven by electrification and automation, as I mentioned. So with that, I end my part of this presentation and hand over to Susanne to take you through the numbers in detail. Susanne Larsson: Thank you, Rickard. Good morning, everyone. So now we will really talk about the financial implications and some of them you have also heard Rickard commenting upon. But let me first start with the financial summary and an overview of the quarter itself then. So starting off with the net sales, it was down 5.1 percentage points. It was explained first by an organic growth of 2%, more than offset by a significant FX headwind. Our gross margin was down 0.5 percentage point. However, if we put the one-off cost, the IACs aside, we saw an improvement of 0.4 percentage points. Our adjusted operating margin strengthened compared to last year from 11.9% to 12.3%. This in spite of FX headwind of minus 1 percentage point. Quarter 3 one-off cost IACs amounted to SEK 755 million, with the main areas being the automotive separation costs representing SEK 362 million. We had SEK 230 million related to impairment charges of fixed assets and finally, SEK 141 million on ongoing restructuring activities. So net-net, we had an operating profit of SEK 2 billion compared to SEK 2.5 billion last year, where the main difference is explained by the increased one-off charges. So if we look at the bridge here, analyzing the operating margin from 11.9% to 12.3%, I start with the organic dimension. So as I said, sales growth amounted to plus 2% with Industrial contributing to the growth. Negative production volumes were more than well compensated by price mix. And talking about price mix, the key initiatives is pricing, portfolio management, but also managing the tariffs mainly through price adjustments. The organic impact on the adjusted operating margin was 1.5 percentage points. Cost management was good with the development almost flat in the quarter, and this in spite of negative impacts of inflation, volume-related inefficiencies and tariff costs. In the quarter, as Rickard said, we managed to largely compensate for tariffs and expect to do so also continuing into quarter 4. Currency remained significant with a headwind, taking down sales by 6.9 percentage points and had an impact on the adjusted operating margin, as I said, minus 1 percentage points. The main currencies remain the same. It's U.S. dollar, it's Chinese yen and it's Turkish lira with the main effects vis-a-vis the Swedish krona. And finally, the structure is a small one. It's a net effect of the divestment we did in Aerospace in Hanover and the last year's acquisition of John Sample Group. So let me try to explain the cash flow performance in the quarter. Cash flow from operating activities ended at SEK 1.8 billion, and there are some reasons for that relative weak cash flow, and it comes from what I will address now then. So first of all, we had one-off IAC costs with a relatively immediate cash flow impact, and that is particularly related to the Automotive separation costs that is converting to cash flow relatively immediately together with ongoing restructuring programs. And this explains SEK 500 million in the quarter. In the bar other, we have SEK 300 million negative explained by realized FX effects. Taxes paid in the quarter amounted to SEK 700 million, which is higher than last year, SEK 200 million. However, last year was low, so this is on a normalized level. And then finally, the net working capital, we had the change there of minus SEK 400 million. And this was partly explained by accounts receivable and the timing within the quarter and accounts payable being low due to seasonality, typically in our quarter 3. Inventories, we are pleased to see decreasing in the quarter, where we saw reductions in both Automotive and Industrial. And before leaving this, I just want us to remember that last year, we had the change in the net working capital where we changed the reporting of consignment stock. So we had both increase in inventory and accounts payable of SEK 1.5 billion each. So let's take a look at the balance sheet and the return on capital employed. SKF has a strong capital structure. And at the end of September, we had a net debt of SEK 14.5 billion. And if we put the pensions aside, it ended at SEK 7.5 billion. Cash and cash equivalents ended at SEK 7.6 billion and were reduced as a consequence of a bond repayment of SEK 3.3 billion in the end of September. The SKF liquidity remains strong. Net debt, excluding pensions in relation to equity ended at 13.3% while net debt excluding pensions in relation to adjusted EBITDA ended at 0.6x. Finally, adjusted ROCE remained on a similar level as previous quarter, and that is 14%. So coming to my last slide with the outlook then. The global economic development remains uncertain. So the outlook expected is that the market demand remains similar as the one we just left in quarter 3. By that, we mean that we expect an organic sales to be relatively unchanged quarter 4 year-over-year. The currency impact on the operating profit remains high, and we estimate that to be minus SEK 650 million, applying the rates as per the end of September. The full year tax rate guidance is adjusted to 28%, which is 2 percentage points higher than the previous guidance, fully driven by FX. And finally, then, the CapEx guidance for the full year, we have taken down somewhat from SEK 4.5 billion to SEK 4 billion. And by that, Rickard, I hand back to you. Rickard Gustafson: Thank you so much, Susanne. And if we wrap this up then, as you heard us say, the market conditions continues to be challenging with a lot of volatility and geopolitical uncertainty, which puts a negative push or downward push on demand. But with that said, though, we are very pleased that we, after 8 consecutive quarters of negative organic growth now are back into organic growth. And as you heard us talk about, primarily driven by our Industrial business. Also pleased that we continue our margin resilience story, where we see that we are managing in this rather volatile environment and managing headwinds in a decent way and holding up our operating margin. And this is due to that we actually execute on what we said that we're going to do. We are driving commercial capabilities. We are standing firm on cost management, and we are continuing to invest in our business in terms of automation and in terms of regionalization. I'm also pleased to report that we're making strong progress, as I mentioned, in our Automotive separation. It's a lot of work still to be done. It's too early to claim full victory. But so far, we are driving this fully according to plan. And as I mentioned, we have achieved some significant milestones in the quarter. And I'd like to again put some spotlight on the upcoming event in Stockholm in a couple of weeks in November 11, where we look forward to see you all and share more details on how we see our future Industrial business, some key highlights on our future Automotive business and provide some more transparency on the cost also related to the separation. So with this, I'm going to hand over to Sophie that will then initiate the Q&A session. Sophie Arnius: Thank you, Rickard. And yes, we hope that many of you can join us in Stockholm for the Capital Markets Day, but there is also an option to join us online. Nevertheless, you need to register and the registration closes on Friday, and you find the link to register on our website. So let's now open up for Q&A. [Operator Instructions] We will start with a question from the telephone line and from Rory Smith at Oxcap. Rory Smith: It's Rory from Oxcap. I'll stick to one as instructed, Sophie. And that is just if you could unpack that North America and particularly the U.S. performance and even put a number to the volume versus price impact in the quarter. I'm just trying to separate out those tariff price increases from any underlying improvement or otherwise there, that would be great. Sophie Arnius: Rickard is happy to respond to that question. Rickard Gustafson: Yes. We will not disclose how much is volume and how much is price mix as such. But when it comes to Americas, it is price mix that drives the growth, and we are actually still in negative volume territory in Americas. So that's as far as I can go. Sophie Arnius: And let's continue with a question from the line of Alex Jones at Bank of America. Alexander Jones: Just on the guidance that you've given for Q4, are you pointing for a sequential deceleration in organic growth given you're talking about relatively unchanged? Or I think you talked about unchanged into this quarter and then delivered plus 2%. So is that still in the range of possibilities? And if it's more the former and you are talking about deceleration, can you just explain the moving parts for us, given I'd imagine that the pricing gets sequentially higher as you continue to recoup the tariffs? Sophie Arnius: Let's hear from Ms. Susanne on this topic. Susanne Larsson: So what we are really saying is that we do not see a significant change in the market environment quarter 4 over quarter 3. So since quarter 2, I think we are seeing signs of bottoming out. So from the sequential question you asked, we have to remind ourselves that quarter 4 last year, we came in strong, and that we have in mind when we compare quarter-over-quarter, and that is the reason for us to guide flat. Sophie Arnius: And let's continue with a question from Erik Golrang at SEB. Erik Pettersson-Golrang: A question on Automotive just for some perspective. I mean, currency, as you say, continues to be a heavy headwind for you from a profitability perspective and the relative impact on Automotive is quite significant. So I mean, it's a sub-5% margin business on an adjusted basis. Are you -- is this sufficient for the company to be stand-alone? Or is currency dramatically changing the outlook for Automotive? Sophie Arnius: Rickard, do you want to take this one? Rickard Gustafson: Of course. Erik, as we have said also when we announced our ambition to do this separation, we have higher ambitions for automotive than the current performance. And yes, we have entered up in a more volatile environment maybe than we anticipated before, but we are managing through this. And in our internal plans, when we look forward, we're still very confident that we will create a solid and profitable Automotive business as we move forward. But more details to come in a couple of weeks' time in Stockholm. Sophie Arnius: And we will continue with a question from Daniela Costa at Goldman Sachs. Daniela Costa: My question relates to tariff impacts in Section 232. But first, I guess, a clarification sort of on the bridge on the cost, you have SEK 23 million headwind, which I guess sounds quite small. Is it because you've been selling out of inventory? And then is that repeatable in Q4? How do you size the direct and the indirect inflation coming from Section 232 going forward? Sophie Arnius: This is a CFO type of question. So Susanne, please. Susanne Larsson: Daniela, I think we are very pleased to see that we have a cost development, which is