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Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Niagen Biosciences, Inc. Third Quarter of 2025 Earnings Conference Call. My name is Tamika, and I will be your conference operator today [Operator Instructions] And as a reminder, this conference call is being recorded. This afternoon, Niagen Biosciences issued a news release announcing the company's financial results for the third quarter of 2025. If you have not reviewed this information, both are available within the Investor Relations section of Niagen Biosciences website at www.nigencience.com. I would now like to turn the conference over to Kendall Knysch, Senior Director of Publicity and Public Relations. Please go ahead, Ms. Knysch. Kendall Knysch: Thank you. Good afternoon, and welcome to Niagen Bioscience, Inc.'s Third Quarter of 2025 Conference Call. With us today are Niagen Biosciences' Chief Executive Officer, Rob Fried; Chief Financial Officer, Ozan Pamir; and Senior Vice President of Scientific and Regulatory Affairs, Dr. Andrew Shao. Dr. Shao will join the call for Q&A. Today's conference call may include forward-looking statements, including statements related to the company's research and development and clinical trial plans and the timing and results of such trials, the timing of future regulatory filings, the expansion of the sale of Niagen products and ingredients in new markets, business development opportunities, future financial results, cash needs, operating performance, investor interest and business prospects and opportunities as well as anticipated results of operations. Forward-looking statements represent only the company's estimates on the date of this conference call and are not intended to give any assurance to the actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause Niagen Biosciences' actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These risk factors include those contained in Niagen Biosciences' quarterly report on Form 10-Q most recently filed with the SEC, including results of operations, financial condition, cash flows as well as global market and economic conditions on our business. Please note that the company assumes no obligation to update any forward-looking statements after the date of this conference call to conform with the forward-looking statements, actual results or to changes in its expectations. In addition, certain financial information presented in this call references non-GAAP financial measures. The company's earnings presentation and earnings press release, which were issued this afternoon, are available on the company's website, present reconciliations to the appropriate GAAP measures. Finally, this conference call is being recorded via webcast. The webcast will be available at the Investor Relations section of our website at www.niagenbioscience.com. With that, it is now my pleasure to turn the call over to our Chief Executive Officer, Rob Fried. Robert Fried: Thank you, Kendall. Good afternoon, everyone, and thank you for joining us on today's investor call. For the third quarter, I am quite pleased to share that we delivered yet another record performance with $34 million in revenue, a 33% increase year-over-year and net income of $4.6 million compared to net income of $1.9 million last year. We ended the quarter with $64.3 million in cash and no debt. Our e-commerce business continues to anchor our growth, delivering net sales of $19 million, a 29% increase year-over-year. The distribution business grew 109% year-over-year with $7 million in revenue, while our Niagen ingredient business remained steady, bringing in $6.9 million. During the third quarter, we onboarded a new strategic partner with access to a network of over 8,000 medical and health care practitioners, strengthening the Tru Niagen distributor revenues. This partnership supports our ongoing mission to educate health care practitioners, patients and consumers that Niagen is the most efficient, effective and only legal and highest quality NAD booster available. It also expands our communications engine to amplify awareness of Niagen's 40 peer-reviewed published clinical studies, our new study results and the healthy aging benefits of Niagen. Niagen Plus remains a key strategic focus for the company. In August, Niagen Plus at-home injection kits were launched, now only available to patients with a prescription from their practitioner, but we plan to expand distribution of the at-home injection kits via our own telehealth platform and leverage our e-commerce expertise to reach more patients. Last month, we announced that we added iCRYO to our clinic network and are currently in over 50 of their clinics nationwide. As of today, we have now onboarded more than 1,000 wellness and health care clinics across the United States to offer our Niagen Plus product line. As most of you may have noticed, the NAD market in general continues to expand quite rapidly, yet it is still only met a fraction of its potential. The supplement and injection markets are still at early stages, but there also remain considerable opportunity for NAD boosting innovations in skin care, cosmetics, food, beverage and of course, in drug applications. But it is critically important for everyone to understand that the NAD molecule itself is very large and is a nucleotide, meaning it cannot enter cells directly. It is therefore, ineffective at directly boosting NAD levels. One needs a precursor to enter the cell and then convert into NAD. And of course, the best precursor by quite a lot is Niagen NR. This is likely the reason why NAD IVs take hours to ingest, and they have significant unpleasant side effects. There are no studies that show that oral NAD supplementation increases cellular NAD. Yet, as you know, we have over 40 published peer-reviewed clinical studies in NR. Indeed, last month, the National Advertising Division, an independent advertising review arm of the Better Business Bureau, agreed with this position. Niagen Bio made a formal challenge against one particular company that was making false claims about its products that feature the NAD molecule. The National Advertising Division found that this company lacked human clinical evidence to support claims that NAD itself elevates NAD levels in the body since NAD itself is not bioavailable and there are no published human studies, oral or otherwise, demonstrating that it elevates cellular or tissue NAD. The National Advertising division's decision affirms the importance of scientific substantiation for safety and benefit claims in an industry quite crowded with brands seeking to capitalize on this big trend. At the end of September, the FDA reversed a prior determination that nicotinamide mononucleotide, NMN could not be lawfully marketed as a dietary supplement. We believe this decision will face quite strong opposition, and we expect further challenges. But even when NMN was prohibited from being on the market, the companies that are selling it presently were selling it. They were ignoring the previous FDA decision anyway. And what we see in the month since the decision is the same companies are continuing to sell at a comparable pace. We also will note that we and others have tested many NMN products on the market and most do not meet product label claims. It's important to highlight that the businesses that have been and continue to sell NMN are likely infringing on existing NMN patents that are owned by Niagen Bioscience and another company throughout the global market. So technically, NMN continues to be illegal. While NMN as an NAD precursor does elevate NAD levels, Niagen is the superior scientifically validated, safe and most efficient and effective way to elevate NAD levels. Last quarter, I discussed 2 studies investigating the effects of NR supplementation on patients experiencing symptoms of long COVID. One study conducted by Harvard University examined the effect of NR supplementation on fatigue, depressive symptoms, sleep quality and cognition. This study will be published later this month. There is also another study conducted in Norway that is undergoing peer review. We continue to make steady progress toward Parkinson's disease and ataxia telangiectasia or AT indications. As mentioned last quarter, the Phase III NOPARK clinical trial was completed in June, and we expect the results of that study to be published in early 2026. We are incorporating the FDA's feedback into our strategy for AT and continue to engage with the agency to prepare for an investigational new drug application. In an industry often marked by unverified claims and inconsistent quality, Niagen Bioscience stands apart for its scientific rigor, authenticity, integrity, transparency and innovation. While we maintain portfolio of several NAD precursors, nicotinamide riboside patented as Niagen is the most efficient, effective and extensively researched NAD precursor, as we have said, supported by over 40 peer-reviewed clinical studies with more than 50 patents and used in over 300 research collaborations. I am and I remain proud of the team's commitment to the company's initiatives and of the progress we have made over the years. Our 25-plus year mission is rooted in one goal, delivering scientifically proven solutions to address one of life's greatest challenges, aging. I would like to hand the call over to Ozan to run through the quarter's financials and then on to Q&A and closing remarks. Ozan? Ozan Pamir: Thanks, Rob. It is a pleasure to once again address our investors, partners and team members today and present another quarter of exceptional results. As Rob highlighted, we delivered another quarter of record revenues and continued profitability. This performance we're seeing is a testament to our team's commitment to operational discipline and delivering on our key initiatives and to the growing general awareness of Niagen as a premier solution to boost NAD levels. In the third quarter of 2025, we brought in $34 million in revenue, an increase of 33% or $8.4 million from the same period last year. Tru Niagen revenue grew by 44% to $26 million, a $7.9 million year-over-year increase, driven primarily by e-commerce revenue of $19 million, which was 29% or $4.3 million higher. Our Niagen ingredient revenue was $6.9 million, up 4% or $300,000 year-over-year. Within the ingredients business, we delivered $6.4 million in food-grade Niagen sales to key partners and $0.5 million in pharma-grade Niagen sales. Tru Niagen distribution remains a key growth opportunity, both domestically and internationally. While we anticipate quarterly fluctuations with Watson's, we continue to work closely with them to strengthen Tru Niagen's brand presence in Hong Kong and to launch Tru Niagen in additional Asia Pacific markets. Domestically, we're focused on expanding our distribution through partners with access to health care practitioners and other key channels, which contributed to the growth in the third quarter. As Rob mentioned, our new partner will give us access to thousands of medical and health care practitioners, a key part of our efforts to reinforce that Niagen is the most effective, efficient and clinically validated NAD booster while amplifying awareness of the growing body of clinical research supporting it. Our gross margin improved to 64.5% in the third quarter, up 100 basis points compared to 63.5% a year ago. This improvement was driven primarily by changes in product mix, improvements in labor and overhead utilization and the use of lower cost inventory purchases and production. While we expect that gross margins will improve year-over-year on a full year basis compared to 61.8% in 2024, we expect that gross margins will normalize on a quarterly basis moving forward. Selling and marketing expense as a percentage of net sales improved to 25.8% compared to 27.5% in the third quarter of 2024, reflecting our continued investments in growing global brand awareness of Niagen and doing so efficiently. Research and development expense was $1.8 million, $0.5 million higher year-over-year. Science continues to be the cornerstone of our company as we continue to invest in research and innovation to further our studies and R&D projects. General and administrative expenses totaled $7.1 million, an $800,000 increase compared to the previous year. This increase is primarily driven by increased share-based compensation expense. And finally, our net income for the third quarter of 2025 was $4.6 million or $0.06 per share, a significant improvement compared to $1.9 million or $0.02 per share for the third quarter of 2024. Turning to the balance sheet and cash flow. Our balance sheet continues to strengthen. We ended the quarter with $64.3 million in cash and no debt. For the 9 months ended September 30, 2025, net cash provided by operations was $12.8 million compared to $3.5 million in the same period last year. This year-over-year increase was mostly driven by an $11.9 million increase in net income, along with other positive shifts in working capital, such as higher accounts payable, significantly improved collections on trade receivables and increased share-based compensation expense compared to the prior year period. These were offset by increased inventory levels to support operational expansion. Regarding our full year 2025 outlook, detailed information on key financial metrics can be found in our earnings press release and presentation. Building on the strong momentum year-to-date, we recently revised our revenue growth guidance from 22% to 27% to 25% to 30% year-over-year. We remain confident in our updated full year guidance, supported by our strong e-commerce business and existing and new partnerships in the rapidly expanding NAD market. We're also revising our outlook for research and development expenses to decline as a percentage of net sales while still increasing in absolute dollars compared to our previous expectation of remaining stable as a percentage of net sales and increasing in absolute dollars. This adjustment reflects changes in timing of studies and projects. Finally, we are revising our outlook for general and administrative expenses. We now expect expenses to be up $8 million to $9 million in absolute dollars year-over-year compared to the previous expectation of a $7 million to $8 million increase. This change in G&A expectations is primarily driven by increased share-based compensation expense. One year into my tenure as CFO of Niagen Bioscience, I want to express how proud I am to be part of an organization that not only leads and defines the NAD category, but does so with integrity and professionalism. Looking ahead to 2026 and beyond, I'm confident in our ability to deliver significant returns to our shareholders. Operator, we're now ready to take questions. Operator: [Operator Instructions] Your first question is from the line of Jeff Cohen with Ladenburg Thalmann & Company. Destiny Buch: This is Destiny on for Jeff. I'm curious with the new partnership for IV, I'm curious to know what the uptake is looking like, any feedback you've received from those clinics? And if you're getting any sense, which potentially no, but if you're getting any sense of what the number of patients they're treating per week or month, whatever clarity you have there is great. Robert Fried: It's a little early, Destiny, for that. They just made the purchase towards the end of the quarter. And so they've only just begun the process of reselling the material to their physician network and presenting it. So we don't have any direct feedback from them yet. Destiny Buch: Okay. Got it. And then I'm curious with about NAD, where does this fit in your marketing funnel? Is this something that a potential consumer would see early on? Or is this something that would maybe fall a little later further down the funnel prior to purchase? Just curious. Robert Fried: With regard to NAD? Destiny Buch: Your AboutNAD site. Robert Fried: AboutNAD. Sorry. The AboutNAD website is something that we maintain, but it's an objective website. There are no -- it's not -- it's actually not in any way connected to or part of the purchasing funnel. It's just an information resource for journalists, investors, researchers, people who are generally interested in the true up-to-date science of NAD, -- what are the actual published studies, clinical and preclinical. As you know, as a dietary supplement company, the rules are clear, and we stick to the rules that one cannot imply a claim for a disease state, even if your product cures a disease. So if one conducts a study on a disease and it's actually therapeutic or prophylactic, they're very limited in what they can do with the information. So AboutNAD is a great resource where we can publish all the studies, not just the Niagen studies, but all NAD-related studies. So people can go, go to the search bar, type in any disease indication that they are concerned about or want to know about. And we'll see the studies that have been published to date without any noise of commerce or any attempt to try to push a product. Operator: Your next question is from the line of Susan Anderson with Canaccord Genuity. Susan Anderson: Nice job on the quarter. I guess maybe just a follow-up on the at-home injection. So it sounds like they're at physician offices. Are they at all of the offices, I guess, where you can also go to get the injection in office? And then also, how should we think about that rollout? Will they go -- will you go into other distribution? And then I think you mentioned you're going to put them on your own telehealth platform. So maybe if you could talk about that a little bit. How should we think about that getting up and running? And will this be in conjunction with your own DTC platform as well? Robert Fried: Yes, that's an important series of questions. Thank you, Susan. We do believe that the at-home kits are important for our future. But we are doing it like most things that we do carefully and slowly. And although there is an at-home kit available in the market, one needs to go to a clinic to purchase it at this point in time. And we're still working on the user experience to make sure that it's optimized. So it will be several months at least before it is available on our website. We are developing our own telehealth capability where one could go to truniagen.com or niagenplus.com and get a prescription from a physician online, much like the classic telehealth companies, and it would be delivered to their home via a pharmacy. But that -- we don't expect that functionality to be available for maybe 2 quarters probably, middle of next year. We do expect that some of the existing telehealth companies that are out there right now will be making it available to their customers. There are studies being done presently on Niagen injection as a potential complement to GLP-1. As you know, one of the leading side effects for these GLP-1s are muscle loss. And we believe that there is a benefit to getting NAD with Tru Niagen or with Niagen Plus to muscle density. So we hope that the results indicate that. And if that's the case, we expect to see some of the existing telehealth companies to offer it either in addition or as a complement to their GLP-1 products or as a separate stand-alone anti-aging at-home injection product. We expect that also to be somewhere in the middle of next year. Susan Anderson: Okay. Great. That was actually going to be my next question. So I assume you're already in conversations with them. And I guess, are there multiple other telehealth platforms that you're talking to? Robert Fried: Yes. Susan Anderson: Okay. Great. I guess just looking at Tru Niagen, I'm curious since the FDA's announcement on NMN, have you seen any change in purchasing behavior by consumers, I guess, in your own products, whether that's higher or lower or just changed behavior at all since the announcement? Or do you think it was really kind of a nonevent? Robert Fried: Yes. It's only been 5 or 6 weeks, and we haven't noticed anything yet. We've seen basically the sellers that never stopped selling and continuing to sell it, maybe 1 or 2 new brands that we never heard of. None of the existing established reputable play by the rules brands have entered the space, probably mostly because they know that there's a very good chance that the FDA will reverse this reversal again and because there are patents. And most of the well-managed reputable companies in dietary supplements don't blatantly go against existing patents. The ones that play in the space, the main beneficiaries of that rule are these Chinese manufacturing companies. It's all coming out of China and the smaller earlier-stage dietary supplement companies that generally don't really care much about the rules anyway. And as you know, we've tested many of the existing NMN products on the market and very few of them actually met label claims. Some of them had actually no NMN at all. We think NMN has in its purest form, an ability to elevate NAD, not as well as Niagen, obviously, but it still does it. It's still an effective way to elevate NAD. But at this point in time, we're not seeing any meaningful impact from the change in that rule. Operator: Your next question is from the line of Raj Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Hear me? Robert Fried: Yes, we got you. Raghuram Selvaraju: Sorry about that. A couple of technical difficulties. Just wanted to ask about 2 aspects here. Firstly, I wanted to see if you would be in a position at this juncture to elaborate on the possibility of establishing a stand-alone entity to pursue pharmaceutical Rx applications of nicotinamide riboside, particularly in the context of Parkinson's disease, but not limited to Parkinson's disease. And if you could maybe talk through some of the key decision-making factors that are likely to influence the timing and the nature of the manner in which you might go about establishing a stand-alone entity or venture to pursue those initiatives. Robert Fried: Thank you. It is likely that we will set up a stand-alone entity to manage the pharmaceutical pursuits. As you know, the 2 primary indications at this point are Parkinson's disease and ataxia, AT, telangiectasia. There are other disease indications for which we've been doing studies. Some have been early stage have been published, others