only SEK 23 million negative, really flat. And I think what you see is a lot of effort coming in from managing the cost variability, looking into what we have done with automating our manufacturing operation and really driving a lot of cost initiatives, which is necessary from a long time in a negative decline. So I think that is something that we see will continue to be a leverage that we can utilize going forward. Talking about 232, I think what we are guiding now is to say that we anticipate that the majority of the tariffs and also including 232 will be compensated and not ending up in our P&L. Daniela Costa: Including suppliers indirect impact from... Susanne Larsson: Including that, yes. Sophie Arnius: And we will continue with a question from Andreas Koski at BNP Paribas. Andreas Koski: Just a short one on the prebuy effect in China. What was the impact? How many percentage points did it support the organic growth in this region? Sophie Arnius: Rickard, please. Rickard Gustafson: Yes. As you know, we normally don't disclose that many details around these things for a number of good reasons, and I'm going to stick to that also today. So I'm not going to give you a percentage as such, but it is -- we do see that some of the organic growth that we report on the Industrial side in the China region is somewhat inflated in the quarter due to this prebuy impact that we don't expect to see in the fourth quarter. Sophie Arnius: And let's continue with a question from Rizk Maidi at Jefferies. Rizk Maidi: I just wanted -- for you, Rickard, maybe just to draw a picture on the demand. I think even if I look at China, it does seem that industrial distribution has had maybe perhaps a little bit better performance. And then moving on to Europe, I think earlier this year, you talked about some green shoots. Just maybe if you could just give us an update, it looks like from today's commentary that things are stabilizing, not picking up. And maybe if you could have a comment as well on Americas, just to draw sort of an overall picture. Rickard Gustafson: All right. I will try to do that then. Starting with EMEA then, if we go down that path. As I mentioned, we do see some growth on the Industrial side, especially in a few verticals as such in aerospace and marine. While I do sense that in general terms, we haven't seen a significant uptick in demand in EMEA yet. We're still waiting for that to come. We do feel more confident though that it has truly bottomed out, but activity levels are not yet picking up from that level. Turning to Americas. Again, as I mentioned on the previous question, the growth there is primarily tariff related, less so on volumes. Aerospace and marine are some green shoots in that particular region. And also industrial distribution is holding up okay. It's not growing, but it's holding up okay, which is also important from a profitability point of view and a mix point of view. So that's positive. Turning to China, where we do have a mid-single-digit organic growth for the group. Where the Industrial business, as I mentioned, industrial distribution is contributing to that. But I need to remind you that it's also a reclassification that would happen. So that's why the numbers may look more stronger than they actually are. But even if I compare like-for-like, it's a solid and somewhat growing performance also in distribution. So we see that in China. And I already commented on the renewable energy area. And for Automotive, if I just touch on that briefly, we are very pleased to see that we continue at a very solid growth rate when it comes to EVs in that particular region. And India and Southeast Asia, primarily driven by very good activity levels in economies such as India itself, which is the majority and also like Vietnam, which is a smaller contributor to us where India is it's the most important market for us in that particular region. And in general, good demand levels across Industrial. And I mentioned 2 that stands out a little bit more than others, that is agriculture and materials handling. Again, I do believe that the tariff situation, the uncertainty is having a negative impact on global demand. We do see where some signs of bottoming out, as I mentioned, but we still wait for the uptick to come back. And as you also heard Susanne, when we guided for Q4, we sense that the underlying kind of dynamics of the business in Q3 was roughly the same as in Q2. And we -- our best estimate is that, that will be also the case for Q4. Sophie Arnius: Let's continue with a question from John Kim at Deutsche Bank. John-B Kim: I'm wondering if you could give us a little bit more color on the planned listing of your Indian asset. Any color there would be helpful. Sophie Arnius: Rickard, do you want to bring some color on that? Rickard Gustafson: I'd be happy to. It's a massive achievement in such, but it's not so much to say, it's a kind of odd comment. I hear that myself. But it is a complicated effort to split that business in India, both from a legal point of view and also to get all the authority permits and tax permits. So that has been a rather sizable effort. And now we have concluded that. Everything is set and done. So now we have a new entity that we are ready then to also put forward to the Indian Stock Exchange, and that's going to happen sometime between now and year-end. So I think that as much as I can say. Sophie Arnius: We will continue with a question from Tim Lee at Barclays. Timothy Lee: So maybe a bit follow-up on the Section 232. Do you have any estimate on the cost impact from Section 232 alone, both directly and indirectly? And have you already made any price hike because of Section 232? And is there any pushback from customers in terms of further price increase? I just want to see whether there will be any comments on the further effectiveness on pricing activities going forward? Sophie Arnius: Let's have Susanne answering this question. Susanne Larsson: Talking about the tariff environment, I think that is really one of the uncertainties that makes the demand still not really picking up. So I think the biggest impact of the tariff is the lack of recovery that we see. But generally speaking then, we have been successful in managing the tariff cost. We have worked through the 232 implications for SKF, and we anticipate to be able to take that through with the majority also to our customers. We, of course, have a close relationship with our customers in this, and we are normally applying surcharges while this situation remains. Rickard Gustafson: And if I may add a few more comments. Of course, we are having intense discussions with our customers on these items. And we're not just using price as the only mechanism to compensate for this. We're also pushing forward activities to drive more of our assortment to become USMCA compliance as an example, that's another key component in this. And when it comes to general price increases, the market is not -- cannot absorb more general price increases, but we will continue to do selective price increases. That has nothing to do with tariffs, but more where we see that we can drive price and especially when we come with new innovation and then we work together and co-create with our customers, we make sure that we also take our fair share of the value that's being created, and that will continue. Sophie Arnius: We will continue with a question from James Moore at Rothschild & Redburn. James Moore: Could I ask a question on the new Specialized Industrial Solutions business, which you basically renamed Independent and Emerging and brought in Hans Landin. Just -- it's going to be like not a third, but coming towards that the future industrial company. And I wondered if you could say 2 things, really, what are you changing to improve the profitability of Specialized? And as Specialized is mostly field lubrication and aerospace, could you say where your confidence is the greatest amongst those 3 for profitability uplift and potentially what you're doing to drive that? Sophie Arnius: I will ask Rickard to address this one. Rickard Gustafson: And I will give you a cliffhanger. You're right. We are excited about the -- what we then call the new name of this entity. And there are very important and exciting business units that makes up -- makes this up and with very solid growth. And some of them are further down the road and have already done some to reestablish the profitability levels are now in full gear growth and others are still doing some kind of work to further enhance profitability before ramping up their growth. This is a key component in our future industrial story and growth journey that we foresee. And it's going to be a part and something that we will share in more detail when we're going to put more color to our future Industrial business in November 11. So that's the cliffhanger. So you will see more there. But clearly, we drive them now much more as fully owned subsidiaries of this company than what they were before and without no overhead anymore. Sophie Arnius: And we should also just clarify what is included in Specialized Industrial Solutions for those of you that have not seen the press release that we had out a few weeks ago. So it's aerospace, it's seals, lubrication and our magnetic business. But as Rickard said, we will come back more on that topic, the interesting topic of Specialized Industrial Solutions at the Capital Markets Day. We will now continue with a question from Anders Idborg at ABG Sundal Collier. Anders Idborg: So you're guiding CapEx to come down, but you're guiding extraordinary items or items affecting comparability to come up. So I was just wondering, could you give us an early look how we should think about those 2 items trending in 2026? Sophie Arnius: Susanne, can you please respond to this question? Susanne Larsson: I almost repeat what Rickard had said around cliffhanger. But you're right, the CapEx, we took down that outlook for the full year from SEK 4.5 billion to around SEK 4 billion. And we also say that we sequentially increased the one-off cost into quarter 4. So when we meet at the Capital Markets Day, we will provide some further clarity on how we look upon CapEx moving forward, but also how we look upon the one-off costs and the rightsizing that we are doing, including the spin of Automotive. Sophie Arnius: We are marketing our Capital Markets Day, as you can hear. So we hope that you all can be there or tune in. We will continue with a question from Andre Kukhnin at UBS. Andre Kukhnin: Can I just start with a quick clarification first on the change of accounting for consignment stock, could you just explain to us what that is and whether that took place in this quarter? Or is that the quarter a year ago and the impact of it? Sophie Arnius: Susanne, can you add some light here? Susanne Larsson: Sorry, I was obviously not clear previously. When you compare the cash flow this quarter 3 compared to last quarter 3 line by line, I just wanted to remind everyone that last year, we did a classification, which is not impacting the change of net working capital as such, but line by line. So we changed the reporting of consignment stock last year and by that, increased our inventories with SEK 1.5 billion, and we also increased our accounts payable with SEK 1.5 billion. So the net-net was 0, but line by line makes it more difficult to compare this year's line by line in the net working capital. Thank you for the question. Sophie Arnius: And Andre, you have another question as well? Andre Kukhnin: Yes. Sorry to try to squeeze in. But really, I wanted to actually understand the cadence of profitability into Q4 versus Q3 a bit better. Just thinking about obviously normal seasonality, I think you see sort of 70, 80 bps decline normally in Q4 versus Q3. But then we've got, I guess, savings stepping up from the program that you launched last quarter. But then I also note FX of SEK 650 million, I think, guidance versus less than SEK 500 million in Q3. And then the tariff pass-through, is that margin neutral? Or are you passing through the actual cost increase and hence, there is a bit of a margin headwind. I just wanted to understand whether Q4 will be a normal seasonality or whether the combination of these factors will be it one way or the other. Sophie Arnius: Rickard, do you want to address this one? Rickard Gustafson: I will try to. I think the answer is yes. We do foresee that it's going to be normal seasonality in Q4. So you should bear that into your estimates. The negatives that we foresee in the quarter -- coming quarter is clearly FX. As we mentioned, probably going to have if we remain at current levels, a negative SEK 600 million impact in Q4. Tariffs, we do say that we largely compensate. We believe that we're going to do that also in Q4, but that means largely means that there is some net negative impact in the numbers, but largely compensate. On the positives, we do see that we will we do see that we will continue with our cost control. We will continue to drive our portfolio management and price mix activities as we have done in the past. And we do foresee that we will continue to yield benefits from rightsizing -- sorry, from rationalization and from world-class manufacturing. And probably some but not significant also contribution from the rightsizing initiative. Most of that will happen later though. So all in all, but it will be -- we do expect normal seasonality. Sophie Arnius: And let's continue with a question from Klas Bergelind at Citi. Klas Bergelind: I was late on the call, lots going on, so you might have covered some of this. But first on North America, I was expecting higher growth driven by the pricing there to compensate for the tariffs. So it seems at least versus what I thought that underlying volumes are weaker. So can you please talk through Rickard, what end markets sort of weakened quarter-on-quarter? I mean, commercial vehicles, heavy machinery. Have you seen any improvement as we went through the quarter and into October? Just curious about the underlying volume development in North America, please. Rickard Gustafson: Right. And yes, Klas, we did touch on this a bit earlier, but I'll try to give you some color to this. When it comes to the numbers I report for Americas, it's both Industrial and Automotive. And we do see growth in our Industrial business, and I have answered another question today where I do acknowledge that the growth in Industrial is driven by price mix. We're still in negative volume territory also on the Industrial side in Americas. Some areas that is growing nicely in Americas in this quarter is primarily aerospace and marine that have very strong performance. And as you mentioned, in Automotive, we have seen a weak demand when it comes to commercial vehicles in the quarter. And Automotive is also reporting negative organic growth in the region. Klas Bergelind: Okay. When it comes to -- just one follow-up, and I'm sure you talked about it, Section 232, a lot of questions on this. But have you given any sort of clarity around the share of steel and aluminum out of your COGS at the moment, please, i.e., the share that is subject to the 50% tariff, so we can do -- I mean, we're stumbling a little bit in the dark, right, where we were trying to do our own models. But if you have said anything on that, Rickard? Sophie Arnius: Susanne, can you please respond to this question? Susanne Larsson: Yes. So we are not disclosing the share as you're asking for. And at this point, we are mainly saying that we will continue to compensate the majority of this out into the market. Rickard Gustafson: So when we say largely compensate also for Q4, that includes what we know right now related also 232. Susanne Larsson: In the current scope it has. Yes. Rickard Gustafson: Yes. Klas Bergelind: Okay. Absolute final one, promise to be quick, is on the spin-out costs. I think when I spoke with Sophie this morning that you're guiding for higher one-offs quarter-over-quarter. I'm trying to understand the composition relative to world-class manufacturing spin-out cost. And also you had that sort of noncash write-down, I think, Susanne, in the third quarter. I'm just -- are we going to see any more? I'm just trying to understand the level of one-offs into the fourth quarter, please? Sophie Arnius: Yes. Susanne, do you want to? Susanne Larsson: Yes, I can take that. So you're right, we said that sequentially, we will increase it in quarter 4 over quarter 3. And I also want to just pay -- make you pay attention to our announcement that we are closing a factory in Argentina. So that is something that will also come into the quarter 4 as a one-off charge down. So that, together with a continued high level of effort into the Automotive separation activities are the main reasons for that. Sophie Arnius: Very good. We will continue with a question from John Kim, Deutsche Bank. John-B Kim: I'm wondering if you could just give a bit of color on your rightsizing, whether your headcount reduction or optimization has gone to plan versus the initial guide? Yes, I'll leave it that. Rickard Gustafson: Right. I'll take this one. The answer is yes. We are progressing well in line with our internal plan and a lot of the necessary negotiations in the different jurisdictions or countries have been completed and the vast majority of people impacted have been informed. And we're now going to start to see that the staff reduction to happen. As I said a couple of times, we do not anticipate a significant impact on our cost base or positive contribution to the cost in the fourth quarter. There will be some, but it will be not be significant. But the vast majority will come as we enter into 2026. Sophie Arnius: And then we have the final question from the line of Seb Kuenne at RBC. Sebastian Kuenne: You raised the tax guidance to 28% from 26% and this is not because of any impairments, not being tax deductible, but more because of your regional profitability structure. Do we now have to assume that the tax rate will also be higher in the coming seasons or coming years? And could you split that between Industrial and Automotive? Is it more Industrial profits being in high tax countries or more the Automotive side? Sophie Arnius: Susanne, that's a CFO type of question. Susanne Larsson: It is indeed. So thank you for the question. Yes, we raised the outlook for the full year tax rate from 26% to 28%. And I say that all of that is actually explained by FX. And we have some of our entities with the functional reporting in another currency than they're local, and this is something that is then impacting the tax as well then. So that is the reason fully for us then having that. And that also means that this is not necessarily something that you can assume is a going concern as we move along, but then having this impact where we have big FX implications as such then. Talking about the 2 stand-alone companies and their relative tax rates, we have not disclosed that yet. So I'll leave that for now. Sebastian Kuenne: Sorry, the acoustics was a bit bad. So it's more of a one-off FX issue rather than underlying structural regional split of profits? Susanne Larsson: Correct. Sophie Arnius: Very good. That was the final question. So Rickard, please go ahead with your concluding remarks. Rickard Gustafson: Yes. Thank you very much, and thank you all for joining us for this call and for your energizing and engaging questions. As you heard us talk about, we are continuing to maneuver in a rather challenging and volatile environment. With that said, though, we are sticking to our strategy and we're trying to deliver on what we said that we're going to do. And that recipe is working. We continue to report a resilient and somewhat improved earnings that we are pleased about. We are also happy that we now, after 8 consecutive quarters of negative organic growth, entering into a more growth territory and especially that is driven at this time by our Industrial business. Again, we don't yet say that we've seen the shift and the uptick in the market and the activity levels are rather unchanged, but we are happy also with the progress that we'll make in the strategic transformation of the company. So with this, I thank you for your attention, and I hope to see you -- many of you either in person or if you join through digital means in a few weeks' time in Stockholm. I wish you a good day, and thank you so much.
Operator: Good day, and thank you for standing by. Welcome to PT Indosat TBK 9M '25 Earnings Conference Call. [Operator Instructions] Please advised that today's conference is being recorded. I would now like to hand the call over to your host today, Pak Indar Dhaliwal. Thank you. Please go ahead, Indar Dhaliwal: Good day. Thank you. Good afternoon, everyone. Thank you for joining us on the call today. With us, we have Pak Vikram Sinha, our Chief Executive Officer; Pak Nicky Lee, our Chief Financial Officer; and Pak Bilal Kazmi, our Chief Commercial Officer. I will now hand over the call to Vikram Sinha for his opening remarks. Over to you, sir. Vikram Sinha: Thanks, Indar. Good afternoon, everyone. In the first half of 2025, we laid the foundation for an improved second half which can be seen in our results this quarter. We have delivered a positive result for Q3 with all financials and operational indicators moving in the right direction. If you look at the next slide, our revenue growth grew 4% quarter-on-quarter, and this was good all-round growth with all revenue lines growing on a quarter-on-quarter basis. Cellular was a big driver of growth for us as our customer base remained healthy at 95 million. Importantly, our ARPU has increased 4% quarter-on-quarter to 40,000 IDR milestones which is a proud achievement for us at Indosat. We have continued to maintain our focus on profitability with EBITDA increasing 1% quarter-on-quarter and normalized net profit increasing 29% quarter-on-quarter. With this, we are firmly on track to deliver our promise on the improved second half performance. If you look at the next slide, we have previously talked about our aspiration of achieving 40,000 IDR ARPU. However, competition and challenging market condition has meant that we were delayed on delivering on this aspiration. I'm pleased to