are ongoing. But at this point, we're waiting for some of these studies to be completed so that we can see the results. And we've had conversations with a number of pharma companies. And I think that the results of those studies and the results of those discussions will dictate when we exactly set up that separate entity and put all those rights into that entity. We might begin segment reporting in the next quarter or 2. Raghuram Selvaraju: That's very helpful. Also, I wanted to ask about, more broadly speaking, how you are thinking about, in particular, the Niagen Plus -- the Niagen Plus IV applicability in the context of, for example, broader access for GLP-1 medications, the continued prevalence of compounded versions of those drugs. And in particular, if you could perhaps quantify for us, now you've indicated through your press release that this manifestation of the product is available in over 1,000 clinics. Maybe you could give us a sense of how large that segment actually is in terms of the total number of clinics in which the product could be positioned and how long it might take for you to reach sort of steady-state maximal penetration in this segment, please? Robert Fried: The way we view that segment is in 2 groups and then there are subgroups of those 2 groups. There's the injection market and then there's the IV market, and they're distinct markets. The IV product itself will deliver a much higher dose. The injection market does still go straight into the bloodstream, but it's injected at much smaller doses and generally takes place over a period of time. We think the -- both injections and IVs are available in the clinics. And we think there are 2,000 to 3,000 of these IV clinics or wellness clinics in the U.S. But there are also several thousand physicians that administer NAD IVs or injections in office. So part of the reason we did this deal with this third-party company is to begin accessing actual physicians' offices to administer some of these IVs and injections. So we think between the 2 markets, then there is even a potential third market, these Botox clinics, it could be as much as 10,000 individual offices in terms of the clinic market. Again, the clinic market is both IVs and injection. When we endeavor to pursue this business, which is quite different than the dietary supplement business, although it's a similar molecule, but it's a molecule pharmaceutical grade, very, very different supply chain and manufacturing process and approval process. And Ram, as you know, we've also everything we do, we also apply for support patents, which we've done in the Niagen Plus business in addition to all of our ingredient and supplement businesses as well. But it's a very, very different vertical with different operations, although the molecule is quite similar. But when we endeavored to get into this business, we didn't contemplate the at-home injection market, GLP-1s. It took us several years, 5 years or so to get to where we are now in that business. Now we realize that there are tens of millions of people who are willing to self-inject in order to stay thin or get thin. And we're hopeful that there will be many people that are interested in self-injecting in order to stay young or to complement the GLP-1 products that they're injecting with. So the injection market, as we look at it today, appears to be significantly larger as an addressable market than the clinic market or the straight IV market. The other thing we didn't know about at the time when we first entered this was the telehealth market in general. We started this process prior to COVID. So now we see the telehealth market is expanding quite rapidly, and it provides a fascinating service to the average consumer, integrating physicians' prescriptions as well as very convenient and well-priced medications delivered straight to the home. So we see that as a very significant opportunity for Niagen. And from what we see in that telehealth market and in the clinic market, the players in that space seem to so far agree with it as well. One headwind that we've noticed so far is -- we have one very good partner in the compound pharmacy space who compounds Niagen and productizes it. They sell at a fairly high price and then they sell it to the clinics who then sell at an extremely high price. So the price to consumers of getting these IVs at this point is quite high. They've positioned it very much like a Rolls-Royce in this space. We think that until those prices come down to more manageable levels, the volume is not going to reach its potential. So right now, it's not a huge business for us, this pharmaceutical ingredient business that's catering to Niagen Plus. And we don't think it's going to really take off in a significant way until those 2 things happen. Those 2 things being, number one, the injection market, particularly the telehealth market embraces it. And number two, the overall pricing at the clinics and physicians' offices comes down fairly dramatically. Operator: Your next question is from the line of Sean McGowan with ROTH Capital Partners. Sean McGowan: A couple of questions. Maybe first, circling back on the impact of the FDA decision you've talked a little bit about it not apparently having much impact. But has there been any discussion with customers about pricing in any way? Is it having any impact on your ability to hold price where it is? Robert Fried: So you mean the FDA decision on NMN? Sean McGowan: Yes. Yes. Robert Fried: You mean with our ingredient partners? Sean McGowan: Yes. Robert Fried: Most of them understand that those companies are not really that interested in anything other than Niagen. They're always asking us to cut our prices, though, regardless of there's FDA or not. So... Sean McGowan: Why waste a good crisis, right? Robert Fried: Exactly. Sean McGowan: Okay. Got it. And then maybe for Ozan, the gross margin overall was higher than I thought and it was especially higher in consumer, where I thought we would see kind of things drift down a little bit. Can you drill down a little bit more on how, I guess, on normal the margin in the Consumer segment might have been in the quarter when you say that you expect it to normalize? How far above normal do you think those factors that you cited have pushed that margin? So what should we expect in terms of normalization? Ozan Pamir: Yes. So the gross margin in the quarter was driven -- a lot of it was driven by still some of the leftover inventory, the lower cost inventory we had and also improved product mix. But once we are through that lower cost inventory, it will -- it will normalize, but we have also increased our outlook to -- previously was slight improvement. We are now seeing an improvement. We're not able to put a percentage on it, but it will be better than last year. That's what we can say. Operator: At this time, there are no further questions. I will now hand the call back over to our presenters for closing remarks. Kendall Knysch: Thank you, Tamika. A replay of this call will be available beginning at 7:30 p.m. Eastern Time today. The replay number is 1 (800) 770-2030, and the replay ID is (858-4242). Thank you, everyone, for joining us today and for your continued support of Niagen Bioscience. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good afternoon, and welcome to the Digital Turbine Fiscal 2026 Second Quarter Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Bartholomew, Senior Vice President of Capital Markets. Please go ahead. Brian Bartholomew: Thank you. Good afternoon, and welcome to the Digital Turbine Fiscal 2026 Second Quarter Earnings Conference Call. Joining me today on the call to discuss our results are CEO, Bill Stone; and CFO, Steve Lasher. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. These forward-looking statements are based on our current assumptions, expectations and beliefs, including projected operating metrics, future products and services, anticipated market demand and other forward-looking topics. Although, we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. Except as required by law, we undertake no obligation to update any forward-looking statements. For a discussion of the risk factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements, please refer to the documents we file with the Securities and Exchange Commission. Also during this call, we will discuss certain non-GAAP measures of our performance. Non-GAAP measures are not substitutes for GAAP measures. Please refer to today's press release for important information about the limitations of using non-GAAP measures as well as reconciliations of these non-GAAP financial results to the most comparable GAAP measures. Now I'd like to turn the call over to our CEO, Mr. Bill Stone. William Stone: Thanks, Brian. Thanks, everyone, for joining our call tonight. Our September quarter showcased accelerating business momentum across both our On Device Solutions and App Growth Platform segments. Strong demand for our platform, combined with disciplined operational execution, drove top and bottom line results that exceeded expectations. Revenue for the quarter came in at $140.4 million, representing 18% year-over-year growth. We also achieved 78% year-over-year growth in adjusted EBITDA, demonstrating significant operating leverage in our model as we scale. We continue to execute against our strategy of connecting app developers, operators and OEMs in a mobile-first world. The combination of our installed base, monetization capabilities and growing partner network uniquely positions Digital Turbine to capture a meaningful share of the $1 trillion, $0.5 trillion market opportunity in front of us. Also in September, we successfully completed our debt refinancing through a new 4-year term loan facility, providing additional flexibility and a stronger balance sheet to support growth initiatives. Breaking our results down by segment. Our On Device Solutions business generated $96 million in revenue, up approximately 17% from the September quarter last year. In particular, it was encouraging to see 10% growth in both Global Devices and revenue per device year-over-year, with the bright spot continues to be our international ODS business, which drove 80% year-over-year revenue growth. And we also achieved a nice milestone in the quarter as for the first time in our history, our international revenues exceeded 25% of our total ODS revenues. Our application growth platform business was another bright spot for the quarter and returned to year-over-year growth posted $45 million in revenue, which was up 20% year-over-year. In particular, I was pleased with the over 40% sequential improvement in our brand business and also a double-digit increase in our DTX or SSP business. The hard work we did over the past few years to stay the course and integrate the legacy tech stacks into a common platform is now paying dividends, and we expect the momentum to continue into the future. Three key drivers powered our improved performance this quarter. First was higher advertiser demand, which translated into improved pricing and fill rates, particularly for premium placements on our platform. This strong advertiser demand resulted in over 30% year-over-year growth in revenue per device in both the U.S. and international markets for On Device business. The second driver was increased supply. Our global devices grew year-over-year driven by strong volumes from our international partners. In addition, our AGP supply volumes increased impressions by nearly 30% year-over-year driven by expansion of our distribution of our SDK footprint, strong performance in our APAC region and strong increases in non-gaming inventory. And finally, we made meaningful progress on our first-party data and AI machine learning platform, which is setting the foundation for smarter targeting higher return on ad spend for advertisers and improved user experiences, all being direct benefits of us leveraging our data. Beyond just near-term execution, we're also making strategic progress positioning in Digital Turbine for the future. Our first-party data investments, coupled with real-time AI-driven decisioning are unlocking new levels of precision and scale. These capabilities are becoming even more valuable as advertisers seek alternatives to the closed wall garden ecosystems and look for transparent performance ways to engage mobile users. We ran these unique advantages as the DT Ignite graph, which yields our AI machine learning platform, and we also brand our AI machine learning platform as DTiQ. Scaling our Ignite graph and DTiQ are one of our top priorities in the business, and we see these capabilities as a major growth driver for our business into the future. We're also seeing increasing brand engagement directly on our platform. We continue to expand the number of brands leveraging our capabilities. Much of this growth comes through traditional media buying agencies, but we were especially excited is with brands that have brought their media buying in-house, and want a direct relationship with Digital Turbine, particularly in the retail and consumer packaged goods categories. In fact, direct brands accounted for 47% of our total brand revenue in the September quarter, which was up from 22% in the prior quarter. This growth reflects the value we deliver through meaningful supply path optimization savings enabled by our extensive SDK footprint and a truly differentiated offering from omnichannel SSPs through our unique on-device scale. Moreover, the macro environment continues to shift in favor of direct distribution and alternative app distribution models. With the combination of our tech enablers such as Ignite Graft DTiQ, SingleTap and dual downloads, which enabled the distribution of application and alternative app stores directly distributed to devices. As an example, our use of SingleTap technology grew 45% sequentially, which is a nice example of helping publishers create a simple user experience to distribute their applications. And adding our ad tech tools on top of these capabilities helps them acquire more users. Regulatory momentum is accelerating in all geographies around the world to offer customer and publisher choice. In other words, our alternative strategy is simply leveraging our existing technology, capabilities and strengths for Android and iOS into a new and growing channel of distribution. To wrap up, our growth accelerated in the second quarter. We showed solid year-over-year double-digit growth in both revenue and EBITDA, driven by a healthy mix of disciplined execution, innovation, and favorable industry dynamics. We're building the right foundation through operational discipline and strategic investment to drive sustained profitable growth. We're excited by the traction we're seeing across the business and confident in our ability to continually deliver value to partners, advertisers, end users and shareholders. With that, I'll turn it over to Steve to take you through the financials in more detail. Stephen Lasher: Thank you, Bill, and good afternoon, everyone. The fiscal second quarter represented another meaningful step forward for digital turbine. We accelerated revenue growth expanded product margins and delivered top and bottom line results that exceeded our expectations. We also advanced several key strategic initiatives and strengthened our balance sheet with a new longer-term credit facility. As we look at the numbers, total revenue for the fiscal second quarter was $140.4 million, representing 18% growth year-over-year. At a segment level, our ODS business delivered $96.5 million in revenue, up 17% year-over-year. This growth was driven by higher device volumes and revenue per dice, particularly from our international partners. International ODS revenue reached a record high in surge more than 80% year-over-year. We are pleased to see our AGP segment returned to year-over-year growth, delivering $44.7 million in revenue, up 20% from the prior year. These results reflect the early benefits of our strategic efforts to better harness our proprietary first-party data and AI-driven capabilities. The combination of accelerated top line growth and ongoing operational efficiencies produced another strong profitability quarter. Adjusted EBITDA for our fiscal second quarter was $27.2 million, up 78% year-over-year. EBIT margin of 94 -- EBITDA margin of 19.4% expanded for the sixth consecutive quarter. Free cash flow for our second quarter was $7 million, an improvement of nearly $23 million year-over-year. Our non-GAAP gross margin for the fiscal second quarter was 47%, representing an improvement of 200 basis points compared to the same period last year, driven largely by product and segment mix. Cash operating expenses were $38.9 million, flat year-over-year. We are very pleased with the progress we are making on cost control and operational discipline, which allowed us to achieve 18% of year-over-year revenue growth with flat operating expenses. We will continue to identify areas for additional efficiency while maintaining targeted disciplined investments to support future growth. Turning to the bottom line. We reported a GAAP net loss of $21.4 million or $0.20 per share in the fiscal second quarter. On a non-GAAP basis, we generated net income of $16.5 million or $0.15 per share based on 113 million shares outstanding. Looking at the balance sheet. We ended the quarter with a cash balance of $39 million, up approximately $5 million from the end of the June quarter. Our total debt, net of debt issuance costs stood at $396 million. In early September, we completed a successful debt refinancing with a new 4-year term loan facility. This financing meaningfully extends our maturity time line and ensures ample liquidity to execute our growth strategy in the years ahead. Let me turn to our updated outlook for fiscal 2026. Following a stronger-than-expected quarter and with improved visibility into the remainder of the fiscal year, we are raising our full year revenue and adjusted EBITDA guidance. We now expect revenue to be in the range of $540 million to $550 million, and adjusted EBITDA in the range of $100 million to $105 million for fiscal year 2026. At the midpoint, this represents an increase of $12.5 million in revenue guidance and $9 million in EBITDA guidance compared to our prior outlook. In closing, we have positioned the company for sustainable growth in fiscal 2026 and beyond. Momentum across our core businesses remain strong, and we are confident in our ability to build on this performance moving forward. With that, let me hand it back to the operator to open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from Anthony Stoss of Craig-Hallum. Anthony Stoss: Congrats on the continued nice execution. Bill, maybe to dig a little bit deeper on the brand business is accelerating. You're lighting new customers. Maybe can you talk about what they're seeing on the ROI? Are these kind of get the similar ROI elsewhere or just the fact that you've tied in all the different platforms, you have something so unique? And then also, maybe if you can update us if you have any thoughts on whether or not you'll land -- or not land but go live with additional SingleTap people by the end of the year. William Stone: Yes. Thanks, Tony. First, on your brand question, let me lift it up and talk about just AGP in general. We did the acquisitions a few years back. And we could have easily just focused on revenue, but we made the tough decisions to integrate the platforms. And that was a lot of hard work. And we're really happy to see that starting to bear fruit, and you're seeing that show up in the results with nice double-digit increases because it's really a flywheel in terms of how the demand and supply work for each other. And then we're starting to see that. And that's super important as we think about where we're going to grow that business in the future. One of the inputs into that flywheel, the brand business. And as I mentioned in my prepared remarks, we're great to see our direct brand relationships account for almost half of our total brand revenue in the September quarter. So we've worked really hard to get approved and certified by the large advertising agencies and that's something -- it's really bearing fruit for us. But we're seeing this trend towards a lot of brands bringing media buying in-house, and they can spend more time understanding the audiences. And so especially with consumer packaged, goods brands and retail brands in particular, you're starting to see some really nice growth and momentum there. So it's something we're excited about, specially we get into the holiday season. And as far as your question on SingleTap, as I mentioned in my prepared remarks, we saw almost 50% increase in SingleTap installs quarter-after-quarter. I think that would be the metric that I'd point you to in terms of our progress here versus any single one brand name or a partner that we're working with is we're working with a lot that are names that you are familiar with. But we're excited to see that platform continue to be a benefit to end users and advertisers. We're just simplifying the experience of getting apps to device. So that growth that we saw in the quarter is something that we're encouraged by. Anthony Stoss: Just kind of a follow-up here on the international side. It was really strong yet again. If you could step back, how much or -- how penetrated do you think that international market is? And you highlighted that the RPD revenue was strong? Can you give us any more detail on what it was up to be quarter-to-quarter or year-over-year? William Stone: Yes. So in terms of international RPDs, we saw a really nice solid double-digit growth year-over-year in that. And obviously, solid growth in devices that drove the 80% increase that we have year-over-year. And so I mentioned that for the first time in the history and obviously, you've been around the company for a long time, we've talked about international for many, many quarters. And so forth now exceed 25% of our revenues for ODS is something that I was really happy to see. And it's a combination of more devices, better demand, better execution. And so really proud of the team on this one, generator strong results. Operator: Our next question comes from Mitch Pindus of Wells Fargo. Mitchell R. Pindus: I echo previous sentiments. A nice quarter. Well done. I have a question related to AI. And I wanted to find out a little bit more about if it's playing a role with Digital Turbine as it relates to either operations or advertising? William Stone: Yes. Yes. Sure, Mitch. Yes, AI is a really critical part of our strategy going forward. And it's been a part looking back as well and being able to use AI to simplify and automate our business and our business processes to make our business more efficient, is something that we've been doing and continue to make investments in. And that -- those investments will drive future operating expense and operating leverage for the business. And then on the customer side, we've made some material investments in AI specifically, which we're branding as DTiQ, that is our AI machine learning platform that can deliver better models, better outcomes, better predictions for our advertisers to drive better return on ad spend. And so big material investments for us. We're starting to see some fruits of that show up in the current quarter. But as we think about our growth drivers into 2026 and beyond, this will be a major driver for us, and this is one of our major focus areas of the company. Mitchell R. Pindus: One more question. After the recent Supreme Court ruling, which was reversed to Google Play, are you seeing any effect to DT as an alternative app storefront alternative? And if so, can you speak to the progress and your thoughts for potential of that business? William Stone: Yes, Mitch. It's something we're really excited about is, we see more democratization of app distribution and the rulings obviously support that. And so what we see going forward is a lot of app publishers that you want to have direct access with their billing to their subscribers or look at other third parties to do that, and we enable both of those. So how I would think about it is, that business is going to happen regardless of whatever Digital Turbine does. But in terms of facilitating that in terms of distributing those alternative apps, or being able to help those app postures acquire more users, that's where we come in. And I think we can really help provide a lot of value to those app publishers that want to do that. So another major focus area for our business going forward is something we anticipate to see a lot of growth and momentum for -- in 2026 and beyond. Operator: Our next question comes from Arthur Chu of Bank of America. Arthur Chu: This is Arthur for [ Omar ]. Bill, maybe just a follow-up on Ignite Graph and DTiQ. What types of data that the AI/ML platform is using that is -- that are sort of unique to Digital Turbine that could perhaps help advertise survey some conversion signals that are different from what some of the other ad platforms are doing? William Stone: Yes. Sure, Arthur. So we've got over 1,000 different signals that come in from all over our network. And that network could be more than the $0.5 billion devices that we have Ignite on or the -- between 2 billion and 3 billion devices that we have our SDK footprint in terms of leveraging the signals that come from all of those places. . And specifically, we think part of our unique secret sauce is really on the Ignite side of the business in terms of not in terms of having the access to the data in terms of what applications are on the device in terms of how they're used and install, not install, user engagement and the rest of that. And so I think with those unique signals for us can help drive better outcomes for advertisers in a more efficient way, which obviously leverages our set of capabilities. So all of that really produces a DT Ignite Graph that we can use then to build models and prediction on and what we're calling that AI machine learning platforms is DTiQ. And so we're excited about the early returns that we're seeing on that. But as we go forward, that's going to be a major investment and focus area for us. Arthur Chu: Got it. That's super helpful. Maybe if I can just ask another follow-up question. This one is on the competitive landscape. What are you seeing -- let's say, if you just look back into the past 6 to 12 months, what are you seeing -- are you seeing any changes in the competitive landscape with -- perhaps some of the other players like putting out in the market. Just wondering like if there are any changes that you're seeing there? William Stone: Yes. I think on the competitive landscape, on the On Device side of the business, we've we're actually seeing a little bit less competition as one of the major players exited that business over the past 6 months or so. So that's something I think that is good news for us, although it continues to remain robust, competitive with other players, other large mega players. On the AGP side of the business. We're really focused on just building out our flywheel in terms of how we can better connect our demand to our supply more so than competition, and a lot of the name in the industry may be competition on one part of the business, SSP or exchange side, but they're customers for ours on the DSP side. So it's a little bit nuanced in terms of getting into the details on this call. But I would say we haven't seen anything material happen in the competitive landscape on the AGP side over the past 6 months or so. Operator: This concludes the question-and-answer session. I would now like to hand the conference back over to Bill Stone for any closing remarks. William Stone: Yes. Thanks, everyone, for joining our call today. We'll talk to you again on our fiscal '26 third quarter call in a few months. Thanks, and have a great night. . Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Sherif El Etr: Good afternoon, everyone, and welcome to CIB's 3Q '25 Earnings Call. Thank you all for dialing in. This is Sherif El Etr from CI Capital Research team, and we're happy to be hosting today's call. From management, we have with us Mr. Hisham Ezz Al-Arab, CEO and Executive Board member; Mrs. Yasmine Hemeda, Head of Investor Relations; and Nelly Zeneiny, Investor Relations Manager. We will start off with a summary of 3Q '25 performance, and then we will open the floor for questions. I will now hand over the call to management. Nelly Zeneiny: Good morning and good afternoon, everyone. This is our customary disclosure statement. This call is intended for investors and analysts only. As such, if any media representative has gained access to this call, kindly hang up now. Certain information disclosed during this earnings call consists of forward-looking statements reflecting the current view of the bank with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors can cause the actual results, performance or achievements of the bank to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including worldwide economic trends, the economic and political climates of Egypt, the Middle East and changes in the business strategy, along with various other factors. Should one or more of these risks or uncertainties materialize or should any underlying assumptions prove incorrect, actual results may materially vary from those described in such forward-looking statements. The bank undertakes no obligation to republish revised forward-looking statements to reflect changed events or circumstances. And that ends the disclaimer statement. I'll now hand it over to Ms. Yasmine Hemeda to give a brief overview of the financial performance. Yasmine Hemeda: Thank you, Nelly. Good afternoon, and good morning, everyone. Thank you for joining our earnings call, and thank you, CI Capital for hosting it. I'll give a brief overview of the macroeconomic backdrop. Then I will give a brief on the quarterly financial results. The macro picture continued its steady and broad-based improvement across all fronts, and this was mainly supported by disciplined monetary policy. On the inflation front, the rate dropped to 12% as of September 2025, which allowed the CBE to further cut the policy rate to reach 21.5% by end of October, bringing the total rate cuts since March to 625 bps. This in and of itself has further improved the macro landscape, creating additional room for more cuts throughout the remainder of the year while still maintaining a real interest rate of around 10%. The decoupling of the sovereign rate persisted, continuing to offer the banks lucrative returns on their excess liquidity and helping mitigate the natural NIM compression, which is typically associated with a declining interest rate environment. On the currency front, the exchange rate has remained within a 6% to 8% trading band throughout the past period with the EGP strengthening slightly versus the dollar, hovering around the 48%, 48.5% range. But more importantly, foreign currency availability has remained consistent, supported by record highs in remittances, tourism and exports over the past period and dollar sales were surging across the system. And if this says anything, it underscores the market's confidence that the current exchange rate reflects the fair value of the EGP. As a result of this favorable and improving macro environment, CIB delivered another very strong set of results. Loans witnessed a growth of around EGP 119 billion, translating to a growth of 30%, which was driven by local currency loan bookings of 38%, together with foreign currency loans growing by 17%, with corporate loans growing by 34%, of which around 40% came in the form of CapEx and with the bank's share of lending to SMEs recording 25.4%. This fed into strong growth in the sustainable stream of noninterest income with fees and commissions income growing by 22% year-over-year. On the funding side, the bank's deposit gathering strategy continued to yield results. Total deposits recorded EGP 1.04 trillion, growing by 8% or EGP 75.3 billion year-to-date. And more significantly, the healthy share of CASA to total deposits grew from 55% last year to 60% this year. Local currency deposits added 11% or EGP 61.3 billion, while foreign currency deposits grew by 10% or USD 787 million. Consequently, our loan-to-deposit ratio reached 49.7% by end of period, up from 39.4% last year and recorded 52.3% upon further accounting for securitization deals with the local currency portion reaching a record high of 66.6%. This resulted in local currency NIMs recording 13%, showing balance sheet resilience despite the aforementioned interest rate cuts. Costs were tightly kept under control with improved efficiencies leading to a cost-to-income ratio recording 14.3%, up from 12.2% in 2024. CIB's new recalibrated ECL calculation was approved, resulting in a onetime release of a total provision amounting to EGP 13.1 billion. The release provision amount has been transferred to a special reserve in shareholders' equity through the bank's P&L statement, hence, crediting a before tax amount of EGP 13.1 billion to the P&L and to the provision balance sheet line. It's worth noting that in line with CBE's instruction, this reserve will not be recognized in the bank's capital base or CAR or distributable profits and cannot be utilized or distributed without prior consultation with the CBE. With this recalibrated model, which more realistically and accurately reflect potential credit losses and the quality of the loan portfolio, coverage of NPLs remains at a very comfortable level of 281%. And more relevantly, coverage of the risky performing portfolio [Audio Gap] profits for the 9 months 2025 reached EGP 62.1 billion. And after adjusting for the one-off reversal, year-to-date profits reached EGP 50.5 billion. ROE recorded 45.9% and upon excluding the one-off provision release, it's 37.7%. Throughout the bank maintained a strong capital position with a CAR of 30% and a CET1 ratio of 26% by end of third quarter 2025. Finally, our results this quarter reflect more than just a strong financial performance. They demonstrate the strength, the resilience and the disciplined execution that defines CIB. We remain focused on enabling growth and opportunity for our clients, our people, our shareholders, while maintaining the financial strength and solid fundamentals that underpin our leadership and success. With a clear strategy and a strong balance sheet, we will continue to invest in technology, talent and trust to ensure we continue to deliver sustainable long-term value and support the broader economy. On that note, I'll hand it over to Mr. Omar El-Husseiny, our Chief Global Markets, to give a brief on the past quarter. Omar El-Husseiny: Thank you, Yasmine. Good morning and good afternoon, everyone. Just a few updates. From a market and balance sheet perspective, our focus remains disciplined growth, expanding quality assets while protecting spreads and liquidity. This reflects solid pricing discipline and balanced mix between loans and sovereigns on the asset side and CASA and term deposits on the liability side. On the credit front, we continue to see healthy growth from the private sector with lending activity broadening across sectors that wasn't there during the past period of time, namely petrochemicals, chemicals, automotive manufacturing and port development, though at a slightly slower momentum than tourism and food industries. Year-to-date, we have added around 99 new credit commitments, including 55 during the third quarter alone, signaling both growing business confidence and CIB role in financing new investment cycles. On the noninterest income side, because we know that will be part of the questions that will be asked. On the trade finance volume, it has been increased by more than 30% year-on-year, yet profitability declined due to higher concessions offered among strong foreign currency inflows, particularly from households, tourism and exporters. This dynamic reflects our strategic decision to prioritize client relationship and flow retention during a time where we have excess foreign currency liquidity. Finally, the synergies across the global markets, treasury, GTB, financial institutions, enterprise and capital markets, debt and capital markets continue to strengthen our base of recurring fees, proving how far our integrated markets platform has evolved during the past period of time in a key growth and liquidity engine for the bank. Yasmine Hemeda: Thank you, Omar. On that note, we will now open the floor to Q&A. Sherif El Etr: [Operator Instructions] We have a question from [ Waruna ] from SICO Bahrain. Unknown Analyst: Am I audible? Yasmine Hemeda: Yes, [for me it is] fine. Unknown Analyst: So I have 4 questions, if I may ask one by one. The first one is on the loan growth. So the local currency loan growth, like you said, was very strong, 38%, but year-to-date, I'm saying. But foreign currency, I think it is -- if I -- correct me if I'm wrong, it's slightly down for the year-to-date. And so my question is, what is your expectation for 2025 this year, I mean, where can we see loan growth ending both foreign currency and local currency? And what's your expectation next year? Do you expect the similar momentum to continue? That's my first question. Secondly, I think you mentioned that the government -- the sovereign yields, I mean, that kind of protected your margins when corridor rates are falling. My question is what kind of treasury bill yields -- I mean you have -- I mean, treasury yields have been very resilient. In terms of government bond yields, long-term bond yields, have they been also resilient? I mean just want to get an idea as to what kind of yields are you been able to get? That's my second question. And third question on the NIMs. So what is the outlook? I mean, so far this year, NIMs are very resilient at around 9%. So can we expect that to continue at least for one more quarter and I mean -- and for the next year, if possible? Fourth question is on the IFRS, the model, the ECL model, now we can see certain -- I mean, if I look at corporate segment, your provision is around 1.5% of Stage 1. And then for Stage 2, around 16% these numbers have kind of revised down based on the new assumption, I guess. So can we expect like this to be the percentages going forward? I mean, how do we model that going forward? Yasmine Hemeda: Thank you, [ Waruna ]. If I'll just cover one question, and then I'll hand it over to our CFO and our Chief Global Markets to add the rest. For the loan growth, it might seem that it's a bit slow down in terms of rate on the foreign currency front, but this is because mainly of the repayments, which is very natural and very normal because most of the foreign currency lending is stemming from the tourism sector. And it's one of the main characteristics of that sector is that in good times, they tend to prepay. So it might look that it's a slowdown rate of growth compared to the local currency. But if anything, it is growing. But because of the prepayments, you'll see it slower or even possibly at a single-digit level as compared to the local currency front. In terms of the expectations of loan growth for 2025, we're still on point for our guidance, which is between 20%, 25% on a blended basis. The local currency will grow obviously at a much higher pace than that. We will continue to see the same mix that we're seeing, which is basically a lot of working capital and maintenance CapEx as well. This will continue throughout the remainder of the year. And we'll continue to see foreign currency loan growth coming mainly from the exporting industries and obviously, the tourism sector, like I mentioned earlier. I'll now hand it over to Mr. Islam Zekry, our CFO, to cover the IFRS model. Islam Zekry: Just one comment on the foreign currency growth also. When you compare the results quarter-over-quarter in foreign currency, you'll find the numbers a little bit flat. The decline is coming or the declining trend you are noticing here is coming because of the appreciation of the Egyptian pound over the past -- over the third quarter. So when you recast for this, so the number is flat given the repayments Yasmine just highlighted. Back to the NIM sensitivity, we witnessed 500, 600 basis points of cuts over the past period. And our NIMs, the local currency NIMs gets impacted by almost 60 basis points. So the impact is not linear. So the relation is not linear. And that reflects the resiliency of the balance sheet. And all the efforts have been done on the retail side to increase the weight of the current accounts savings or the cheap deposits to the total deposits, which reached almost 66% when it comes to local currency, 60% on overall deposit base. Related to the question on the IFRS... Yasmine Hemeda: IFRS, the run rate for the provision... Islam Zekry: So technically, when you look at the numbers as we speak after the release, the average cost of risk to the total outstanding deposits went down from 8.2% to 7%. This is 1% slight higher, less than 1% higher than the average of the market. The coverage ratios went down from almost 300%, 3x to almost 2.8 or 280%, which is when the model start maturing over time, we expect some adjustments on the long run. But you need to keep in your mind that the instructions of the Central Bank and the regime of the IFRS around relaxing or revising the TTCPD or the through the cycle, the probability of default process mandating us to keep monitoring the models for the coming couple of years. And within the couple of years, we may witness sort of adjustments here and there going forward. Omar El-Husseiny: And on the government bonds yield side, we had a discussion a couple of quarters ago when we said last year, we started to extend the duration on the asset side back again to the concept of mixing between assets between loan growth and securities and sovereign securities. Last year, we started to extend the duration on the asset side in the anticipation of interest rates coming down. And the majority of it was being held at the amortized cost and not through fair value through OCI. And that's not only on the local currency that has been as well on the foreign currency side. So we have been extending the duration on both local currency and foreign currency at the fixed side throughout sovereign bonds throughout our portfolio. Unknown Analyst: Okay. And regard -- I mean, as far as bonds are concerned, what is the split between the local currency and the foreign currency? Yasmine Hemeda: I'm very sorry, can you repeat that [ Waruna ]? The line was cutting a bit. Unknown Analyst: No. My question was what is the breakdown between local currency and foreign currency bonds, government bonds. Can you provide that? Omar El-Husseiny: So yes, so now we have around $3 billion on the foreign currency side. And on the local currency, we have around EGP 150 billion, EGP 160 billion. Unknown Analyst: Okay. Okay. And because the thing -- why I'm asking is that there was significant increase during the course of the third quarter as far as government bonds are concerned. So I was wondering whether you -- so basically, you were reallocating a lot of... Omar El-Husseiny: Especially on the foreign currency side because there have been lots of opportunities that we saw in order to extend our duration on the foreign currency, especially with the Fed cutting rates. So we wanted to do same as we did on the local currency side, same as the foreign currency to extend the duration on the bond side, and it has been the diversified portfolio, ranging from U.S. treasuries to other investment-grade bonds. Unknown Analyst: Okay. And just to conclude, so what is your NIM guidance on blended basis, what I'm asking for this year and next year, assuming -- I mean, let's say, let's assume that another 600 basis point cut next year, what is your expectation in NIMs? Yasmine Hemeda: So for 2025, NIM will remain almost flattish as compared to 2024 on a blended basis. So what we're aiming towards is around 9%, 9.1% for the full year. That's for this year. Next year, again, I mean, like Mr. Islam mentioned earlier, I mean, it's not a linear relationship. There are a lot of moving factors. But because of what we have been doing, fundamentally speaking, on the cost side of the NIMs of bringing down our average cost of funds by growing the CASA portion of our deposit base reaching the 60% that he mentioned earlier, so that whatever happens on the asset side, we secure a healthy enough margin on the liability side. So like we mentioned earlier that