report that we have managed to achieve it in this quarter, and we are building on the momentum on this. 40,000 is not the end goal. It is a milestone on a journey to deliver a better ARPU and realizing Indonesia potential on the ARPU opportunity. If you go to the next slide, our AI TechCo continued to make progress, and we now have our GB200 commercially live with the current capacity fully contracted. This will start delivering from Q4 2025. We continue to work closely with our customers to deliver turnkey vertical solution on our journey to deliver a full stack on AI. There remains a lot of interest on AI in this part of the world. And we at IOH intend to play our part in developing the ecosystem and deliver driving growth in usage of AI solution. We have laid the foundation this year and setting up for scale in 2026. That ends my introduction, and I will now hand over to Nicky for more detailed financial presentation Chi Lee: Thank you, Pak Vikram and good afternoon, everyone. I'm delighted to report solid set of results for the third quarter, where we are seeing some better momentum in the market. Our third quarter revenue grew 3.8% quarter-on-quarter, primarily driven by an increase in cellular revenue as we continue executing our strategy to accelerate growth through AI and enhanced network experience. Additionally, MIDI revenue contributed to this performance underpinned by GPU business. Below the revenue line, we delivered 8.8% Q-on-Q improvement in EBITDA despite higher spending to support revenue growth which I will elaborate on in the OpEx section. Consequently, our EBITDA margin declined slightly by 1.4 percentage points to 46.2%. Normalized NPAT rose by 29.1% Q-on-Q, mainly driven by higher EBITDA and operational one-off gains below EBITDA in Q3 2025, including IDR 88 billion gain from asset disposal and IDR 223 billion fiber lease reversal post reconciliation. Our net debt-to-EBITDA ratio remained flat quarter-on-quarter at 0.49x, underscoring our commitment to strategic CapEx investment for medium to long-term growth while maintaining a healthy balance sheet. If we move on to the next slide, for the next first 9 months of 2025, reported revenue declined by 1.6% reflecting a challenging market environment. This also led to a 3.3% year-on-year reduction in EBITDA with EBITDA margin softening 0.8 percentage points to 47%. The margin impact was partially mitigated by ongoing cost leadership efforts which helped preserve profitability and top line headwinds. At the bottom line, NPAT fell 7.5% primarily due to softer earnings base and high depreciation expense during the period as we continue to invest for growth. Moving on to the next slide. In the third quarter, we saw some increased spending relative to the previous quarter. As I had guided in our previous call, due to operational one-offs related to credit notes and certain cost reversals such as incentive payments. Cost of services rose by 4% on a quarter-on-quarter basis, primarily driven by maintenance activities to enhance network performance along with installation and partnership costs supporting BDN revenue -- VAS revenue growth. On a year-to-date 9-month basis, cost of services up by 5%, similar to the quarterly trend. Personnel costs grew by 17% on a Q-o-Q basis, driven by higher variable pay in line with revenue performance. On a Y-o-Y basis, personnel costs actually declined by 21%, reflecting lower favorable pay components such as bonuses and incentives compared to the prior year. Marketing expenses increased by 6% on a quarter-on-quarter basis, largely due to increased campaign activities and several new product launches during the quarter. On a Y-o-Y basis, marketing spend declined by 17% reflecting a strategic shift towards more targeted and cost-efficient digital marketing initiatives. G&A expenses rose by 46% quarter-on-quarter mainly driven by professional fees in supporting development and growth of business. However, if you look at it on a year-on-year basis, G&A expenses actually dropped by 3%, underscoring our continuing efforts to control spending in this area. The depreciation and amortization expenses decreased by 3% Q-on-Q, largely due to the fiber lease reversal, post reconciliation. So this is an accounting adjustment put through in the quarter. On a year-on-year basis, D&A expenses up by 2%, driven mainly by the addition of it asset from network rollout to support medium- and long-term growth. In quarter 3, other operating income expense recorded a net income of IDR 78 billion compared to a net expense of IDR 3 billion in the second quarter. This variance was primarily attributable to higher operational one-off gains from disposal of dismantle assets. On a year-on-year basis, prior year tax provision reversal of IDR 121 billion in operational one-off gains contributed to an increase in other operational income from IDR 81 billion in 2024 to IDR 378 billion in 2025. On to the next slide, CapEx decreased by 33% quarter-on-quarter to IDR 3.3 trillion in Q3 as the prior quarter, included GPU CapEx spending that did not recur. However, we continue to invest in our network and increasingly in 5G space. As a result, our 9-month 2025 CapEx has already reached 82% of our full year guidance. Net debt is flat on a quarter-on-quarter and our net debt-to-EBITDA ratio remained flat at 0.49x as mentioned earlier. On a year-on-year basis, net debt went up by 31%. And primarily attributable to CapEx investments for growth, including additional GPU investment in this year. That ends the presentation for the finance section. I will now pass the time to Pak Bilal. Syed Kazmi: Thank you, Pak Nicky, and good afternoon, everyone. I think from a commercial standpoint, the headline is healthy operational trends. As was mentioned earlier, these are underpinned by solid ARPU growth over a stable base. And this ARPU growth is moving along nicely with data traffic growth. Moreover, IOH is reporting a 4.9% increase in HPP customers. Indosat is also very proud to share the launch of SATSPAM product, which literally solves the national problem of spam and scam. This problem impacts millions of customers. To solve a challenge at this scale, we have benefited from all the good work done on lifting that use of AI in our go-to-market propositions. The end result, of course, is higher customer trust and engagement. Indar Dhaliwal: Thank you. Operator, can we move to the Q&A? Operator: [Operator Instructions] The first question comes from the line of Piyush Choudhary of HSBC. Piyush Choudhary: Yes, good afternoon, and thanks for the call. If I can ask 3 questions. Firstly, congrats on achieving the milestone 40,000 ARPU, which you have talked about earlier. But can you talk about mobile ARPU outlook and what other initiatives are being taken to increase? And what needs to happen for subscriber addition to restart? Secondly, on EBITDA, you have maintained the guidance despite 9-month EBITDA being down 3% year-on-year. So any -- what are the levers which you are expecting in the fourth quarter and if you can throw light on partnership costs and installation costs, which are both up more than 20% quarter-on-quarter. And any outlook for these cost items, particularly partnership and installation? And last one on your monetization, like any update on fiber asset monetization? Vikram Sinha: Thank you, Piyush. This is Vikram. Let me start with the guidance. I think we had given the guidance of low single-digit EBITDA growth. We are optimistic that momentum, which we have seen in cellular in Q3 will continue in Q4. And we will also see additional growth coming from our AI tech co-verticals. This will drive revenue, which will be positive for EBITDA growth. And we will be stringent on our cost We feel confident and we still hold on to our guidance, Piyush. So that is the first question. Coming on to ARPU. Yes, it took us quarter more than what we had expected to get to 40,000 milestones, mainly because of 2 reasons: one, micro conditions, what we have seen in Indonesia, especially our low-value customers, lower middle class, they are optimizing. And we see things improving. Last especially 3, 4 weeks, we have been seeing a lot of activities from government side. The new finance minister has been also working to stimulate domestic consumption. So these are really good trends. We will be watchful of it. But I think the more important thing is what is in our control, our AI hyperpersonalization, the data and model is getting trained and that is really helping us to give what we call it, a very hyper-personalized experience, and that will help us continue growing our ARPU. So we stay positive that future growth will be ARPU-led and as I said, 40,000 is just a milestone. We believe that in Indonesia, we have an opportunity to get 45,000 and 50,000 over a period of time. Customers, what we are seeing with the discipline in the market of 3GB 35,000 getting implemented in a quite disciplined manner from all operators. We are seeing some SIM consolidation. So having said that, we still believe that over a period of next year, base will be progressive. But for next 3, 4, 5 months, we will see a bit of a SIM consolidation, which is good for the industry. So that is what I can tell you in terms of base. But from a 2026-point of view, we still expect a positive base growth. For the cost one, I'll hand over to Nicky to give more color on it. Chi Lee: Hi, Piyush, this is Nicky. Thank you for your question. In terms of partnership and installation costs, they are very much revenue driven as we get more activities in terms of MIDI and VAS revenue. So in terms of training you asking, we're seeing 4%, 5% kind of growth. Vikram Sinha: Yes. And Piyush, coming back to your fiber co carve-out project, we are in the advanced stage of discussion with our investor given fiber co is a very strategic for IOLs future ambition for both FTTH and AI infrastructure we are taking adequate steps to ensure that we take this right even looking at both short-term and long-term perspective. But I'm expecting that you will hear more clarity and reason in this in the next 30, 45 days. Piyush Choudhary: Got it. Just on partnership and installation, sorry, I missed which part is revenue, where we should see the commensurate revenue because is it more in your VAS revenue or it's MIDI revenue? Chi Lee: Yes, yes. You're exactly right, Piyush, is more to do with our VAS and MIDI revenue. Operator: Our next question is coming from the line of Sachin Mittal from DBS Bank. Unknown Analyst: Yes. Congrats actually on the sequential recovery in cellular revenue. That's quite heartening to see. Any color on what's taking a toll on the margin in the quarter, what are those cost items? Just any color will be good. Secondly, on the GPU as a service, are you able to disclose was is there some kind of -- is kind of forward counting of cost? Or is it how much contribution of months of revenue we had from GPU as a service? And associated question is, what we are hearing is that GPU as a service, the plain vanilla, GPU as a service used to have a 3-year breakeven, but probably the 3-year breakeven may not be possible unless