typically with a declining interest rate environment, there is definitely or there were going to be natural compression in the NIM. But because of what we have been doing, this compression will be more of a gradual one. So you won't see the 13% on the local currency front dropping to 3% or 4% overnight. It will take time. And I mean, it's too early now to guide for 2026. We're still in the process of putting together our budget. Once the budget is finalized and approved by the Board by end of the year, I'll be able to share the guidance on all fronts with the investment community at large. Unknown Analyst: So what you said was like local currency, what the sensitivity you said was 600 basis point decline... Yasmine Hemeda: It was not 600, at 60 basis points. Unknown Analyst: No, no, I'm saying the 600 rate cut resulted in only 60 basis point decline, right? Islam Zekry: Yes. Unknown Analyst: And then -- so right now, the local currency NIM is 13% as it stands in 9 months? Islam Zekry: Year-over-year, this was a 9-month... Unknown Analyst: 9 months year-to-date is 13%. And what is the foreign currency NIM? Yasmine Hemeda: 2.6%. Unknown Analyst: 2.6%. Sherif El Etr: Our next question from Rahul Bajaj from Citi. Rahul Bajaj: Rahul Bajaj from Citi. I have 2 sets of questions, similar topic actually. The first one is on the sovereign portfolio. And the second one is on the ECL. So on the sovereign portfolio, I understand your margins were strong in 3Q and the decoupling of the sovereign rate has kind of helped you. Two-part question. Firstly, do you expect this decoupling to continue as rates continue to go down? Or you think sovereign rates over time will merge with the loan yield, which is available in the market? So that's the first part. The second part of the question on this one is, I remember in previous calls, you mentioned that overall loan yield -- doing loans is more profitable for COMI than doing sovereigns because of the other -- the cross-sell and other things that you mentioned. Now because of the decoupling and because of the fact that yields on loans are going down, are you reaching a point where they're probably at an inflection and maybe you feel that doing sovereign is more profitable at this point of time rather than doing loans? Or you still think that doing loans is more profitable? So that's my first set of questions on the investment portfolio. The second one is on the ECL model. Now that the recalibration has been done, 2-part questions again. Firstly, I understand this is -- the reserve that has been created is not part of your capital now. But is there a provision or is there a discussion with the Central Bank that at some point in the future, the reserves will qualify as your core capital? Is that something that can come up 2 years, 3 years down the line? That's the first bit. The second bit is -- now that this recalibration has been done and you have the Central Bank approval, how should we think about cost of risk or normalized levels of cost of risk going forward? What would be that level? And historically, you've had a jump in fourth quarter cost of risk for the last few years. Should we expect a similar jump in fourth quarter of 2025? Yes, those are my questions. Omar El-Husseiny: Thank you, Rahul, for the set of questions. Those has been the discussions in the ALCO during the past period of time. So we are at the end of the day, a commercial bank. So our primary goal will be always getting the loans, especially for the auxiliary business. And to answer your question, it's still profitable to book loans than sovereigns. That's from one side. The other side is decoupling. Decoupling is happening, and it will continue during the coming period of time at a lesser magnitude, of course. But definitely, the market is discounting. So when we compare, shall we book a loan or shall we buy some papers, the market is already discounting further cuts in the interest rates on the local currency. So when we compare, we see the auxiliary business versus the expectation of interest rates. And one of the things that we always think about our ability as a bank to pass through the cut in interest rates to our clients on the deposit side. Islam Zekry: Regarding the accounting treatments of the ECL, yes, the instructions upon the release decision of the Central Bank is not to consider it part of the capital base or part of the distribution statement end of the year. However, reserve is reserved accounting-wise. It's part of our coverage. And regarding the discussion with the Central Bank, again, according to the IFRS 9 regime and the Central Bank guidelines over there, we'll keep monitoring those models for the coming 18 to 24 months. And then all the possibilities are there. Anyway, they are part of our equity right now as a reserve, but all the possibilities are open once we get the assurance about the stability of the models and the resulted probability of defaults out of those models within the coming 24 months. Rahul Bajaj: I had one more question, which was on the normalized levels of cost of risk. And should we expect a fourth quarter spike as we usually do? Islam Zekry: Let me give you an idea about the cost of risk within CIB. So before the release, the average cost of risk was at the original range of 8.2%. After the release, that released almost 1%. So we are at the range of 7% as we speak. The average industry is 6%. So there are 90 basis points specifically different CIB higher than the average... Rahul Bajaj: Sorry, when you say 8.2% average cost of risk, what are you referring to? Can you please clarify is this the P&L charge that you're talking about? Islam Zekry: Compared to our risky assets, specifically loans. Sherif El Etr: We have a question from Darren Smith from [ 337 ]. Unknown Analyst: Congrats and team on the great results. Just a quick question. Can you hear me, sir? Yasmine Hemeda: Yes, Darren. We can hear from you. Unknown Analyst: Just one quick question. The release of other provisions, I think, for the amount of EGP 5.1 billion, can you -- a reversal of those provisions. Can you just comment to what is that exactly? Yasmine Hemeda: That's the provisions on the contingent business. So I mean, so you have the direct, which is the 7, which you see it as a separate line. And then in -- as part of the other operating income or expense, this is the contingent provisions. Islam Zekry: Let me elaborate here a little bit. So the total release is EGP 13.1 billion, okay? So that's the total amount released. A part of this is almost EGP 8 billion, which is direct loan loss provision that will be reversed part of our credit impairments accounting-wise when you follow my statements, our statements. The contingent provision is part of our noninterest income. So there is a release of EGP 5 billion over there. That's why we are the EGP 13.1 billion in 2 different accounting lines when you look at our financial statements. Sorry, that's the IFRS presentation standard, and that's the first that we are following up. So they are in 2 different lines. Unknown Analyst: Understood. And these are both obviously related to the ECL model. And that contingent business, are you talking as letters of credit? Or what's in there? Yasmine Hemeda: Yes, yes, yes. For the [ LC ] and for your reference, I mean, you find it as part of the earnings release, we always put it as under a total provisions line, which it groups basically the direct and the contingent for your easy reference basically. Unknown Analyst: Okay. And can I just follow up on one of the last questions around the cost of risk. I don't think I fully understood because I think you referenced you said 8.2% cost of risk and maybe the way we calculate is different, but I'm taking the provision charge on the income statement over your gross loans, and it's a fraction of 8% each year. Can you just clarify where you're getting that 8.2% from? Yasmine Hemeda: I mean, Darren, it's because of the IFRS and all of the accounting things, these are too sophisticated for you and me. But I think in more simplistic terms, I mean, you're talking -- this is the way we should look at the cost of risk, which basically entails that if you annualize the first half of provisions, so basically, if you annualize the EGP 700 million that we took, so for the full year, we would get between EGP 1.4 billion, EGP 1.5 billion. This -- you should consider this as more towards a normalized run rate for the impairment charges moving forward, which would translate to a cost of risk that is, I mean, almost 0.5%, 0.7%, so you'll normalize run rate. Unknown Analyst: Exactly. That's okay. That's how I would use it. And just to confirm, and that's compared to last year, you did about EGP 4.5 billion, and you're saying it should be around... Yasmine Hemeda: It should be around EGP 1.4 billion, EGP 1.5 billion. Unknown Analyst: And you think that is a -- that's a sort of a normal level for at least a couple of years. Is that... Yasmine Hemeda: That we don't get a nuclear war or anything basically. I mean, wipe us off. I mean, hopefully, this should be the normalized run rate. Unknown Analyst: Fantastic. Okay. Congrats on getting that ECL model approved and a phenomenal set of results. Yasmine Hemeda: It's a long time in the making, we've been talking about it for like 3 years now. Unknown Analyst: That's nice to see. And I can't wait to see the dividend announcement later this year. Yasmine Hemeda: I mean I have the CEO here. I'm putting him on the hot seat. I'm telling him, you promise people, so you need to deliver on that. Sherif El Etr: We have a couple of questions in the Q&A box. There are 2 questions from [indiscernible]. She's asking profit from currency swap deeds revaluation increased from EGP 15 million in September '24 to EGP 187 million in September '25. It was a loss of EGP 395 million in Q2. Could you elaborate on the main drivers behind this swing? Omar El-Husseiny: So this one is not the currency swap, it is the interest rate swap. So we do hedging because we're expecting interest rates to come down. So we did lots of hedging on the asset side and the liability side. And as soon as the forward curve is starting to come down in anticipation of interest rates to go down, so we're making more money on this specific item. Sherif El Etr: Perfect. The other question is there is an increase of about 35% in administrative expenses for the 9 months '25 versus same period last year. Could you give us a bit more color on the key components behind that growth? Yasmine Hemeda: Yes, sure. So I mean, there is nothing one-off about it. I mean this is like normal course of action, but I'll walk you through some of the lines that may be increased more than the others. So we had a lot of renewals for expired contracts that were signed back in 2022 that expired by midyear 2025. So these renewals, they sort of embedded new rates for the foreign currency against the EGP because we -- since 2022, we saw devaluations and we saw a lot of inflationary pressures over the past 2 to 3 years. So this was reflected in the renewal of the contracts. That's one of the things. The other thing is because of the -- we had a lot of finalized IT projects and infrastructures that basically started capitalizing in the third quarter of 2025. So you need to account for the depreciation impact on those as well. And the third more significant line is that because of the increase that we saw in the loan portfolio, hence, there are a lot of associated stamp duty and regulatory expenses. But other than those, there aren't -- and even those, I mean, there aren't to be considered one-off items, I mean -- and the cost to income remains well, well below the 25% mark. And I think we guided one too many times that not only that we have the room, but we have the intention of investing and expanding and doing a lot of stuff to be able to deliver on our growth plans and digital transformation moving forward. So I mean -- and luckily, we have plenty of room to do that comfortably while maintaining a cost to income that is both comfortable for the stakeholders, for the Board and for everyone involved. Islam Zekry: And when you recast for the FX impact, the devaluation specifically, so the cost growth will be the 17% growth year-over-year. That's the normalized number for the currency devaluation. Sherif El Etr: We have another question from [ Schwab ] asking -- sorry, he didn't hear the question regarding the provision coverage on the performing risky portfolio. Yasmine Hemeda: It's 7.7% which if you remember, it used to run at around 14%. So I mean, it was brought down as promised to 7%. We always said that we will maintain that ratio between 7% to 8%. So now it's at 7.7%. Sherif El Etr: There is another question from [indiscernible] asking, will there be any more provision release going forward? Islam Zekry: We hope so. But the idea is this is not like an annual event. It's one of a time. But the idea is according to the regulation, we are for the coming 18, 24 months, we are reviewing our models. External auditors are mandated to make a quarterly review and report, I think, on an annual basis also to the Central Bank to give the comfort level on those releases. But for the time being, that's the process. Unknown Executive: We all have to understand that there's a period of time where the risks were very much like an accident, unpredictable. And those unpredictable risks are no longer there. We feel very comfortable either at the Board level or the management that we will not have those fireworks anymore. So practically, the economic condition or the monetary and exchange policy is much more predictable and by the way, I think personally that the regulatory authority, the Central Bank want to be predictable, and that helped a lot in reducing the risk premium in the market. When you look at -- because we live on the ground there, when you look at the -- anyone who is selling a product, a car, food, you name it, they used to mark their products by 30% and 40% premium for the unpredictability of the [indiscernible] and exchange policy that uncertainty as well... Omar El-Husseiny: Even for the CDS... Unknown Executive: Even for the CDS, yes. Those unpredictability now are diminishing. And practically, I see it on no more overpricing of product because of the unpredictability of the risk -- the same thing we see it in how the economy is functioning, at least our customers. And that reflected in the ACL model. I would say that I've been told not really to put it in that way. But really, the assumptions we have are very different for the expected risk factors than the assumptions we had 5 years ago or 3 years ago. Sherif El Etr: There's another question from [ Amr Ayed ] asking, we noticed the higher funds utilization rate this quarter, along with a significant decrease in cash balances. Could you please explain what's driving these changes? Omar El-Husseiny: I can't recall if this is on the local currency or foreign currency. But anyways, it's a spot balances. At some point of time, we keep cash balances in order to meet the client demands or loan growth. So for instance, we might have a loan booking on the 1st of October, and we keep the cash on the 30th of September in order to meet the client needs in terms of the loan growth. And in case it's a foreign currency, it's exactly the same, either on foreign currency loan bookings or we're just buying securities. So we keep the money at our nostro until the settlement of the transaction. Islam Zekry: I need to keep in mind that our loan to deposit specifically on the local currency went up from 50% to 66% in this [indiscernible] book. So that's part of the utilization. The others are cash operations, Central Bank cash operations. Sherif El Etr: We have a raise hand button question from [ Shalom ]. Unknown Analyst: Can you hear me? Yasmine Hemeda: Yes, hi [ Shalom ]. Unknown Analyst: I have a question again on the bond portfolio, fixed income portfolio. Could you give us an idea what part of the OCI portfolio is hedged against the interest rate risk? And what could be the potential size of the portfolio subject to recycling in case the rates drop to capitalize on the interest rates change? Omar El-Husseiny: So you're talking about the foreign currency part or the local part? Unknown Analyst: Both. But let's start with the local. Omar El-Husseiny: So I would say 100% of the local and foreign currency is for hedging purposes against interest rates going down. That's my plain answer to your question. Unknown Analyst: Could you repeat, please? Omar El-Husseiny: So I was saying either on the local currency or the foreign currency, 100% of what we're having either on fair value OCI or amortized cost is for hedging purposes against interest rates coming down. Unknown Analyst: So if I correctly understand this, in case the rates drop, so the magnitude of the gains from the mark-to-market will be limited in that case, right? Or if I have correct understanding? Omar El-Husseiny: It's for hedging purposes, it's not for trading purposes. If it's for trading purposes, then as soon as interest rates will be coming down, we'll be making more money, then we'll go just sell it and realize the profits. But as long as... Unknown Analyst: I see. And what is the part of the portfolio that could be subject for recycling for like selling to realize the gains, let's say, from the fair value OCI portfolio? Omar El-Husseiny: So based on our business model in the bank, fair value OCI and amortized costs are for hedging. So we cannot recycle those until we face a severe liquidity crunch in our balance sheet, then we will have to go and liquidate the part on the fair value OCI. Sherif El Etr: We have another question the raised hand button from Mohammed. We have a couple of questions in the Q&A box. Saurav [ Gobiyal ] asking, could you please refresh guidance for 2025 and give us color for 2026? Yasmine Hemeda: Thank you for your question. So I mean, let's work it bottom up. So we are still on point to record EGP 70 billion on a normalized basis because obviously, now we're at EGP 62.1 billion, which includes the reversal. And if you normalize for this EGP 13 billion, so basically, this EGP 50.5 billion should read 70% by year-end. Loan growth, we covered it, we're expecting on a blended basis between 20% to 25%, again, driven by stronger growth on the local currency side and strong enough single-digit growth on the foreign currency front. And with that loan growth, you should expect healthy growth in the fees and commissions line that will feed very positively into the noninterest income line as well. Costs will remain tightly under control, again, very much under 20% for the full year. NIMs will remain flat as compared to 2024. We are guiding for a blended NIM of around 9% for the full year. ROEs, I mean, it should remain well above the 37% mark, again, on a normalized basis. What else? Loan growth. Deposit growth, we're set to close the year with 10% to 15% growth on the deposit side. Most of the growth will be coming from CASA, current and saving accounts. We're always targeting that at least 55% to 60% of the new acquisitions will come in the form of CASA. Sherif El Etr: [Operator Instructions] We have one more question in the Q&A box. Selma is asking, how is the CIB positioning for potential EGP volatility? What are expectations for interest rate normalization in 2026? Yasmine Hemeda: I mean I'll take the interest rate part. So since the beginning of the year, thus far, we saw cuts of around 625 basis points, which is in line with the market consensus. If you remember, when we talked at the beginning of the year, we were guiding along with all of the other macro economists that we are to see between 6% to 8% cuts on the policy side throughout 2025, of which we saw this 625 and we're expecting to see 200 basis points more throughout the remainder of the year. I think for 2026, we'll see the remaining balance. So I mean, if we saw since the devaluation hikes of around 12%, if they cut 825 basis points in 2025, then the rest will be cut throughout 2026. So by end of '26, interest rates should go back to the pre-devaluation level. I'm not sure if I get it correctly. How do you mean how is CIB positioning for potential EGP volatility? Are you talking from a capital perspective? I mean, what are you talking about or what do you mean exactly? Until you answer, I mean, if you're asking about from a capital perspective, I'm sure you know that, I mean, as per the CBE, all banks should be 100% matched in terms of tenure and currency. So I mean, we have to be 100% matched from an assets and liabilities perspective. But we do have as any bank, I mean, because our capital is denominated in EGP. So I mean, we have this chronic sort of mismatch, which we moved very early on to hedge when we ventured to get the Tier 2 subordinated debt. And we're now at a position where for every EGP 1 depreciation, this would eat up around 20 basis points off of the CAR. Omar El-Husseiny: And in case the second part of the question is related to the FX positions. You know that as per the Central Bank regulations, we can go long or short up to 10% of our capital base, which we are maneuvering based on the market conditions, our expectations, foreign currency inflows and outflows and client needs, either they are on the trade finance or repatriation or delays. Sherif El Etr: Thank you. Since there are no further questions, would management like to make any closing remarks? Yasmine Hemeda: Thank you, everyone, for dialing in. I mean we're very happy to report yet another strong quarter, and we look forward to reporting the full year, and it will not fall short from what we promised as always. Thank you so much, and looking forward to talking to you all soon. Thank you. Sherif El Etr: Thank you, CIB management team, and thank you all for attending CIB's 3Q '25 earnings call hosted by CI Capital.
Operator: Good afternoon, and welcome to Sarepta's Third Quarter 2025 Financial Results Conference Call. As a reminder, today's program is being recorded. At this time, I'll turn the call over to Tam Thornton, Director of Investor Relations. Please go ahead. Tamara Thornton: Thank you, and thank you all for joining today's call. Earlier this afternoon, we released our financial results for the third quarter of 2025. The press release and slides are available on the Investors section of our website at sarepta.com, and our 10-Q will be filed with the Securities and Exchange Commission on Thursday after market. Joining us on the call today are Doug Ingram, Dr. Louise Rodino-Klapac, Patrick Moss, Ian Estepan and Ryan Wong. After our formal remarks, we'll open the call for Q&A. I'd like to note that during this call, we will be making a number of forward-looking statements. Please refer to Slide 2 on the webcast, which contains our forward-looking statements. These forward-looking statements involve risks and uncertainties, many of which are beyond Sarepta's control. Actual results could materially differ from these forward-looking statements, and any such risks can materially and adversely affect the business, the results of operations and trading prices for Sarepta's common stock. For a detailed description of applicable risks and uncertainties, we encourage you to review the company's most recent SEC filings. The company does not undertake any obligation to publicly update its forward-looking statements, including any financial projections provided today based on subsequent events or circumstances. As noted on Slide 3, we will discuss non-GAAP financial measures on this webcast. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release and the slide presentation available on the Investors section of our website. And now I'll turn the call over to our CEO, Doug Ingram, who will provide an overview of our recent progress. Doug? Douglas Ingram: Thank you, Tam. Good afternoon, everyone. Thank you for joining us for our third quarter 2025 financial results conference call. Next slide, please. We have much to discuss this evening, but let's begin by reviewing the completion of our confirmatory study for our 2 ultra-rare disease CMOs, VYONDYS and AMONDYS, before coming back to our quarterly update. Next slide. I'm going to turn the call over to Dr. Rodino-Klapac very shortly, but let me first give some broad conclusions. First, we are very proud to have completed our primary confirmatory obligations, both AMONDYS and VYONDYS serve ultra-rare populations with total prevalence numbering for each no more than about 500 to 800 patients in the United States and an incident rate per year of maybe a few dozen patients. This disease is also heterogeneous and degenerates not over months or years, but literally over decades. These together make the powering and conduct of a placebo-controlled trial particularly challenging. I want to give a huge thanks to our investigators and then very importantly, to the brave families who have had the courage to enroll and risk a placebo arm for 22 months. Without this special community that we serve, we would not have completed this unusually onerous study. Second, when reviewing the evidence to support transition from accelerated to traditional approval of a therapy, one, of course, looks to the totality of the evidence. Here, the division recognized the challenges associated with this ultra-rare disease trial and set out a very specific standard for continuing marketing authorizations. As referenced in our VYONDYS approval material, the FDA gave us a very specific written language about voluntarily withdrawing marketing authorization, which would only occur if "no relevant analyses find sufficient evidence of a clinical benefit. As you will hear from Dr. Rodino-Klapac, we believe that we have met that standard and that we have sufficient evidence to discuss with the agency transitioning from accelerated to traditional approval. Consider as you will have seen in our press release, the study missed its statistical significance. However, the data demonstrated a consistent and clinically favorable trend across the trial population. Importantly, a portion of this study was conducted over the COVID pandemic period. And as with many studies over that period, the study results were impacted for a variety of reasons. During the pandemic, the rate of missed doses was unusually high with nearly all patients missing doses and approaching half of whom missed substantial consecutive doses. Participants in the study were also largely shut in and suffered deep conditioning and loss of mobility. All of this appears confound in the results. When one excludes the COVID participants, we see a meaningful treatment benefit slowing disease progression by about 30%, which Dr. Rodino-Klapac will further explain. Likewise, to enroll this study, we were required to admit a broad population from as young as 6 years old to as old as 13 years old, including those who clearly have confounding ceiling and floor effects. In the subgroup analysis of those likely to progress, there was a strong statistically significant benefit, and this was across not only the primary but the other endpoints as well. There is also a wealth of published real-world evidence for the PMOs as just a few examples of the multiple real-world studies across our PMOs, we see that when tracking VYONDYS over 6 years, there is an 88% reduction in risk of loss of ambulation with a Kaplan-Meier analysis of delay of about 3 years. Likewise, with both VYONDYS and AMONDYS, we see over time a significant attenuation in pulmonary decline and a significant delay in time to cough assist and ventilation. We see the same trend in our own study, ESSENCE. As part of the benefits they are seeing, patients are required to be infused weekly, a fairly onerous protocol and yet their compliance rate has been well over 90% commercially year over year over year. When one considers all of the evidence for benefit and then weighs a favorable stable safety profile has tracked over many years. We believe the risk benefit remains positive. We not only anticipate continuing marketing authorization, but we believe we have a good argument for traditional approval. Our plan is to schedule a meeting with the division to review the totality of the evidence. Dr. Rodino-Klapac will now discuss those results in more detail. Louise? Louise Rodino-Klapac: Thank you, Doug. I'll turn to the next slide. Today, we announced the top line results from our ESSENCE trial, the first placebo-controlled Phase III study of exon skipping therapies, VYONDYS 53 or golodirsen and AMONDYS 45 or casimersen to treat patients with Duchenne muscular dystrophy amenable to exon 53 or 45 skipping, respectively. To remind you, VYONDYS and AMONDYS are designed to address the underlying cause of Duchenne by restoring the messenger RNA or mRNA reading frame. The therapies use Sarepta's proprietary PMO chemistry and exon skipping technology to skip exons 53 and 45 of the dystrophin gene. Promoting the synthesis of a short and functional dystrophin protein is intended to slow decline in Duchenne patients. VYONDYS and AMONDYS were approved by FDA via the accelerated approval pathway in 2019 and 2021, respectively. Next slide, please. As shown on this slide, initiated in September 2016, the 225-person ESSENCE study was designed as a double-blind, placebo-controlled trial spanning 96 weeks, followed by a 48-week open-label extension, reflecting the scale, rigor and long-term commitment required to validate targeted treatments and select rare disease populations such as Duchenne. The trial was conducted across 75 centers in 24 countries. Next slide, please. In terms of baseline demographics, patients were well matched with 2:1 treated versus placebo with numbers of exon 45 and exon 53 amenable patients consistent with the prevalent Duchenne population. Functional baseline characteristics were also well matched. Now turning to the top line results on the next slide. ESSENCE demonstrated numerical superiority across the primary and most secondary endpoints. However, the study did not reach statistical significance on the primary endpoint, the 4-step Ascend at 96 weeks. Let me first highlight the key results, and then I'll provide more detail on each. First, and as mentioned, we believe COVID impacted study results. A post-hoc analysis of participants not impacted by COVID improved study results on the 4-step Ascend, with a lease square mean difference of 0.11 steps per second and a p-value of 0.09. Second, when a prognostic score is applied to identify the subpopulation at risk for decline on 4-step Ascend, a meaningful and significant treatment response is evident with a lease square mean difference of 0.186 steps per second and a p-value of 0.01. And importantly, there were no new safety signals with comparable AE rates between treated and placebo. AEs were largely mild or moderate. Next slide, please. As you will see on this slide and as I mentioned previously, although the data showed numerical superiority, the primary endpoint of this study was not met. Next slide, please. As Doug mentioned, COVID appears to have had an impact on study results. The study itself was challenged operationally during the COVID period with twice as many consecutively missed doses during COVID versus COVID-free patients and compressed clinical evaluation schedule. 43% of COVID-impacted patients had consecutively missed doses with an average of 8 missed doses. In addition, published studies specifically on the impact of the COVID pandemic in Duchenne have demonstrated a negative impact on function due to immobility, contractures and increased weight gain. On this slide, I've highlighted the COVID period that falls in the middle of the ESSENCE study, which began in late 2016 and completed in 2025. We define patients that began and completed their 96 weeks outside of this window as COVID-free. Next slide, please. Notably, a post-hoc analysis of the COVID-free participants improved study results on the 4-step Ascend primary endpoint as shown on the left, with a least square mean difference of 0.11 steps per second and a p-value of 0.09. This equates to an approximately 30% reduction in disease progression over 2 years on the 4-step Ascend. This is in stark contrast to those individuals impacted by COVID on the right. Had we seen this effect size in a sample size similar for the whole trial population, we would expect it would have reached statistical significance. Secondary endpoints also demonstrated improved study results in COVID-free participants. Next slide, please. Separately, we also performed an analysis using a prognostic scoring method published by the well-respected CTAP, a collaborative trajectory analysis project group, which is focused on Duchenne. This method published after we commenced ESSENCE is used to identify the population most at risk for decline and consequently, a maximum treatment benefit can be identified by avoiding floor and ceiling effects. The method includes baseline age 4-step Ascend velocity, rise from floor velocity, 10-meter walk run velocity and corticosteroid duration and type. The 4-step Ascend was the most sensitive endpoint and reached statistical significance with this prognostic score applied. With a clinically meaningful lease square mean difference of 0.186 steps per second and a p-value of 0.01, this equates to a 35% reduction in disease progression over 2 years on the 4-step Ascend. Next slide, please. There were no new safety signals with comparable adverse event rates between treated and placebo, reinforcing the favorable and manageable safety profile observed with our exon skipping therapies. Adverse events were largely mild or moderate. We believe the totality of these data along with the real-world evidence are compelling for AMONDYS and VYONDYS, and we'll be sharing these data with FDA to support sNDA filings. Next slide, please. Of note, and as you will see here, a number of factors generated from real-world evidence supports casimersen, including a mean age of 15 years for casimersen-treated patients to meet a wheelchair versus 9.5 to 12.3 years in the literature for standard of care. It also shows a 2.6-year delay in time to reach FVC percent predicted of less than 60% for patients 10 to 18 years old versus matched control and a 70% reduction in mortality rate for our PMO. Next slide, please. On this slide, you will see how the real-world evidence supports golodirsen, including a 3-year delay in loss of ambulation versus external control, a 7.5-year delay in the need for nighttime ventilation and a 70% reduction in mortality. Next slide, please. As you can appreciate on this slide, the real-world body of evidence supports the effect of our PMOs on the trajectory of Duchenne, including an impressive 5.4-year increase in survival, a 3- to 4-year delay in loss of ambulation and significantly slower rates of pulmonary and cardiac decline. Next slide. Further, it's important to note that our exon skipping therapies have treated over 1,800 patients worldwide from infants to adults in their 30s, providing a robust foundation of clinical experience and real-world evidence showing PMOs have been associated with slowing Duchenne disease progression, including delayed loss of ambulation, preserved pulmonary and cardiac function and extending survival. With a patient adherence rate of more than 90%, the sustained use reflects the clinical value of our exon skippers. And we were also pleased to announce at this year's World Muscle Society meeting that a clinically meaningful attenuation of pulmonary decline was demonstrated in patients with advanced Duchenne treated with casimersen compared to matched external controls. And it's also important to note that most of our post-marketing requirements or PMRs have been completed. Next slide, please. In terms of next steps, with the completion of ESSENCE, we've submitted the top line results to the agency. We plan to submit a request to schedule a meeting with the division by the end of the year to review the totality of evidence and discuss the path to a traditional approval. Our findings will also be shared at future scientific forums with plans for publication in a peer-reviewed journal. I'd like to take this moment to thank the Duchenne community, clinical trial investigators and KOLs for their unwavering support these past years. Drug development often poses what can seem like unmovable obstacles. In the face of those obstacles, particularly in rare and ultra-rare disease, we remain steadfast in the science and focused on taking the best, albeit at times the more challenging path forward for the benefit of patients. We remain committed to our exon-skipping therapies and to the benefit they have provided and continues to provide to those living with Duchenne. I'll now turn the call back to Doug. Douglas Ingram: Thank you, Louise. All right. Next slide, please. Let's move now to performance. Notwithstanding unprecedented disruptions in the quarter, ELEVIDYS and the PMOs together posted solid net product revenue of $370 million for the quarter. Our Chief Commercial Officer, Patrick Moss, will provide more color on that in a moment. As to the ELEVIDYS label, we have had very productive dialogue with OTP, and we expect the label change process with FDA to be concluded very soon. Dr. Rodino-Klapac will discuss our expectations for the label very shortly, along with our planned trial for the prophylactic treatment of sirolimus. As it relates to our portfolio, we are very enthusiastic about our siRNA platform as the rest of biotech appears also to be enthused with the increasingly derisked potential of siRNA. Louise will discuss our progress on that in a bit. Finally, I would note that in the quarter, we took several important actions to strengthen our financial performance and align our resources with our strategic focus on supporting our current therapies while we advance our largely siRNA-based pipeline. Our CFO, Ryan Wong, will provide color on those actions in his remarks. And with that, I will turn the call back over to Louise again to make some remarks on ELEVIDYS and on our pipeline. Louise? Louise Rodino-Klapac: Thank you, Doug. And the next slide, please. Moving now to our ELEVIDYS and pipeline updates. Next slide. To update you on the safety label process for ELEVIDYS, as previously discussed, we've agreed to a black box warning for ALI and ALF. Also, consistent with the action we've already taken to pause shipments to non-ambulatory patients, we've agreed with the FDA that non-ambulatory will be removed from the indication and usage section of the prescribing information. Once we have an understanding of the risk-benefit analysis for sirolimus, we will discuss with FDA if data are sufficient to resume dosing non-ambulatory patients. Next slide, please. As you're aware, we convened an expert committee to discuss ALF and the potential of adding additional immunosuppression regimen for the non-ambulant population. Earlier this month, the committee, which consisted of numerous globally recognized, highly experienced medical specialists, including neuromuscular physicians with ELEVIDYS treatment experience, hepatologists and specialist experience in immunosuppressive therapies, shared their findings at WMS in which they analyzed and reviewed ALF safety data to identify early indicators of ALI and define populations at elevated risk for ALF. They evaluated and recommended strategies to prevent and mitigate ALI and ALF, emphasizing early risk recognition and patient stratification, a focus on intervention, clinical pathways and risk-based management, optimized clinical management approaches for ALI and ALF, including prophylactic immunosuppression and monitoring parameters. Based on these discussions and analyses, the committee endorsed modifying hepatic biomarker thresholds in ALI to facilitate timely intervention. They also recommended enhanced liver characterization of baseline to better understand risk factors of developing ALI. In terms of ALI prevention, they recommended adding prophylactic sirolimus as a second agent to the current corticosteroid regimen versus increasing corticosteroid doses, and this is 1 to 2 weeks prior to infusing ELEVIDYS. In terms of ALI management, the committee recommended prompt initiation of IV corticosteroids if patients do not respond to oral corticosteroids. Lastly, they emphasized the need to generate real-world and clinical data. Toward that end, and as we've communicated previously, Cohort 8 of our ENDEAVOR study is designed to demonstrate the effectiveness of additional prophylactic immunosuppression in non-ambulatory patients receiving ELEVIDYS. We are in discussions with FDA about the design of the study and hope to be able to commence it soon. Next slide, please. Also of note at this year's WMS meeting were the results of an independent study led by Dr. Jonathan Soslow from the Department of Pediatrics at Vanderbilt University Medical Center. The study included 20 Duchenne patients who received ELEVIDYS. The first 14 patients received ELEVIDYS with a standard protocol, including corticosteroids, but no additional immunosuppression. The 6 subsequent patients underwent a modified immunosuppression protocol with sirolimus. The objective was to show the initial safety, tolerability and efficacy of sirolimus prophylaxis. What the results demonstrated was that a low dose of sirolimus prophylaxis appeared to be safe and well tolerated in the Duchenne patients receiving ELEVIDYS, and there were no observed increases in liver enzymes in the 6 patients treated with sirolimus. Next slide, please. Moving now to our pipeline updates. Next slide and beginning with our LGMD Type 2E program. Regarding SRP-9003 for LGMD Type 2E, we recently presented positive Phase III emerging data at the WMS meeting. The study met its primary endpoint, demonstrating a significant increase in beta-sarcoglycan expression. In addition, restoration of other sarcoglycan complex proteins in both ambulatory and non-ambulatory patients was demonstrated. Further, our safety and tolerability results were consistent with previous results. We are encouraged by these data to support SRP-9003's clinical benefit in patients living with LGMD Type 2E. To determine the path forward, we have scheduled a meeting with the FDA this quarter. Following this regulatory dialogue, we will assess the requirements and determine the appropriate next steps for the program. Lastly, we turn to our promising siRNA pipeline. The recent activity in this space underscores the significant opportunity for this modality, and we are excited by our potential best-in-class approaches. Our DM1 and FSHD programs continue to advance rapidly. Enrollment is progressing well in both trials. For DM1, enrollment in the SAD study is complete and Cohort 4 of the MAD study at 6 mg per kg is currently enrolling. For FSHD, enrollment of the SAD study is complete and Cohort 6 of the MAD study or 12 mg per kg will begin enrolling this month. While we previously expected to release single dose ascending data by the end of the year, our team is currently prioritizing the transfer and validation of assays necessary to provide high-quality PD data. As a result, we now anticipate sharing these initial results in the first quarter of 2026. We also plan to initiate our trial for Huntington's disease by the year-end. This program utilizes a subcutaneous route of administration, allowing for deep brain regions like the striatum, particularly affected by Huntington's. In addition to the second-generation DM1 candidate selected at deal close, which has the ability to cross the blood-brain barrier and address the cognitive aspects of DM1. We have also selected 3 of our research targets, which we plan to discuss at a later date. We continue to be excited by our differentiated approaches with siRNA and look forward to updating you in 2026. I'll turn the call over to Patrick Moss for an update on our commercial performance. Next slide. Patrick? Patrick Moss: Thank you, Louise, and good afternoon, everyone. My comments today will focus on 3 areas: a review of our Q3 performance, my thoughts on the ESSENCE results and our expectations for the trajectory of ELEVIDYS. Next slide, please. Total product revenue for the quarter was $370 million, including $131 million in ELEVIDYS net product revenue and $239 million in PMO net product revenue. The pause in shipments to the ambulatory population, which resumed following the FDA's recommendation, created meaningful disruptions to patient access. Some infusion dates were canceled, requiring some families to reinitiate the logistical process, antibody testing, rescheduling