there's something -- some application layer added on top of the GP as a service to make it more sophisticated, more useful for the user. So could you have any comments on this? And how to think about this GPU as a service. Vikram Sinha: Sachin, this is Vikram. Let me start with our GPU as a service and AI full stack. I think first you will see revenue growing mainly from quarter 4 because our GB 200 cluster went live in September. So from October onwards, we will see the full month impact in the quarter. We got started with L450 H-100, and I'm happy to say that we have close to 24, 25 domestic customers, especially on L450, and that is also stacking up quite well. And you will start seeing the impact of it starting quarter 4. We have seen a little bit on our MIDI revenue because when you look at our MIDI revenue, we are pivoting from lot of projects based on track to AI cloud services. So -- and the we are seeing that the domestic customers are going with healthy margin. When it comes to global customer GPU as a service, you are right, vanilla, we have to make sure that we don't only sell GPU as a service, we also work at an application level. So we're working with NVIDIA and the partner ecosystem that we have a good mix of both. And overall, we are expecting that full year next year, you will see a very positive impact of this on our P&L, not only at EBITDA level also at an EBIT level. Unknown Analyst: Okay. So basically, you're still optimistic that those 3-year breakeven numbers are still valid, but probably with the more application on top of GPU as a service? Vikram Sinha: Yes, yes, Sachin. And look, yes, I think, can you hear me? Unknown Analyst: Yes. Vikram Sinha: We are very optimistic that we are all set for scaling up next year, which will come with healthy margin at EBITDA and EBIT level, especially with our AI full stack approach. We don't want to become a dumb pipe on when it comes to GPU as a service. We want to make sure we play at a full stack level. Operator: The next question comes from Sukriti Bansal from Bank of America. Sukriti Bansal: Congratulations on the sequential growth. Just 3 quick questions. One is on your postpaid ARPU. In 2Q, did we have some one-off? It was really -- it jumped up a lot in the second quarter and is down again in the third quarter. Why is the -- it's something to do with the plants that we changed or why has it moved around so much? And on postpaid in terms of subscribers, have we seen a subscriber decline in prepaid this quarter but postpaid has grown. Is this a cleanup on the prepaid side from the same cards? And what should we expect in terms of trend going forward here? Secondly, on the GPU as a service, is it possible to give, I understand fourth quarter will be a bigger impact with any kind of guidance on how much revenue we had this quarter, what kind of revenue we could see next quarter and for the full year? Is there any change next year, what we would be expecting? And yes, lastly, I think just on the fiber asset, I mean there is a lot of supply, which is coming up in terms of fiber asset spin-off in the market. What does that do to the prospects in terms of the kind of bargaining part we have in terms of how we sell this asset? Vikram Sinha: This is Vikram. Postpaid, let me start with postpaid. Postpaid overall has been a very good turnaround story for us. We have been consistently growing on our base and especially our premiumization and IM3 platinum has been really doing well. Year-on-year, our revenue on postpaid, Nicky can correct me, is more than 20%. We have also crossed the milestone of 1 million base. So overall, postpaid has been a great story. The second point which you spoke about on prepaid, I think our base is more or less stable. There's a bit of a SIM consolidation happening because this is a very good thing of these rotational in churn with the 35,000 3GB, the industry is moving in the right direction. But overall, our prepaid base is also stable. It has not declined more or less it is flat. So that is on prepaid. GPU, let me give you 2 data points. One, we still stand with our outlook for full year, which is around close to USD 30 million to USD 35 million. What does that mean annualized for next year. It is already on the contracted customer, it will be more than 65 million to 70 million for full year next year. and things will only build from there. So that is in terms of the outlook. We don't get into more detail. You will start seeing this on the MIDI line item going forward. For fiber asset, as I said, this is in the advanced stage of discussion with our investor given the strategic nature and what we want to achieve is not only unlock value for IOH, but also, we want to see how this platform will help us grow on FTTH and AI infrastructure because we are doing a lot on our AI full stack. So I think this is a very strategic platform which is shaping up. And you'll have to wait for a little more time. I'm sure you will get more color to this. We'll be more announcement in the coming few weeks. Sukriti Bansal: On the CapEx on GPU as a service for this year, do we have a number that we can share? Vikram Sinha: Nicky said it was in our guidance. Go ahead, Nicky. Chi Lee: Yes, yes. CapEx on GPU is around IDR 100 million for this year. Operator: Our next question comes from the line of Arthur Pineda from Citi. Arthur Pineda: Thanks for the opportunity. Can you hear me? Three questions, please. Firstly, in the GPU as a Service. I recall you were guiding initiative for $35 million to $40 million in revenue bookings. Has any of this been booked into 3Q? I'm just wondering how much more do we see into the fourth quarter or the guidance has been changed with regard to the revenue booking? Second question I had is with regard to CapEx. I'm just wondering what your thoughts are on mobile network CapEx. Your competitor has been guiding quite aggressive increases in their spending around IDR 20 trillion to IDR 25 trillion for the year. Does this is concerned that IOH could find itself lagging from a network standpoint, which would then impact its market share. I'm just wondering how we should look at this going forward? And last question I had is regard to the CapEx sorry, the OpEx increase, which has resulted in slightly lower margins this period. What items are you expecting to be optimized into the fourth quarter, which would actually lead to some reductions and obtain your growth on EBITDA? Vikram Sinha: This is Vikram. On GPU, you are correct. We gave a guidance of around IDR 35 million and the significant portion of that was coming from GB 200, which got live on September. So yes, we have booked in first 9 months, but the significant portion will flow through in quarter. So we stay true to the guidance. We still feel confident that we'll be able to meet our guidance of IDR 35 million. On mobile network CapEx, I think we are in a good place in terms of our network experience. And we see that the guidance and the amount which we have been spending around IDR 11 trillion to IDR 12 trillion is a healthy pace. I can't comment on other for IDR 25 trillion. I've been in the industry for here in Indonesia. Humanly also, it is very difficult to deploy IDR 25 million in 1 year. But more important, we have a strong balance sheet, as you have seen and we are very confident that we will not compromise anything on our network investment because we will not cut corner anything which helps us on midterm, long-term growth. And the guidance, which we have been giving we feel is the right range, and that is where we need to focus more on splitting our asset and monetizing existing investments which we have done in the ground. Chi Lee: Yes. In terms of OpEx and costs, Arthur, this is Nicky, the movement is more to do with a change in revenue mix. As you understand, we have very, very high margin for cellular revenue. And as the contribution on a relative basis from this line of business dropped a bit, that will have a profound impact on the overall margin. But if you look at our cost composition is mostly due to installation cost and partnership costs. So we are getting more such services into our revenue line, which is a good thing. We actually managed to optimize a lot of our basically every single line item. So our cost base even if you -- on a 9-month basis, if you include COS is actually flat, right? So we will continue to look at every single item and look for opportunities with the advancement of technology. We have deployed AI across many facets in our organization. We have found a lot of opportunities for us to look at more efficient way of conducting business. Arthur Pineda: Maybe just to better understand it. So for you to attain your single-digit -- low single-digit growth on EBITDA you're basically needing to drive up your revenues quite dramatically because you've changed the revenue mix? Is that how I should see this into the fourth quarter? Because the target for the year is to growth, yes? Vikram Sinha: Yes, Arthur, I think you are asking -- you are absolutely right. This is Vikram, Arthur. We have to make sure that our cellular revenue, which we have seen a good momentum in quarter 3 continues on quarter 4 and additional growth coming from our AI TechCo, which is our AI cloud GPU and also security some of these things which are -- which will start flowing from quarters. So you are right, our revenue -- and also, we will continue to have cost discipline. So I know it looks challenging, but we stay confident and we want to hold on to our guidance on what we have said. Operator: Our next question comes from the line of Henry Tedja from Mandiri Sekuritas. Henry Tedja: Thank you for the call and congrats management for the 40,000 ARPU milestone here. Perhaps 3 questions from me, please. The first one regarding the early site lease termination. So just curious, is it related to the tower and fiber, which is a part of the integration process during the IOH merger? And if yes, how does the progress have you completed all of them? And then the second question, perhaps related to mobile competition. I know that Pacira early has mentioned about the purchasing power of the consumer, which has improve. Can you provide more color on this? And how do you see the competition landscape in the last 2 or 3 months? And the last question for me regarding the GPS surface. I think Pak Vikram mentioned previously that the USD 30 million, USD 35 million of revenue target for this business coming mostly from the GB 200, which commercially live in September. So I'm just curious how about the revenue contribution from the future that you installed last year? If I'm not mistaken, it's H-100, right? So how's the traction so far on this GPU and the revenue target from the purchase period here? So I think those are my questions. Vikram Sinha: Let me start with GPU. I think L450 and H-100, we are focusing more on domestic customers. while the count of customers is more than 20%, but these are small ticket and it is building up. So all in fact, H-100 is fully contracted and 50% is contracted and these are recurring long term. But the global and regional customer is on GB 200. So that is how we'll see the full year of 35 million. But the good news is that we are really getting ready for scale up. Our full AI full stack is getting ready. We are working with NVIDIA and some of the partners like Accenture and some of the other partners where we will be able to not only sell GPU as a service, we'll be able to contribute both consumers and B2B at an application level. So the mix of both put us in a good place of healthy EBITDA and EBIT margin. This is the full detail on GPU as a service. Second point on mobile competition, I think it is good to see that the market as an industry is getting discipline on specially you and through rotational customers. So it by moving towards decent drive of 35,000 in 3GB. It is all getting discipline, which is a move in the right direction. But more important, last few weeks, I would say, and these are early trends. We have seen a little bit of improvement on our domestic demand and consumption. We had seen our low-value special customer optimizing a lot a day, again, we have to stay cautious, but we have seen some improvement. So we are very confident that quarter 4, we will build on the momentum we have seen in let's wait and watch for more detail. Overall, we are expecting that next year, overall, from an industry point of view has to be much better than what we have seen this year. Chi Lee: Henry, this is Nicky. In relation to your question on early side termination, our integration process was completed 2, 3 years ago, more than 2 years ago. So -- but they were still sites that are under contract. So we managed to terminate some sites with a particular power provider that give rise to a one-off gain for us. So don't expect this to be a recurring item for us. Henry Tedja: Sorry, but Nicky, perhaps, have we completed all related to this contract termination? Or do you think we still have some more or perhaps a few regarding this one? Chi Lee: Yes, no more, no more. We have completed, the work completed a couple of years ago. Now or the contract, everything optimized already. So as I said earlier, this is kind of a one-off item, although we keep looking at different ways to get savings and other income. But this particular item, unless there are some other changes, we don't see this to be like a recurring or further other income from some of this particular change. Operator: Our next question comes from the line of John Te from UBS. John Te: I have just 2 questions. First is on trends on ARPU. Data traffic was up by 4% quarter-on-quarter, which largely tracks ARPU and which also means that data yields were rather stable despite price initiatives or pricing initiatives during the first and the second quarter. Any anecdotes you can share about when we might see data yields improving? Second and related question, were there activities in the market by yourselves or something that you've observed that points to further price rationalization and easing of competition that happened perhaps in the third quarter? Lastly, separately on the fiber sale I think you mentioned earlier also that you will take "adequate steps to balance the short-term benefits to relative to your strategic positioning", I appreciate if you could provide some details or if not, just some very broad strokes on what these steps might be. Vikram Sinha: Hi John, this is Vikram. On the fiber sale, as I said, this is a very strategic asset. And we feel we are in a good position. You will have to wait for a few more weeks for us to conclude and then disclose everything. But overall, we see that we are in a place where we see value unlock. And also we see this as a platform, which can help us grow on FTTH on AI infrastructure. So that is the balance which we were looking at. And I think we are in a good place to conclude that. But please wait for a few more weeks. Second point on activities in the market, I think we have seen especially the discipline around using through SIM. We see that's a very good move, and it is getting discipline across oven in the industry. We have seen it for ourselves, and that will lead to more sustainable growth. What we want to avoid is people coming in market to buy cheap data and they buy the SIM. That clearly doesn't go into EBITDA, and that is what you see getting corrected in the market. Last point on trends in ARPU. I think this is an ideal situation where the data traffic and ARPU growth. I remember there was a time where data traffic is growing 70% and revenue is growing 5%. That was not sustainable. So last quarter, what we have seen 4% data traffic growth, 4% ARPU growth. This is a very healthy sign. Our bigger focus is to grow ARPU in a very sustainable manner. As I have said earlier, Indonesia is under indexed, whichever way you look at it. There is a room. So we just want to make sure that also the domestic demand, the domestic consumptions, which we are seeing improving. And then we want to make share we take care of our low-value customers. But overall, we feel confident that 40,000 is just a milestone. We need to build from here. Operator: [Operator Instructions] We have follow-up questions from Piyush Choudhary of HSBC. Piyush Choudhary: Yes. Just on the GPU as a service, if you're suggesting almost $30 million to $35 million to be booked in the fourth quarter, then could you help us understand why 2026 outlook is only $65 million to $70 million and not like $120 million to $150 million? Just trying to understand how does these contracts work? And why it is bunching up in 4Q and not kind of spreading at a similar rate in 2026. Second question, Nicky, when you mentioned about the installation cost. Is there upfront cost in 3Q where actually revenue will be booked more in 4Q and that's why we are seeing kind of margin decline right now. And when you said 4% to 5% growth, is it year-on-year growth going forward in 2016? Just want to clarify these things. Vikram Sinha: Let me start with GPU as a service. I think we don't get into more detail, but what is important to know is what we are telling is all contracted and these are multiyear contracts. So what we are telling for this year and next year is minimum worth to. I'm sure we see more opportunity to scale up but we have been very cautious of not over guiding on anything, especially on this new business. Chi Lee: On the installation cost, the 4%, 5% is really driven by business. So it depends on the demand for the business from VAS and MIDI, but that is the kind of year-on-year growth we are including in our forecast. But the actual change will be determined by the demand required consumption growth for this business. Yes, on the accounting side, Piyush, you're correct, we booked the installation cost. So potentially some of the related revenue from the contracts, related contracts will come later. But there's always year-on-year period-on-period effect, which would tend to cancel out each other. So I don't feel we should take that into account in your model. Piyush Choudhary: Got it, Nicky. So I think this is more like quarterly volatility will happen in this cost item because of the revenue recognition. Chi Lee: Yes, it's more to do with the revenue mix, as I mentioned earlier, Piyush. Operator: Thank you for the questions. At this time, we appear to have no more questions from the line. Allow me to hand the call back to management for closing. Indar Dhaliwal: Okay. Thank you, everyone, that ends the call for today. As always, do get back to me if you have any further questions, otherwise take care. We'll speak to you next quarter. Thank you very much. Operator: That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
Hakon Volldal: Good morning from Oslo. We are ready to announce Nel's Third Quarter 2025 Results Presentation. My name is Hakon Volldal. Sorry, the microphone is on Wilhelm. My name is Hakon Volldal. I am the CEO of Nel. With me today, I have our CFO, Kjell Christian Bjornsen; and also Wilhelm Flinder, our Head of IR, Communication and Marketing. We have the following agenda. Nel in brief, highlights from the third quarter, a short commercial update, a short political update and a short technology update. And we will, as always, end the session with questions and hopefully answers. Nel is a fully dedicated electrolyzer technology company. We have been listed on the Oslo Stock Exchange since 2014. We have sold more than 7,000 electrolyzer stacks across the world. I think if we do the count, it's now moved to more than 80 countries and we have been in business since 1927. We have 1.5 gigawatts of manufacturing capacity, 1 gigawatt here in Norway and 0.5 gigawatt in the U.S. for PEM. We are about 350 employees. At the moment, we are investing heavily in R&D to develop next-generation platforms. We have a global sales and office network. We have become a preferred partner with industry leaders such as Samsung, Reliance and General Motors, and we have NOK 1.8 billion in cash reserves. Our value proposition is based on our long track record, what we call an unrivaled track record. As I just mentioned, we can trace our history back to 1927 that gives us decades of experience, more than any other electrolyzer OEM today. We also have a large installed base that we can learn from in terms of performance and energy consumption and degradation and all the important things that customers want to know. We claim technology leadership. We have multiple technology platforms, both what we call the alkaline platform and the PEM platform. We have guaranteed and proven performance and we have game-changing next-generation solutions. That brings me to the third leg of our value proposition, cost and scale leadership. We have been frontrunners in cost reductions, starting with automated manufacturing and also full-scale plants together with partners to bring down the total cost of ownership. And we have market-leading production capabilities, including one of the most advanced and fully automated assembly plants for electrolyzers here in Norway and now also in the U.S. The finance department has aggregated the numbers and here are the results. On top line, revenue from contracts with customers, NOK 303 million. EBITDA, minus NOK 37 million. Order intake in the quarter, NOK 57 million. Order backlog, NOK 984 million. And we ended the quarter with a cash balance of NOK 1.757 billion. Not a lot of press releases or news in the quarter among the highlights and subsequent events. We can mention a follow-on equipment order from a customer in Switzerland called H2 Energy for a containerized 2.5 megawatt electrolyzer. We signed a FEED study for a 100-plus megawatt project in Northern Europe and we also signed a pre-FEED contract for a 100-megawatt-plus project in Southern Europe. Let's study the group financials a bit more carefully. The revenue from contracts with customers, NOK 303 million. That's a decrease of 17% compared to last year, while it's up 74% quarter-on-quarter. Compared to the second quarter, a strong rebound. Total revenue and income, NOK 349 million versus NOK 391 million last year. That brings the year-to-date to NOK 633 million versus NOK 974 million in '24. So obviously, a bit tougher market in '25 than in '24. We have done what we can to improve performance by managing our cost base and also improving execution capabilities and margin on deliveries. You can see some of the results here. EBITDA in the quarter, minus NOK 37 million compared to minus NOK 90 million last year. Also improvement when it comes to EBIT, pretax income and net income. Just one remark regarding the cash flow from operating activities, which is weaker than in the third quarter of 2024 despite the higher EBITDA and that has to do with the payment milestones. We had recognized or we had not recognized, we had collected cash from customers on some of the work that we recognize as revenues in the third quarter prior to doing the work. So cash, we try to stay cash positive on projects. And that meant that in the third quarter of '25, although the results are good, we have been prepaid for the work that we did, hence, cash flow from operating activities a bit weaker than the EBITDA should signal. still a healthy cash balance at the end of the quarter. Turning our attention to the alkaline financials. We can see that the third quarter represented a strong rebound from a slow first quarter and second quarter. And you can also see that in quarters where we have solid revenue, the alkaline business is EBITDA positive. We have proven that on multiple occasions, but we need the revenue to be around NOK 200 million plus in order to balance the books. With high utilization of our factories and with high revenues, we also had a profitable business, i.e., the business model for the alkaline segment works. The challenge is to fill the factory. For PEM, it's slightly different. We still lack the top line to turn a profitable or to have a positive EBITDA. We reported a 15% decrease in revenue compared to last year. And a lot of the revenue in the quarter was driven by containerized electrolyzers, delivery of containerized electrolyzers. EBITDA fairly flat in the first quarter, second quarter and third quarter. In general, we would say that product and project margins are up due to better project execution, but we also have some heavy investments going into the next development or next-generation development of stacks. Order intake in the quarter, NOK 57 million. And that meant that a lot of the revenues we recognized in the quarter came from our order backlog, which now stands at NOK 984 million. The breakdown of the NOK 984 million, roughly NOK 600 million on the alkaline side and NOK 400 million for PEM. And again, the order backlog is subject to risks such as delays and/or cancellations, and we have given further information on that in the notes to the quarterly report. Cash burn rate is important. What this slide tells you is that we have a cash burn rate, which is coming down. We spend less money on operations and on investments than we did in the past. It's -- we're still talking negative numbers. But compared to '22, '23 and '24, the cash burn is significantly down. And that's important in a market which has been slightly slower than we anticipated and expected to control the expenses. We are down from a peak staffing of 430 1 year ago to down to 354 at the end of the third quarter this year. And it will continue to go gradually down. Personnel expenses down year-to-date, almost NOK 60 million. The slight uptick in the third quarter is due to periodization and payment of vacation money in Norway. So the trend is that the number of employees is coming down, and we do that in order to, of course, reduce the burn rate and extend our runway. We still set up to conduct significant R&D work. We are working on very exciting developments, both in alkaline and PEM. I'll get back to some of that later. This is predominantly adjusting our manufacturing capacity and also project execution capacity in the wake of a slower market. On the commercial side, the pipeline is indeed large and increasing. We try to keep our pipeline up to date by canceling or removing all the projects that will not move forward. But actually, the pipeline is growing. However, final investment decisions continue to be pushed out in time. Several target projects in the 20 to 150 megawatt range are expected to take final investment decision during the next quarters. And we are currently involved in more than 500 megawatts of paid FEED studies for large-scale systems and our EPC partners are involved in additional studies. Two examples. In the quarter, we signed a FEED study with a reputable European company for a 100-plus megawatt Northern European project. We also signed a pre-FEED contract for a 100-plus megawatt project in Southern Europe with a reputable company. So the quality of the FEED studies or our FEED study partners is very high. I would be surprised if none of these projects would materialize. And for a lot of the FEED studies, Nel is conducting exclusive work. That means if the project takes FID, Nel will be the partner that will receive the purchase order. One highlight after the close of the third quarter was an additional purchase order for a containerized PEM system, what we call it MC500. And this actually represents the third purchase from H2 Energy in Switzerland. What you see on the picture is the second installation we delivered to them. It's under a beautiful bridge and the electrolyzer is in the middle of the picture. It's hard to see it, and that's good because it proves that the footprint isn't that big to produce hydrogen. It's a rather neat compact installation. The third unit that H2 Energy will buy will be installed in Switzerland and supply hydrogen for mobility and industrial applications. And we're proud of this order because it's a repeat order and it proves that Nel's customer satisfaction is high and it also I think documents our track record when it comes to delivering working electrolyzers around the world. Short political update. We have sent a letter together with other leading European OEMs to the European Commission. And we asked or urged the European Commission to adjust the hydrogen regulations. Less than 1 gigawatt of capacity has been deployed in Europe compared to the 6 gigawatt target that was initially set for 2025. The industry promised to establish annual manufacturing capacity close to 10 gigawatts. We have done that, but demand is still not strong enough. And we believe part of the reason is that the current rules and regulations are delaying project realizations and also undermining demand. We need a more pragmatic way of regulating the market. We need to extend exemptions for the frontrunners and also more flexibility in how hydrogen plants are regulated. We believe it's possible to do this within the context of the legal framework that has been established. And we remain hopeful that by changing some of the rules and regulations in the current framework, it's possible to speed up hydrogen adoption across Europe. It's a broad push for this. And I think the EU has also, in the past, shown that through the Omnibus process, they can indeed work with existing frameworks and speed up and simplify, remove some of the red tape in those quite fast. Moving on to the technology update. One of the more important things we are working on is the next generation pressurized alkaline system. I have presented this many times in the past, but just to highlight sort of the key selling points of this, why are we spending a lot of time perfecting this and why are we bringing this to market shortly? It is because we reduced the footprint by up to 80% compared to our existing system. And that's important, because in Europe, which is indeed a very important market for clean hydrogen these days, you don't always have the space to do whatever you want. You don't -- you're constrained by existing land plots, properties. You have brownfield sites where you don't have the opportunity to just expand your hydrogen plants in all sorts of directions, you need to limit the footprint of the system. This is a very compact footprint. It's less than 230 square meters for 25 megawatts of capacity. Along with that comes a significant reduction in investment cost and not just for the Nel part, but for the entire system. We're talking about a total system CapEx reduction up to 60%. And it will be more energy efficient than anything available in the market today, we believe. The system energy consumption will be less than 50 kilowatt hours per kilogram of hydrogen, which is a significant improvement versus what is available today. That's why this is important. What you see on the right-hand side is a real picture. It's not a PowerPoint. It's a picture from Heroya, where we are building half of what you saw on the previous page. It's pilot or prototype. The mechanical installation is done. The cold commissioning is done. We're entering hot commissioning, meaning we will produce molecules very shortly. We hope to do that in November. We hope to take FID on a new production line before year-end 2025. We hope to validate this as a running installation, producing gas hour after hour, day after day in 2026 and we hope to also commercially launch it in 2026 and deliver at scale, meaning hundreds of megawatts in 2027. So this is not a PowerPoint concept anymore, it's real. And we remain very positive that this will be a way for our customers to actually move their respective projects along at a faster pace and with much more attractive financials behind them. Unless we can enable our customers to have positive business cases, we cannot sell our equipment And I think with this, we have looked at all the different aspects of building a hydrogen plant and how you can do that in the most cost competitive way, taking the customers' point of view and not only focusing on the hardware cost, but focusing on the total project cost where things are modularized, standardized, brought to site, it's quick to assemble it and it involves limited engineering and limited construction time. So more on that in the coming quarter. We will also, in the coming quarter, give a more detailed update on our next-generation PEM stack. But that's what we have for today. And I will be joined now by Kjell Christian Bjornsen, our CFO, to answer any questions you might have. Wilhelm, you have the usual text you need to read before we start. Wilhelm Flinder: Thank you, Hakon. Some general information before we kick off the Q&A session. [Operator Instructions] If we have time, we will also take written questions submitted through the Q&A function. And if there are questions we don't have time to answer, please reach out to us on ir@nelhydrogen.com. And a reminder, we will not comment on outlook specific targets, detailed terms and conditions on specific contracts as well as questions on specific markets. Modeling questions, we will also appreciate is taken offline. So let's kick off. First question comes from Elliott Geoffrey Peter Jones [indiscernible]. Elliott Geoffrey Jones: Congrats on the numbers. Just a quick question on the backlog. Obviously, you had a nice customer milestone payment this quarter. Could you give us any kind of insight as to how the backlog looks going forward? And if maybe you're