appointments and reconfirming insurance authorization. New patient identification efforts were also delayed as a result of physicians requiring clarification on the reasons for the voluntary pause. Despite these challenges, our teams responded swiftly and decisively, working closely with sites and families to ensure continuity of care. Importantly, demand for ELEVIDYS proved resilient amongst those patients that had scheduled infusions with some infusions resuming within a week of lifting the pause on ambulatory shipments. We also continue to engage our key stakeholders, including payers. We've had productive discussions with payers since the pause and have not seen unfavorable shifts in coverage for ELEVIDYS. In the ambulatory population, approximately 220 million lives have a path to coverage. We continue to fight for our patients and to date, we're not aware of a single permanent denial for coverage. Our PMO franchise delivered strong demand based on performance this quarter. Performance also benefited from additional shipping days in the Q3 calendar compared to the upcoming fourth quarter. Now turning to the ESSENCE study. We look forward to connecting with physicians, patients and payers to share the data at upcoming congresses and through additional compliant channels. We believe the totality of the evidence demonstrating the value of our PMOs will be viewed by HCPs and families as proof of an innovative treatment option that can have an impact on the trajectory of the disease. Our PMOs have generated a significant amount of real-world evidence supporting the efficacy of these products. The real-world evidence, coupled with the data set from ESSENCE, only solidifies our view about the importance of these treatment options for patients living with Duchenne. As evidenced by our Q3 performance, we have successfully restarted shipping for ambulatory patients, and we have begun to see new ELEVIDYS enrollment forms submitted. However, the disruptions in the market this year, combined with the typical seasonal dynamics in Q4 will temporarily impact demand generation and the influx of new enrollment forms. Due to the resulting delays, we expect the Q4 infusion volumes to be flat to slightly down from Q3. Despite these near-term dynamics, we remain confident in the long-term opportunity for ELEVIDYS and are comfortable reiterating our guidance that the ambulant population alone represents an annual revenue opportunity with a $500 million floor. Our conviction is based on the wealth of data demonstrating the benefits of ELEVIDYS. Further, based on our ongoing dialogue with providers, we do not anticipate the inclusion of the box warning in the final label to have a significant impact on prescribing behaviors, and our field teams are fully equipped to support informed conversations with all stakeholders. The data continues to reinforce this long-term view. We are energized by the reception to our data presentations at this year's World Muscle Society, in particular, the 3-year functional outcomes data for ELEVIDYS has resonated strongly with health care providers, reinforcing the durability of benefit and the therapy's potential to slow disease progression. Now to remind everyone, we have now treated greater than 1,100 patients with ELEVIDYS in both the clinical and commercial setting, providing patients with an effective therapy that is designed to impact the trajectory of their disease. Taken together, these results underscore the strength of our portfolio and the resilience of our commercial execution. This team has led an incredible launch through undoubtedly turbulent times, and I have the conviction that this team will continue to deliver results. We remain deeply committed to supporting patients and families, and we are confident in our ability to navigate the near-term dynamics while advancing our mission to transform the lives of those living with this devastating disease. As I continue to meet with HCPs and hear family stories, I am moved by how our therapies are having a positive impact on the lives of patients living with Duchenne. I'll now turn the call over to Ryan Wong to discuss financial results. Ryan? Ryan Wong: Thank you, Patrick, and good afternoon, everyone. This afternoon's press release provided details for the third quarter of 2025 on a GAAP basis as well as a non-GAAP basis. Please refer to the press release available on Sarepta's website for a full reconciliation of GAAP to non-GAAP financial results. Next slide, please. I'd like to start my remarks today by thanking the Sarepta team for their commitment and diligence as we executed well against the revised strategy and refocused pipeline that we announced in July. Importantly, we took proactive steps in the third quarter to enhance our near-term liquidity and to improve our balance sheet and debt profile. We monetized strategic investments, completed a debt exchange, which reduced maturities due in 2027 from $1.15 billion to $450 million and significantly reduced our go-forward cost structure. In Q3, we were cash flow positive. Cash and investments increased from $850 million to $865 million. And from the strengthened financial foundation, we will continue to advance our pipeline and strategy. I will now touch on the key highlights from our third quarter financial results. Next slide, please. Total revenues were $399 million in the quarter, which consisted of $370 million in net product revenues and $29 million of collaboration and other revenues, which relates to contract manufacturing and royalty income from our partnership with Roche. Q3 cost of sales totaled $151 million, up from $92 million in the same quarter prior year. The increase reflects higher ELEVIDYS cost of goods due to depletion of previously expensed inventory and increased [indiscernible] costs. Additionally, we recorded $22 million in charges for write-offs of deposits tied to certain ELEVIDYS manufacturing suites and take-or-pay shortfall payments. Following the pause in shipping to the non-ambulatory population, we acted quickly with our strategic manufacturing partner to align ELEVIDYS production with near-term demand. As a result, we have deferred manufacturing commitments and payments from the first half of 2026 to 2027, while maintaining what we expect to be sufficient inventory to meet global demand. Moving on to expenses. Let me start with the restructuring charge reported in Q3. Following our July business and strategy update, which included a reduction in force and reprioritization of our pipeline, we incurred $41 million in restructuring costs, of which $35 million related to severance and other onetime termination benefits and the remainder related to the accelerated depreciation of certain impacted assets. Moving next to R&D. In the third quarter, GAAP R&D expenses were $219 million and non-GAAP R&D expenses were $207 million, both essentially flat to prior year. Nearly half of our reported R&D expense relates to the $100 million milestone paid to Arrowhead for meeting certain enrollment and safety thresholds in our SRP-1003 DM1 program. Turning to SG&A. We reported $92 million and $77 million on a GAAP and non-GAAP basis, respectively, representing a year-over-year decrease of 28% and 23%, respectively. These decreases were driven by lower compensation expenses as well as lower commercial spend following our cost restructuring efforts. Looking ahead to the remainder of the year, we expect combined non-GAAP R&D and SG&A expenses of approximately $420 million to $430 million in the fourth quarter. This includes $200 million payable to Arrowhead for the second DM1 milestone, which we anticipate recording in Q4 with payment due in the first quarter of 2026. For the full year, our guidance for combined non-GAAP R&D and SG&A expenses is approximately $1.86 billion. Excluding the Arrowhead transaction costs and DM1 milestones together totaling $884 million, our underlying expense guidance is roughly $976 million. Recall, our 2025 guidance prior to our July business and strategy update was between $1.2 billion and $1.3 billion, which means we have reduced planned expenses by nearly $300 million from the midpoint. This reflects our commitment to disciplined capital allocation, and we remain on track to meet our restructuring targets into next year. Lastly, in Q3, we reported an operating loss of $103 million and $36 million on a GAAP and a non-GAAP basis, respectively. Adjusting for the $41 million restructuring charge and the $100 million DM1 milestone, our underlying business would have reported a GAAP and non-GAAP operating profit of $37 million and $54 million, respectively. Additionally, adjusting for the $584 million Arrowhead upfront transaction cost, our underlying business has delivered a robust year-to-date GAAP and non-GAAP operating profit of $436 million and $561 million, respectively. In closing, with our financial performance and the actions we took in the quarter to strengthen our financial foundation, we believe we are well positioned to execute our strategy and meet our financial obligations even under revenue stress test scenarios. Looking ahead, our capital allocation priorities remain focused on investments that drive demand for our on-market therapies and advance our SNA platform towards potential near-term value inflection points. And now I'll turn the call back to Doug for closing remarks. Doug? Douglas Ingram: Thank you, Ryan. Let's open the call for questions, and then I'll make some closing remarks. Operator: [Operator Instructions] We'll go first to Anupam Rama at JPMorgan. Anupam Rama: I had just a quick question on ESSENCE. You guys talked a lot about some of the additional analyses and the COVID impact here. What other endpoints should we be looking for in a publication and/or medical conference presentation, FDA package that you think that would be supportive of some of the data that you presented here today? Douglas Ingram: Yes. Thank you for that question. I'll turn this to Louise. Louise Rodino-Klapac: Yes. Thanks for the question. So first, we'll be looking at the totality of evidence. So ESSENCE will be one part of that. But as we mentioned, the real-world evidence data is significant over many, many years and showing a benefit. In terms of ESSENCE, this is the top line. We have other secondary endpoints that include functional endpoints and also biological endpoints like expression, which are not complete yet. So all of that will be in the final CSR will be presented to the agency, and then that will be presented in a medical meeting. But as I mentioned in my remarks, the primary and secondaries favored the PMOs. And in terms of COVID, we saw the similar result that we saw with the primary, in which case you saw improvement with those endpoints when you looked at the COVID-free population. Operator: We'll go next to Gena Wang at Barclays. Huidong Wang: Maybe I'll just follow up regarding the COVID-free population. When we look at the p-value, it is still relatively high. It's 0.09. So like how do you think the FDA will look at the data sets here? And what could be the potential outcome with the FDA decision? One could be full approval? Should we also be worried about the drug could be pulled off the market as a potential worst-case scenario? Douglas Ingram: Thank you for the question, Gena. I'll make a couple of comments, and then I'll turn it to Louise. First of all, 0.09, I know that the standard is typically 0.05. Interesting enough, FDA leadership very recently noted with respect to rare diseases that 0.05 is relatively arbitrary and actually cited 0.09 as being potentially acceptable p-value. It says that 91% of the time, you're seeing a drug effect, particularly for rare disease. But I would also note that one of the reasons that we're seeing a p-value of 0.09, and we're not seeing a p-value closer to or better than 0.05 is that while 168 patients are included in the analysis here, 57 patients were excluded because they were -- their results were affected by the pandemic. And of course, that lowers the powering of the study substantially. So I think in light of the fact that we had to significantly lower the powering of the study to look at 168 versus for the additional 57 we would have otherwise seen, I think 0.09 is pretty darn impressive. And the effect, of course, not just the statistical significance of 0.09, but the effect is really important as we were showing a reduction in decline of 30%, which over the long run will be very, very important to these families. And one of the nice things about having these therapies commercially available for so long is that we get to see what happens over the long term, as you saw with respect to just one example of many VYONDYS, you look at that for 6 years, and these kids are seeing literally almost 3 years of delay in being in a wheelchair and the time to ventilation is significantly different. So I think the outcomes are a couple fold when we talk to the FDA. I really do not believe that there's a risk of losing marketing authorization, it would make very little sense given both the benefits we've seen with this therapy and considering this extraordinarily beneficial safety profile that we've seen over many years and when considering the standard that the FDA was very specific with us about as they approved VYONDYS in particular, and they were talking to ESSENCE and they said, the standard is you will be -- you will commit to voluntarily withdrawing marketing authorization, but only in a scenario where no relevant analyses would confirm a clinical benefit. Of course, we don't have that between the real-world evidence and the evidence we see here. So that -- I don't really think that is in the cards in the rational world. And then the real question is, can we transition this therapy from an accelerated approval to a traditional approval. We certainly think we have a good argument around that. We've been spending an enormous amount of time gathering data that supports this, and we think it would be the most efficient approach, but that will require discussions with the agency, and I can't make a prediction on that in advance of having good solid discussions and review of data with the agency. Now I said, Louise, I'm going to turn it over to you, and I will do that, but I did go on a bit of a monologue there. Louise Rodino-Klapac: Yes, I think you covered it well. Thank you. Operator: We'll go next to Tazeen Ahmad at Bank of America. Tazeen Ahmad: Mine is on the upcoming Arrowhead data. I wanted to get a sense of what level of data to expect from these early programs that you're looking at. Importantly, these indications, DM1, FSHD, et cetera, are ones that other companies are pursuing. Can you give us a sense of what level of data to expect so that we can potentially start to compare and contrast with the other programs that are ahead of you in development? Douglas Ingram: I'll turn this to Louise. Louise Rodino-Klapac: Sure. Well, of course, so we'll be sharing data with a single ascending dose study, and we'll be looking at safety and then we'll also have safety data for the multiple ascending dose by that time. So we'll have PK data, that's serum PK, muscle PK. And then as I mentioned in my remarks, we are working to validate and transfer the assays, the PD assays. And so that is knockdown for DM1 and looking at splicing. And then for FSHD, we're obviously looking at downstream FSHD gene. So these are assays that we want to validate and have through, through our pivotal studies. And so we're working hard to make sure that these are in a good place so that we -- when we present our PD data, can be carried through throughout our studies. So we're excited to see this result and present it to you early next year. Operator: We'll move next to Brian Abrahams at RBC Capital Markets. Kevin Meli: This is Kevin on for Brian. So we just had a couple on the proposed sirolimus study. Maybe can you just provide a little bit more color on any key sort of trial design features left to discuss there with the agency, how confident you are in the protocol that you've previously presented? And what if anything could be tweaked there? And would you still anticipate a potential readout in the first half of next year for that study? Douglas Ingram: Sure. Louise? Louise Rodino-Klapac: Sure. I think in a general sense, the protocol design is -- will be similar to what we presented. We haven't finalized it with the agency. But in general, in terms of the numbers of patients and the protocol for sirolimus, that hasn't changed. So it's been minor back and forth on the protocol itself. So as soon as we get that study started, we are ready to enroll quickly. Patients are lined up. And so by -- as you mentioned, in the first half of next year, we'll start to have data on the effectiveness and then in the second half of the year is when we'll have the full data set for the trial based on starting the trial soon. So we're hoping to get that initiated in the near term. Operator: Our next question comes from Joe Schwartz at Leerink Partners. Joseph Schwartz: Previously, I think you mentioned that there were around 75 infusion centers around the U.S. that were up and running, although to different degrees. So I was wondering how many are active once again after the pause? And how much variance is there across these centers in terms of the numbers of patients they're treating with ELEVIDYS now? Douglas Ingram: Patrick, you can take this one. Patrick Moss: Sure. Well, when we look at the top sites, they continue to treat. Now those less experienced sites. During the pause, they want to understand really the information that caused us to pause. But what we've seen now is the majority of those sites are also starting to submit enrollment forms as well. Operator: We'll go next to Andrew Tsai at Jefferies. Lin Tsai: I appreciate the update. So going back to the PMO franchise, can you remind us when the MISSION data is for EXONDYS 51 and how you would define success or failure in that study since I believe it's a dose response study, so there's no placebo arm. Douglas Ingram: Yes. Thank you very much. So that's a really interesting nuance. And Louise, you're going to correct me. I believe the readout date for MISSION is 2026. So to your very good point, MISSION is a post-marketing commitment that we have with respect to EXONDYS, but unlike ESSENCE and unlike VYONDYS and AMONDYS, it is not a confirmatory study. So there is no confirmatory study for EXONDYS and that was purposeful. The FDA in some of their memos indicated that what they really wanted to see was not a confirmation study, but rather a dose-ranging study. So there's -- essentially, it's dose ranging between 30 mg per kg, 100 mg per kg, even up to 200 mg per kg. And so the result of that is really a dose. Is 30 mg per kg the optimal dose or is 100 mg per kg the optimal dose? So that's the consequence of that study. It's not a confirmatory study, and that will read out in 2026, and we'll go from there. Operator: We'll take our next question from Salveen Richter at Goldman Sachs. Tommie Reerink: This is Tommie on for Salveen. Just wondering about guidance, if there's anything that you can say on full year for ELEVIDYS and about the stress tests that you've done in the past with the $900 million PMO, $500 million ELEVIDYS. And separately, just on ESSENCE, in the context of recent events, we're just wondering if your confidence that the FDA won't move the goalpost here. Douglas Ingram: I'm sorry, what was the last question? Move the goalpost for? Tommie Reerink: For ESSENCE. Douglas Ingram: Yes. I feel confident based on the fact that it was in writing. The standard that we were given was in writing. In fact, we had to commit back to them in writing that, that would be the standard. It did not come from a reviewer. It came from, in the first instance, the head of the neuro division and then it was cited by the supervisor for over neuro. So I think this was a very well-established standard that we have. Plus the fact is that these therapies have been on the market for a number of years. We have extraordinary real-world evidence on their use. As I think we mentioned before, this is one of the most onerous protocols for a therapy, you could imagine for commercial therapy, these young men and boys have to be infused on a weekly basis and yet families in recognition of the benefits they're seeing are -- have a compliance rate year over year over year that's greater than 90% commercially and the safety profile for these therapies is just -- is exceptional, I think, would be the fair way to say it. So I don't imagine that there'd be any reason why the division would want to change its standard. It would seem to be unnecessary. As it relates to guidance, we're not in a place to give broad guidance right now, but we feel on the stress test concept, we continue to feel comfortable on that stress test we talked about. That is not our guidance for next year. We're going to come together on that. I'm looking at Patrick when I say that. But we're -- we certainly feel very comfortable about that kind of baseline concept of $500 million for ELEVIDYS. Anything else you want to say about that for the rest of the year, Patrick? Patrick Moss: Nothing new to add. Thank you. Operator: We'll go next to Gil Blum at Needham & Company. Gil Blum: So when should we expect to receive data from -- expression data from patients receiving prophylactic sirolimus? And would any be provided from the [ ISD ] that was conducted separately? Douglas Ingram: Louise? Louise Rodino-Klapac: The expression data would -- assuming the study started soon would be late next year just in terms of saying the biopsies and analyzing them. In the study that Dr. Soslow conducted, biopsies were not part of that. I think that is something that he's looking at, but that was not part of the original study design. Douglas Ingram: I think that it's a very good question and a very interesting one. The primary reason that we're looking at the use of prophylactic sirolimus is the evidence we have preclinically and some of the early clinical data that it will greatly enhance the safety profile of this therapy, particularly for non-ambulatory patients. But one of the things we've seen preclinical, we have not seen clinically yet because we have -- no one's taken -- performed a biopsy yet. But preclinically, we've seen the opportunity to potentially greatly enhance expression, which in turn may significantly enhance benefit and durability and the like. So we're very interested in seeing in addition to the safety issue, which is without a doubt the primary reason for conducting this study, seeing some of that expression data as well, and that will be a next year event. Operator: Next, we'll go to Yanan Zhu at Wells Fargo. Yanan Zhu: Great. Just maybe a quick follow-up to a prior question. To what degree does FDA's reaction to ESSENCE spill over, for example, to EXONDYS 51? Is there a possibility that the decision or reaction positive or negative, is there a mechanism for it to also apply to 51 because there's no formal 51 confirmatory studies? And also wanted to -- curious, in your mind, what is the relevance of the precedent of NS Pharma, their confirmatory trial and that outcome, whether that has any implication to your situation? Douglas Ingram: I think the only thing I'd say about NS Pharma, and we don't know a ton about the details other than I think it's certainly proof that this division is being rational and isn't being excessively punitive for those who may not know, NS Pharma had a study for a PMO. That study did not hit stat sig, I think there were some reasons for that. And I think the division has been quite thoughtful about that. And that happened some time ago, and they certainly don't seem to be moving to do anything irrational. To your first question, the question is an interesting one. Do you think the outcome of ESSENCE has some read-through in some way to EXONDYS? And the short answer is, no. It does either positive or negative. I don't think it gives us a great mechanism to immediately make EXONDYS traditional approval if we're able to get traditional approval for VYONDYS and AMONDYS. And likewise, I don't think it has any other negative read-through to EXONDYS at all for the simple reason that the ESSENCE is specifically for 2 therapies, VYONDYS and AMONDYS that we're in that study and EXONDYS doesn't have that kind of study. Again, EXONDYS was approved with a post-marketing commitment to look at dose ranging. We'll have an opportunity to talk about transitioning to a traditional approval with EXONDYS, but only after we've completed our post-marketing commitment to look at that dose-ranging study of the 30, 100 and even up to 200 and then look at the benefits of that versus the downsides of extra dosing and the time it takes to infuse. So we'll look at all of that, and that will be its pathway to a traditional approval if things go well there. But ESSENCE doesn't never read through there as far as we can see logically. Operator: We'll move next to Mike Ulz at Morgan Stanley. Michael Ulz: Maybe just a follow-up on ESSENCE in terms of time lines here. When could you potentially meet with the FDA? And when would you expect to roughly have a final decision on that -- on the PMO franchise? Douglas Ingram: Louise, do you want to take that? Louise Rodino-Klapac: Sure. So the meeting request will go in by the end of the year. So the meeting will take place sometime in the first quarter based on that request. And so then later in the spring, the final CSR will be submitted and then the outcome of the meeting with the agency will determine next steps. So we'll update when we have something new to share, but the meeting will happen in the first quarter of the year. Operator: We'll go next to Brian Skorney at Baird. Brian Skorney: I guess the study has been running for 10 years now and the original design was 6-minute walk. And I don't think it was changed to this 4-step Ascend velocity until under -- just under a year ago. And prior to that wasn't flagged as a key secondary endpoint. So I guess with switching the endpoint a mistake, what does the 6-minute walk data look like? And what was the rationale last year for changing the analysis? Douglas Ingram: Louise, do you want to take this? Louise Rodino-Klapac: Sure. Yes. So the -- we evaluated the endpoints following our ELEVIDYS EMBARK data. And so we did an analysis of endpoints and engaged external KOLs to help us do that moving to an endpoint that was perhaps more sensitive in this. And based on the data, we -- taking the 4-stair climb versus the 6-minute walk test was the right decision in terms of it was determined to be the most sensitive endpoint in our hierarchy. And I think the additional analyses we did from both a COVID perspective and a prognostic scoring method also showed that when you applied those thresholds, we see that the -- in terms of COVID, we see almost reached significance. And then when we did with prognostic scoring method, we did see that we reached significance. So it was certainly the right endpoint for the study. Operator: We'll go next to Ritu Baral at TD Cowen. Ritu Baral: I wanted to dig in a little further on the dynamics that will drive the down quarter next quarter. Can you elaborate on, I guess, the changes in shipments? I mean, is this sort of a lag on the delay that the disruption or the shipping disruption caused? Or is it something more fundamental? And sort of wrapped in all of this is how is safety monitoring around ALIs changing for the ambulatory patients? Are you finding that clinicians are sort of adopting these new monitoring suggestions that were detailed in World Muscle for ambulatory patients? And is that slowing things down? Douglas Ingram: Yes. I'm going to turn this over to Patrick. I mean let me say in the broadest of stroke, Ritu, it is the downstream pail that occurs when we have this massive disruption. I know people were a bit surprised that we were resistant to this temporary pause. But you can see the impact. We had a temporary pause for a very short period of time, but that really creates a significant downstream disruption. We've said many times, the process to go from start form to an infusion can be 4 to 6 months. So there's just a resonating impact when you have just a complete pause and then you have to restart everything. But Patrick, you can provide more nuance than I can on this. Patrick Moss: Absolutely. And I'll add, in addition to what Doug just shared, we have really 3 dynamics this quarter. One, the medical conferences to where many of our HCPs are out of their offices for many days, weeks at a time. We've got also the major holidays that are going to impact infusions. And then the third is the inevitable illnesses that can pop up this time of the year. So all that comes together and it's what we've seen last year as well could impact this quarter's infusions. And so that's why we're projecting this quarter to be flat to possibly down in the fourth quarter. Operator: We'll go next to David Hoang at Deutsche Bank. David Hoang: So I guess maybe following up on some of the ELEVIDYS dynamics that were already asked about. Are you at a place where you can kind of provide a little bit of color on when you think ELEVIDYS demand would be normalized and we might see an inflection in revenues? And then as you think about some of the other competitor gene therapy products out there, one of which I think is seeking accelerated approval sometime next year, does that factor into kind of how you think about how ELEVIDYS demand may play out? Douglas Ingram: I'm not going to comment on nor editorialize on other people's claims with their drugs. But as it relates to commercial performance, Patrick, perhaps you want to provide some commentary on that? Patrick Moss: Yes. And the early view is that based on our commercial execution and the trends that we're seeing, it does support that floor that we talked about. As we get further into this quarter, we'll also see additional demands and additional enrollment forms come in, and we'll be able to give an update at a later time, more likely the JPMorgan time frame. Operator: Next, we'll go to Mitchell Kapoor at H.C. Wainwright. Unknown Analyst: This is [ Jade ] on for Mitchell. So you stated today that the majority of previous ELEVIDYS cancellations were reordered, but can you provide the actual hard numbers on the infusion postponements versus the number of cancellations you've gotten? And do you have like an actual number of start forms that have been filed for this third quarter? Douglas Ingram: Yes. We're going to use revenue as our metric. So we're not going to provide that level of detail. Do you have anything to say, Patrick, about the canceled doses, you can certainly touch on that. Patrick Moss: Yes. So during the pause, we had 14 cancellations, and we have seen 11 of those patients rescheduled and were redosed within the August time frame, and the remainder are still working through the system. Operator: Next, we'll go to Biren Amin at Piper Sandler. Biren Amin: I had a question on ESSENCE. Patients missed doses due to COVID, then you should expect dystrophin production on western blot and percentage of dystrophin-positive fibers to also be impacted between COVID and non-COVID patients. However, there was an analysis that I think the company presented interim data on at the World Muscle Meeting in October 2022 at week 48, that analysis showed no impact for 43 patients that were randomized to either AMONDYS or placebo on exon skipping dystrophin production, dystrophin-positive fibers, dystrophin intensity. Each of these endpoints were evalue static. So I just want to kind of understand how do you correlate that interim AMONDYS data on these biomarkers to the final functional data where you did see a COVID impact? Douglas Ingram: Louise, do you want to comment on that? Louise Rodino-Klapac: Yes. A couple of points on that. So we'll -- once we have all of the final data, we can certainly do a sensitivity analysis to look at this. I think one thing to remember is that the patients didn't have -- there's not a single patient that had biopsies at each time point. So it's difficult to track. So all patients had baseline biopsies and then a subset had them at 48 and another at 96. And so once we have all the data, we can go back and look for sensitivity to see if there was an impact on dystrophin expression. But it is complicated by the fact that not every -- that the patients didn't have sequential biopsies in the study in terms of 48 and 96 weeks, there were separate patients. Operator: We'll go next to Gavin Clark-Gartner at Evercore. Gavin Clark-Gartner: I just wanted to follow up on the ELEVIDYS trajectory question. So acknowledging there can be a 4- to 6-month lag, as you noted, have you seen a pickup in start forms over the last 1 to 2 months that gives you confidence there will be a notable revenue pickup in 2026? Douglas Ingram: Patrick? Patrick Moss: We're starting to see sites identify patients and send in their enrollment form. Every patient has a very distinct journey that they have to go through. So it's the antibody screening and the testing and their prescreening before they even start the authorization process. And so the early trends are supporting the positive outlook. And as we get more data, we'll share at a later time. Operator: Our next question comes from Yigal Nochomovitz at Citi. Unknown Analyst: This is [ Shivan Kim ] on for Yigal. Maybe just 2 quick ones from us. Regarding ELEVIDYS, can you speak on whether you're currently seeing prescribers use sirolimus prophylactically for ambulatory patients? And for non-amb patients, can you remind us on the latest thinking around balancing the potential higher risk of infection from using sirolimus and if there was any discussion amongst KOLs or FDA did not utilize sirolimus prophylactically in all non-amb patients given this risk? Douglas Ingram: All right. With respect to the latter question on the non-ambulatory, that will be the outcome of our study. We feel pretty confident going into it that the risk benefit is going to justify the prophylactic use of sirolimus, but we'll only know that when the study read out and we look at those issues versus potential issues associated with risk of infection. I will say that to your first question, we only -- we don't have a systematic look at what physicians might be using prophylactic sirolimus there. We definitely have anecdotal evidence that a significant number, particularly more sophisticated physicians have used it. And what we're hearing at least anecdotally is that they're not having a lot of problems with the use of sirolimus prophylactically. So what we've at least heard anecdotally is that there some are using it and they are finding it very manageable and I think trying the benefit from it. But this all has to be confirmed. And we have a study that we're going to start when we get to go ahead with the FDA, which hopefully, again, will be very soon. And then we'll be off and then we'll get the data back and we'll get to review it if we are confident that it's significantly changed the risk benefit. We certainly have a lot of conviction that it could, and we're going to talk to the FDA and start testing non-ambulatory patients again. Operator: We'll go next to Sami Corwin at William Blair. Samantha Corwin: Given the turnover at FDA, I understand that you had written guidance previously from the head of Neuro. But I guess what was the last time you interacted with the division regarding the ESSENCE trial? And then just curious on the percent of patients that missed consecutive doses in the ESSENCE trial that were in the non-COVID group. Douglas Ingram: As it related to that second issue on the consecutive doses, I think it more than doubled or around doubled in the COVID period versus the COVID-free period. We haven't had any specific discussions other than administrative-related discussions with the agency regarding ESSENCE over the last bit of time, certainly not in the last 6 months, I don't believe, unless Louise corrects me. But again, I think we're working with the -- I know you've seen without editorial [indiscernible] you see all this sort of turmoil at the FDA leadership level recently over the last few days. But I think at the division level, that's where this decision is going to be made. And I'm confident that the professionals in the division are going to take a careful look at this. And I think we are going to be in good shape with respect to marketing authorization. And I'm hopeful that we'll actually be in good shape when we talk to them about transitioning from accelerated approval to traditional approval. Operator: Next, we'll go to Kristen Kluska at Cantor Fitzgerald. Rick Miller: This is Rick Miller on for Kristen. Just one here. To follow up on the MISSION trial, you said good readout next year for EXONDYS. Do you have any insight on how the FDA might look at any of these dose-ranging data you could generate there? Would you plan to meet with the agency after that trial? And just any insight you can give on what that conversation might look like? Douglas Ingram: Yes. I think it's going to look at the totality of the evidence from that study and just ask the question, is there a benefit to these patients by increasing the dose perhaps to 100 mg per kg versus the 30 mg per kg, and it's going to be a totality of that evidence about whether that occurs or not is on the one hand, there might be a benefit. We might see some benefit either functionally or in expression. On the other hand, it has to be -- has to rise to a certain bar because we are seeing a benefit from EXONDYS at 30 mg per kg, and that already takes nearly an hour a week. And if you start increasing the dose to 100, certainly 200 is probably not actually viable for these patients. The amount of time that you're infusing these kids is enormous and the imposition is extraordinary. So that's the whole thing we have to look at and then together decide if -- I mean, the good news is we're going to be completely aligned in our view of the agency and us. If 100 mg per kg was superior to 30 mg per kg for these kids and the risk benefit and the administrative issues justified it, we'd be fine doing that, but we need to look at that data very carefully. So again, the MISSION is not a confirmatory study. The result of MISSION will either be we're going to be continuing to distribute EXONDYS at 30 mg per kg or we're going to be distributing EXONDYS at some dose higher than 30 mg per kg. And if it was higher, it will very likely be 100 mg per kg. Operator: And next, we'll go to Andy Chen at Wolfe Research. Brandon Frith: This is Brandon on for Andy. Regarding your floor assumptions on ELEVIDYS sales, to what degree are you factoring competitive pressures from emerging therapies? Douglas Ingram: We've considered emerging therapies. And again, this is just a stress test. It's not our guidance. It's just -- this is a number that we would be very comfortable. We'd be in fine financial shape. We'd be able to maintain our revolver and pay our debts and advance all of our programs. So we're feeling very comfortable about that as a floor. Operator: And that concludes our Q&A session. I will now turn the conference back over to Doug for closing remarks. Douglas Ingram: Well, thank you all very much for spending some time with us this evening. We all look forward to continuing to update you as we get through the rest of this year, and we'll have some additional milestones. And as we look forward into next year, we'll provide updated guidance next year, of course. And then we're really excited early next year to provide you an update on the actual clinical data from our siRNA programs. That's enormously important to us. So with that, have a lovely evening. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: We'll now begin the LY Corporation financial results briefing for the second quarter of fiscal year 2025. Thank you very much for joining us today. We will be referring to the financial results presentation available on the LINE and Yahoo! LY Corporation website. During today's session, we kindly ask you to follow along with the material. Joining us today from LY Corporation are Mr. Takeshi Idezawa, President and CEO; Mr. Ryosuke Sakaue, Executive Corporate Officer, CFO; Mr. Yuki Ikehata, Corporate -- Executive Corporate Officer, Corporate Business Domain Lead; Mr. Makoto Hide, Executive Corporate Officer, Commerce Domain lead; Mr. Hiroshi Kataoka, Executive Corporate Officer, Media and Search Domain lead. First, Mr. Idezawa will provide an overview of our financial results for the second quarter of fiscal year 2025. Following his presentation, we will hold a Q&A session. The entire briefing is scheduled to take approximately 1 hour. We will be live and streaming this session. If there is any distortion or inconvenience in the video or audio, please try alternate server link. Takeshi Idezawa: This is Idezawa of LY Corporation. First, before explaining our financial results, I would like to comment on the system failure caused by a ransomware attack that occurred at our group company, ASKUL Corporation on October 19 and the partial leakage of information held by the company. We sincerely apologize for the significant concern and inconvenience caused to our customers who use our services as well as to our business partners. The details regarding the damage potential information leakage and recovery status have already been communicated by ASKUL. The company is continuing to work closely with external experts prioritizing a safe and prompt restoration of systems while investigating the cause and confirming the scope of impact including any personal data. LY Corporation is fully cooperating with all recovery and investigation efforts. As the parent company, we take this matter seriously, and are committed to restoring the situation and preventing recurrence and strengthen the information security framework across the entire group. Now let me explain our second quarter financial results. Please turn to the next page. First, here is an overview of the second quarter results. Consolidated revenue was JPY 505.7 billion, up 9.4% Y-o-Y. Consolidated adjusted EBITDA grew 11.3% Y-o-Y to JPY 125.4 billion showing solid profit growth. Additionally, progress in AI agentization and the expansion of LINE Official Account and Mini apps are progressing smoothly, preparations for the LINE renew are also steadily progressing. Home tab refresh scheduled within the year. We will now proceed with the explanations in the order of the agenda you see here. First, the consolidated company-wide results. Next page, please. These are the results for the second quarter. Although consolidated revenue was slightly behind the guidance due to the decline in search advertising revenue, adjusted EBITDA and EPS are on track with the guidance. Next page, please. These are the consolidated performance trends, driven by the growth of PayPay consolidated and progress in efficiency improvements at LY Corporation, adjusted EBITDA grew 11.3% Y-o-Y, achieving double-digit profit growth. The margin also improved year-on-year. Next page, please. These are factors of change in consolidated adjusted EBITDA. Although expenses increased, revenue growth in the Strategic Business and Commerce Business outpaced the expense increase, resulting in a year-on-year increase of JPY 11.7 billion in adjusted EBITDA. BEENOS and LINE Bank Taiwan have been fully consolidated since the second quarter with the 2 companies contributing JPY 900 million to adjusted EBITDA. Next page, please. This is consolidated total advertising-related revenue. This quarter, commerce advertising achieved double-digit growth driven by increased transaction value and the total ad revenue grew by 2.4%. Next page, please. This is consolidated e-commerce transaction value. Domestic shopping transaction value grew 13.1% year-over-year, supported by last-minute demand ahead of the discontinuation for awarding points for hometown tax donation program. Reuse saw year-on-year growth of 15.7%, driven by Yahoo!'s lead market growth and BEENOS contribution. Next page, please. Regarding the upward revision of the dividend forecast, we conducted share repurchase during the first half of the current fiscal year and the cancellation of these shares was completed on September 3. Consequently, as the number of shares eligible for dividends has decreased, the annual dividend has been revised upward from JPY 7 to JPY 7.3. Next page, please. This is on progress on the LINE app revamp. The renewals of the talk, shopping and wallet tabs have been rolled out