expecting similar payments in the coming quarters or is the backlog now looking a bit more kind of longer term in terms of milestone payments? Any kind of color on that would be very helpful. Hakon Volldal: So thank you for the question. We would then point to the notes to the report where we split out what is currently planned for delivery in the rest of '25 and what's planned for '26 and later. And finally, what is at significant risk of delay or cancellation. And they will have some of those details. I would really want to point out that what is planned for the rest of the year should not be seen as guidance. There are huge shifts from sometimes month-to-month, week-to-week where something might just not come in one quarter and then skip into the next one. And we will not give an update during the quarter on what is in that table when it comes to the rest of the year, but I hope that answers your question. Wilhelm Flinder: Next question comes from Arthur Sitbon. Arthur Sitbon: Just trying to think about revenues for the next quarters and next year. What I realized is that in that table that you just talked about actually, the amount for potential cancellations has not changed for several quarters in a row I think. So I was wondering, if on that, you think the worst is now behind you? And also related to that, you talked about potential FID in next quarters for projects. I was wondering, at the earliest, when do you think you can get order intake linked to those potential FIDs just to try to better understand the sequence of revenues for coming quarters and years. Kjell Bjørnsen: So if I could start with the past and then Hakon can take the future. So you are correct, we have had a backlog of large projects signed a couple of years ago that have been delayed and/or canceled and some of them are still in the process of negotiating basically a workout with the customer. And that's why the risk figure there has been unchanged for some time. And I would highlight that there is significant risk with those. But based on the current contractual situation, there is an obligation for the customer to take that. We believe the worst there is past us also because we have delivered so much of what was not on that list. There's always some minor risk on the PEM side, but that's typically smaller orders on the, what we call, the industrial areas. And then Hakon? Hakon Volldal: Yes. And it's notoriously difficult to predict when FIDs will be taken and what the time gap will be between an FID and a purchase order. I would say our current pipeline is spread out from, I would say, today until the end of '26, we have opportunities that could materialize and result in equipment orders for Nel in the fourth quarter, in the first quarter, in the second quarter, in the third quarter and the fourth quarter. But I would say, all of the 500 megawatts that we signaled that we're doing FEED work on will not happen in the same quarter, they will be spread out. Some of them might not lead to any equipment orders. But I would also like to say that the FEED phase is prior to reaching FID. And that means the FEED what we have said, 500 megawatts in FEED work, will potentially lead to FIDs and equipment orders in '26. Some of that might drag into '27. The FEED work we have already done in '25 and also in '24 might lead to equipment orders from today and throughout '26. So I think it's super hard to say something generic about this. But based on our current pipeline and what we can say or see about the maturity of these different projects, we can have equipment orders -- significant equipment orders in every single quarter going forward. Wilhelm Flinder: Next question comes from Skye Landon. Skye Landon: I was just wondering, on the FEED projects that you're working on in this 500 megawatts, are you able to comment whether this is basically based on the new alkaline technology or is this more around the old alkaline technology? And if it's on the old stuff, when do you think the new stuff will kind of start flowing into your pipeline? Hakon Volldal: The FEED work we're currently conducting is for what you referred to as the old or the current alkaline technology, and that's important because we have an inventory of equipment that we need to sell and this is what is available. When I refer to possible equipment orders every single quarter from now on until the end of '26, it will most likely be for what we already have. The new equipment will not -- we will launch that commercially next year, but we haven't started to take orders for that equipment. We have a soft launch towards certain customers that would like to know what we can offer in '27, '28, '29, but we will not launch it commercially until next year and start building the order backlog for that new equipment in '26. Skye Landon: And then maybe you could maybe give a comment or an update on partnerships with General Motors and updates on kind of like the push forward you're making with the PEM product and then also collaborations with Samsung and Saipem and so on and so forth. It would be good to get an update on that. Hakon Volldal: We should almost have included an additional slide, Wilhelm. But I would say we have a handful of strategic partners. Reliance Industries, India's largest private company, I think announced during their annual meeting that they will build a huge electrolyzer factory in India, 1 gigawatt initially and then moving that to 3 gigawatts and that will be based on Nel's technology. So that's according to the previously announced technology licensing agreement, which will be very beneficial for Nel. It will give us a revenue stream from the Indian market when Reliance starts to produce electrolyzers in India. And I think the time line indicated for that is that towards the end of '26 they want to have that 1 gigawatt line in India up and running. We are working closely with Reliance to make that happen. It's a team from Nel working with a big team from Reliance. Samsung, very important strategic partner. They handle some of the large projects in part of the world where it's difficult for Nel to have local representation. They're especially strong in the Middle East, in Asia, but they also have projects in Europe and in the U.S. It's a global partner that gives us credibility and can provide turnkey plant solutions. They deliver a full working hydrogen plant with performance guarantees on system level. The same goes for Saipem. They've also developed a turnkey solution package they can deliver with Nel inside, as we call it, and are involved -- both of them are involved in multiple potential projects around the world and working closely with Nel to win those potential contracts. They're not included in the 500 megawatt of FEED studies that we refer to. What they are doing with their clients will come on top, just to say that. And with General Motors, we have had a joint development agreement in place for several years where we have benefited from General Motors' decades of experience with fuel cell technology. We've taken their learnings and know-how and applied that on the electrolyzer side to make a PEM electrolyzer that will revolutionize how PEM electrolysis is done. And we -- just to sort of give that away, we are now building a short stack in full size of that electrolyzer. It's very exciting. CapEx targets and OpEx targets are extremely attractive. And we will finalize that work and continue to work on that in '26, but it's slightly behind what we call the pressurized alkaline platform. It will take more time to mature that. But there's still a relationship with GM. Although as we move forward, we will gradually have to take over and do the industrialization ourselves or with other partners. Wilhelm Flinder: We have received one written question as well. [Operator Instructions] So there's a question from [ Nicolas Legrand ]. What do you consider to be the main regulatory barriers in Europe that are currently hindering the development of hydrogen production solutions? How is the company addressing these challenges? Hakon Volldal: Yes. I think that was what I referred to as the letter that Nel together with major other electrolyzer OEMs, including thyssenkrupp Nucera and Siemens Energy, John Cockerill and others sent to the European Commission that the legislative framework that we have in Europe is actually not bad. It's quite good, but it's very strict. It makes it hard to start up projects because the grace period until you need to comply with quite strict rules on how you source your energy, where you source your energy and how that energy is made up to give you the full benefit of producing clean hydrogen is very difficult to deal with. And the first movers need a bit more flexibility. Maybe they need a grid connection. They can't get 100% wind or solar. And what the current regulation says is that every single hour that you use energy, it has to be renewable. So I think to give them a bit more flexibility on what kind of energy they can source, where they can source it, does it have to be local or can it be come from somewhere else, can they sell surplus energy back to the grid. All of that needs to be relaxed in order to make the business cases fly for the early movers. As we approach 2030 and halfway into the next decade, it's possible and I think reasonable to comply with the EU regulations. It's just that it's very strict for the first movers. It's a framework that is almost taking for granted that we will be successful. But we need to create success before we introduce all the rules and regulations that they have. So for the ones that are familiar with the regulations, it's what we call, the 3 pillars of -- what's it called again? Help me out. Kjell Bjørnsen: Additionality... Hakon Volldal: Additionality. The 3 additionality principles and temporal correlation and geographic correlation and whatnot. There are very sort of specific rules that we would like to be relaxed for the next 2, 3, 4 years. The delegated act is what I wanted to say, the 3 pillars of the delegated act, they should be relaxed. Wilhelm Flinder: Very good. It seems we are -- there's no further questions. So I think we'll end the Q&A session there. I'll give the word back to management for any final remarks. Hakon Volldal: Yes. Thank you for joining us. I think the numbers in the quarter were promising or at least satisfactory compared to first quarter and second quarter. It was a nice rebound on the revenue side and also good EBITDA performance. It's not positive EBITDA, which we ultimately want, but it was a step in the right direction. We have said that we remain cautiously optimistic about equipment orders in the coming quarters. There are opportunities out there. The opportunities have a higher quality than in the past. They are with reputable companies. We have good partners that we're benefiting from. And I think when we meet next in February, we will give a more detailed update, both on the markets and on the technology plans we have for the pressurized alkaline and the next-generation PEM. So hope to see you back then also with some interesting events to talk more about that.