in phases since September. Home tab renewal is scheduled to make a test release this year. Next page, please. This is on optimization of management resources. Firstly, on human resources, we are reallocating to growth areas such as AI agents, which will be explained later, Official Accounts and MINI Apps. We will reallocate our human resources so that by FY 2028, 50% will be allocated to growth areas. We will reduce the fixed cost by JPY 15 billion by the end of fiscal year by 2026 and build a leaner financial structure. Next page, please. From here, I will explain the financial results by segment. Next page, please. First, the Media Business. Although both revenue and adjusted EBITDA declined, continuous cost-saving efforts are yielding results, leading to improvement of adjusted EBITDA margin on Q-on-Q basis. This is performance analysis of the Media Business. While search advertising revenue contracted, growth in account advertising drove an increase in total advertising revenue. Next page, please. Account advertising continues to perform strongly in both the number of paid LINE Official Accounts and pay-as-you-go revenue. As this is an area we are strengthening alongside MINI Apps, we will provide a more detailed explanation of future strategies and initiatives later. Next page, please. Next, the performance trends for the Commerce Business. Second quarter revenue reached JPY 216.6 billion, a year-on-year increase of 7.2%. Adjusted EBITDA was JPY 33.3 billion, although profit declined due to increased promotional expenses related to the hometown tax donation program, the decline narrowed compared to the previous quarter. Next page, please. Performance analysis of the Commerce Business. The business as a whole is expanding steadily. In addition to the full consolidation of BEENOS, Yahoo! Shopping and subsidiary growth contributed to increased revenue. Next page, please. performance trends for strategic businesses such as payment and financial services. Revenue continued to be driven by PayPay consolidated, reaching JPY 109.7 billion, a year-on-year increase of 35%. Adjusted EBITDA also continued to grow, reaching JPY 22.9 billion, an year-on-year increase of 52.1% with margin remaining at a high level. Next page, please. Performance analysis of strategic businesses. Payments and financial services are both growing steadily. Furthermore, the full consolidation of LINE Bank Taiwan contributed to increased revenue. PayPay consolidated business overview. Each service is growing smoothly. Our number of payment per user and unit price, those KPIs are progressing smoothly. As a result, consolidated sales has increased Y-o-Y, plus 30.4%. Consolidated EBITDA was more than doubled. So the second quarter showed a significant strong growth. Next, from here, I will explain our key strategy going forward. Next page, please. As our company-wide key strategy, we will advance as 2 wheels that agentization of all services and the enhancement of Official Account and MINI Apps. In agentization for the 100 million users using our services, we will provide services like search, media, finance and commerce more conveniently via AI agents. And for corporate clients such as businesses, companies, stores and brands, we will provide customer contact points and business support function through our function enhances Official Accounts and MINI Apps by improving the value provided to both users and clients and by seamlessly connecting both via AI agents, we will realize new service experiences and expansion of revenue opportunities. Please turn to the next page. First, regarding our initiatives for AI agentization. First, our goal is daily AI agent used by our 100 million users in Japan, aiming for 100 million DAU. Currently, in October, DAU for AI services is 8.6 million, especially AI answers on Yahoo! JAPAN search and LINE AI Talk Suggestions are used frequently and user numbers have begun to expand. Also for AI Talk Suggest, user billing has started and monetization efforts has also begun. Going forward, we will promote AI agentization of each service and aim to expand users. Next page, please. Next, regarding the enhancement of OA, Official Account and MINI Apps. But before talking about the specific initiatives, I'd like to explain the structural transformation of the Media Business. Earlier, I explained the revenue decline in search advertisement in the Media Business, while steadily bolstering the conventional search and display advertising businesses, we will achieve sales and profit growth by further growing OA and MINI Apps where we can provide our original value. Over the next 3 years, we will increase the share of high gross margin OA and MINI Apps to about 40% and aim for an adjusted EBITDA margin of 40% to 45%. First, regarding the performance of OA, Official Accounts in Japan over the last 3 years, our track record, the number of paid OAs improved by a CAGR of 14% and ARPA also improved. And as a result, OA revenue also grew 16% annually on average and sales have grown to the scale of JPY 100 billion in Japan and JPY 140 billion, including global. Please turn to the next page. On top of this OA growth foundation by further building a MINI App platform and adding a SaaS-like store support solutions, will create a multilayered revenue structure and aim to double sales in 3 years. This fiscal year, as I mentioned, doubling the JPY 140 billion to JPY 280 billion. In this fiscal year, we will first focus on expanding MINI Apps based on OA and launching the SaaS business. Important KPIs for the revenue models of each areas are shown in the lower section of this page. MINI Apps are -- our scale expansion is very important for KPIs in the growth phase. In OA SaaS, we set ARPA improvement as KPIs. But we think these KPIs as leading indicators to monitor our business goals. Next page. Let me explain structurally. First, there is an OA, Official Account as a base. Currently, there are 1.3 million active Official Accounts used in Japan, in which number of paid Official Accounts are 310,000. We see the target accounts for future expansion such as businesses, companies, stores and brands at about 5 million. So we can still grow the number of OA accounts, and we will also further increase the ratio of paid accounts. The second layer, MINI Apps to OA using companies and stores, we will propose a customer contact point via MINI Apps, expanding MINI Apps numbers, growing users and creating businesses like payments and ads within them. The third layer is SaaS solutions, developing specialized support for high affinity industries like Store DX or reservations, aiming to raise ARPA. Service launch planned for 2026 first half. And we'll have more new solutions at the right timing when we can introduce them to you, we will. We will provide services more broadly and deeply and provide a deeper solution via SaaS by industry to expand our sales. Finally, regarding the recent growth of MINI Apps, as you can see on the left-hand side graph, number of apps has increased by 1.5x and the number of users has increased by 1.6x, steady growth. And we are strengthening our sales structures. We are enhancing proposal to bigger companies and installation at large enterprises like these are beginning. As you can see, and as a measure to strengthen inflow, we are leveraging LINE touch, which allows users to instantly launch MINI Apps at stores and the LINE apps revamp focusing MINI Apps will also begin. So we will further expand both the number of apps and the users and build a situation where businesses like advertising payments that can be provided. Let's turn to the next page. And finally, a summary of the Q2 financial results. Sales and profit expanded steadily. Our company performance was -- experienced a solid growth. Going forward, centered on AI agentization and Official Accounts and MINI Apps, we will accelerate the growth. We will promote AI agentization across all services, offer AI services to 100 million users and create new value. Also, we will enhance OA and MINI Apps. And while transforming the media portfolio, we will achieve growth and improved profitability. This concludes our Q2 financial results explanation. Thank you very much. Operator: We would like to now begin the Q&A session. [Operator Instructions] First from Goldman Sachs Securities, Munakata-san. Minami Munakata: I'm Munakata from Goldman Sachs. I have 2 questions. My first question is on search ads. In the first quarter and also in the second quarter, the impression I got is this business is quite tough. The degree of toughness, is it correct to understand that it's the extension of the first quarter? Or are there any additional reasons? And on search ad, what would be the realistic guidance towards the second half? That's my first question. Ryosuke Sakaue: Thank you for the question. I am Sakaue. I'm the CFO. Let me reply to your question. Second quarter year-on-year is worse compared to Q1. One of the factor is one major client budget allocation was weak, and that continued into the second quarter. And in addition, in other clients, the budget reduction happened. This I'm referring to large EC companies in Japan and vertical companies declined, and that can be called additional from Q1. So that was the additional factor for Q-on-Q deterioration. And Q3, Q4, I think the degree of negative -- negativity is same as Q2. For Q3 and Q4 as well, that is our forecast. Minami Munakata: I have a follow-up question. There are other clients with quite reduction. Is there any structural reason such as shifting in-house or revisiting ROI of advertising? Is it more of an economic trend? What is the nuance? Yuki Ikehata: This is Ikehata. Let me reply to your question. This is Ikehata. I would like to add some more comments. In addition, there were some industry -- well, in addition to prior quarter's reduction trend in other industry, partially, that is -- there was a reduction in ad spend for search ad. The concept of ad placement, I don't think that is such a reason. But overall, LINE Yahoo! search ad performance is being monitored and the advertisers operate. So based on that, there is -- there was a decline in ad placement. We will continue to work on the performance improvement of search ad, and that would lead to getting these customers back. So rather than any unique circumstances, we are to continuously work on performance improvement of search ad. Minami Munakata: I understood fully. Another question is on MINI App. This time, various figures were presented and outline was explained, and I was able to learn. Thank you very much for that. The portfolio shift -- this chart has been shown. Just to reconfirm display and search, basically, it's very difficult to grow these areas. Is that the assumption you are setting? And JPY 140 billion to be expanded to JPY 280 billion, that has been rather difficult. And what is the pathway you envision? For example, from the first half of 2026, you're going to start SaaS service. So from the second half of next year, do you expect the sales to accelerate? Takeshi Idezawa: This is Idezawa. Let me answer your question. Display, search, naturally, the measures to revamp or to boost them, we are taking measures. And also thanks to the organizational change that we have implemented, we are able to implement activities to work on recovery. But structurally speaking, I don't think this is an area where we can expect high growth rate. So from that perspective, we will support the baseline for the display, search. And then apps will drive the growth. And we have the target of Official Account doubling and CAGR-wise, it has been 16%. And so we have this growth of OA, Official Account as a basis. And to add on top of that, we are going to provide MINI Apps and SaaS services. So we will be pursuing the target by having breakdowns or compositions in mind. On MINI App, it's not a linear growth, but when we have a certain number of clients, then we can expect a significant activation. So the MINI App platform will be stronger in the later half. And then that would be the overall picture. Operator: Next question from SMBC Nikko, Mr. Maeda, please. Eiji Maeda: This is Maeda from SMBC Nikko. I have 2 questions as well, please. I'll be recapping the previous comments regarding search linked ad. Together with popularization of GenAI, the negative impact to queries. And when I look at the performance, some of the clients looks like ad placements are declining in numbers. So because of this GenAI, the performance is having a negative hit on the flip side. If you could please share more on the recent trend? And also for the market, we -- there is still a concern that GenAI rise can be a negative for a search-linked ad. If you could please share your outlook, that would be great. Ryosuke Sakaue: Thank you, Mr. Maeda. Sakaue, I will start, then possibly Kataoka will follow up. At the moment, Yahoo! Search, 10% of query comes from AI search. And at the same time, the answers from AI search are business query where there is no opportunity for search-linked ad, like questions and answers. Those are the search keywords that we get. So it doesn't have much impact to our revenue and profit making. But at the same time, mid- to long term, regarding those business query, I would think that the there will be more use on use of GenAI. So media and search, we expect the next 3 years to be flat plus extra. Hiroshi Kataoka: This is Kataoka speaking. As Sakaue mentioned, number of queries for search have not resulted in significant decline in the number of queries. There is no major time shift in the search trend. And ad performance itself hasn't deteriorated. So within this big global trend, there's more use cases from GenAI are increasing. And I'm sure more of our clients companies are considering to further use GenAI. We believe that there will be opportunity, the monetization business opportunity when it comes to GenAI-led search as well. So we are considering various different means to monetize. Eiji Maeda: Second question, regarding Commerce Business. In second quarter, each services growth on the Page 8. Regarding Yahoo! Shopping, the hometown tax, I wonder how much of that impact is included. I wonder in the second half, there can be a significant decline in the growth as a reversal factor. And if you exclude the BEENOS impact, what is your true growth opportunity? So the growth in the cruising pace and growth from a one-off reason, if you could please share for the results in the first half and what you expect for the second half, please? Unknown Executive: Okay. Sakaue would share some figurative indication then -- and I'll have my colleague, Hide to provide additional information. And regarding Yahoo! Search -- sorry, Yahoo! Shopping, for second quarter, the growth was about 19%, 1-9, so quite significant. And hometown tax, late high single digits, mid-single digit to high single-digit growth. And for Reuse, this includes Yahoo! Auction, Yahoo! Flea Market and BEENOS as to be about 15% growth. So excluding BEENOS, we do have mid-single-digit growth. Second quarter has this last-minute demands for hometown tax. So that led to this significant growth rate. Makoto Hide: This is Hide to provide additional information. Regarding Yahoo! Shopping, a significant impact from hometown tax. This is something that was happening at the end of the year in December time. So it's a front-loading of that demand now. Compared to the last year, Q3 growth rate will be stagnant, will slow down. For Reuse, excluding BEENOS, I do see the trend continuing. In other words, Yahoo! Auction growth is quite steady and Flea Market is growing significantly. So when you take the weighted average, our growth is mid-single digit. I would think that for the second half, we can expect a similar growth, and we'll have a synergy, as you can see on the right-hand side, to have a more significant growth in the midterm. Operator: Next, Okumura-san from Okasan Securities. Yusuke Okumura: This is Okumura from Okasan Securities. Can you hear my voice? Unknown Executive: Yes. Yusuke Okumura: I have 2 questions. On Page 26, you have been explaining on the account ad and MINI App expansion and double the sales from this, I would like to reconfirm Official Account, the platform part based part, the assumption is the current growth rate. And through MINI App several dozen billion will be added on top. Is that the assumption? If this becomes a reality, it's wonderful. But what is the background for being so bullish at the time of launch, the assumption of the MINI App or MAU in order to achieve your assumption, what kind of measures and scale of investment you're going to make in order to achieve your strategy? That is my first question. Unknown Executive: Firstly, the growth image of official apps, I would like to explain and the strategy to grow will be replied by Idezawa-san and Ikehata-san. The existing OA part, the current level of growth can be maintained. To be more specific, 10% to 15%. Currently, it is growing at nearly 15%. So maintaining the same growth level. The paid accounts can be expanded in this pace, but that will not bring us to double. So the gap will be compensated by MINI App and SaaS. The strategy will be explained by Ikehata. Yuki Ikehata: Thank you for your question. Let me just add some more comments. In your question, you said that it's still the starting phase and this forecast may be bullish at the starting phase. But right now, we already have Official Accounts and MINI Apps, although partially we are not monetizing yet to many customers, similar solutions are offered and being used, and it's been -- the customers are satisfied. So for MINI Apps, we will increase the number. And at the same time, we will focus on monetization. That is for next year and beyond. Official Account SaaS solution already, including third-party solutions, we are collaborating with various companies and various solutions are already being utilized. So our strategy is to monetize them from next year and onward. We haven't been able to try or something that does not fit the market to start from scratch. Well, that is not the case. We already have existing foundation of Official Accounts, and we are offering various services, and we will expand and further monetize. So that is the basis of our assumption to achieve these targets. Yusuke Okumura: What about the scale of investment? JPY 10 billion was the media investment for this year. What about the investment going forward? Unknown Executive: The details will be discussed, but we are working on the awareness strengthening through advertising for MINI Apps and we are going to focus on promotion and PR. And regarding manufacturing or production, as shown on the slide, we are to reassign human resources to these growth domains to speed up the launch of products. Yusuke Okumura: My second question, on LINE, you are going to implement AI agents. I would like to ask about that. ChatGPT has instant checkout and strengthening the functionalities, and they are expanding partners, the user side rather than ChatGPT, why do they use LINE's chat or AI agents? What is the value that you offer in the future? The relationship is that parent company is -- has strong ties with OpenAI. And what kind of positive influence will that relationship with OpenAI has with your company? Takeshi Idezawa: This is Idezawa. Let me reply to your question. Our company does not have our own LLM. So we use OpenAI solutions or other solutions. We pick and choose. It's not just LINE, but within our company, we have a variety of services, news, commerce, finance, auto, so each service will be agentized. That is what we are working on right now. And like Yahoo! and LINE or integrated agent will be created. So that is the perspective of our user interface. We do not have LLM ourselves. But on the other hand, we have a lot of touch points with so many users and services. So within one ID, ours can be used in a seamless manner. That is the value we offer. So that is why we are working on agentization of various services. Operator: Next from Mizuho Securities, Mr. Kishimoto, please. Akitomo Kishimoto: My name is Kishimoto from Mizuho. I have 2 questions too. Both are about LINE Ads. The first is commerce functions of LINE SHOPPING functions. I would think that it will be launched quite soon as a new platform. I know you've done some testing. So I wonder what is lacking in order to have a full launch? That's my first question. Makoto Hide: This is Hide speaking. We are providing bucket test. We have already launched the test launch for this within the LINE SHOPPING tab. We are not offering any service actively or making a big sales promotion. We are testing system stable operations. Then within this test bucket, we are trying to expand our product and services or to enhance sales promotion activities so that we'll be able to have 100% full launch. We have been working together with various internal stakeholders. The situation is a bit different from the users of shopping -- Yahoo! Shopping, where they already know what they want to buy or they want to buy certain things. LINE, we need to propose what is appropriate and right that would resonate to the LINE users. Once we know that right business model solutions, then we will be able to launch under such use case and sell products as well. So there's a great opportunity, and we've been testing at the moment. Akitomo Kishimoto: On Page 27, please, you mentioned about second tier, third tier. I'd like to ask you a question about the capability for the third tier. I understand that you have been reallocating your staff together with AI agents. I wonder whether you'll be able to run all these initiatives under the current manpower? Or are you going to strengthen your perhaps sales capabilities with more new recruits? Is this something you can do with the current resource? Unknown Executive: I'm sure it's based on the selection criteria, but thank you for your question. Your point, recently, we do have a certain amount of resource that we had to allocate that we had to secure from other departments to this department. So as mentioned on this page, we are going to have 50% of this existing business to new domain or the focus domains. So we will be shifting our business focus as well as resource allocation as well. And we also are considering more partnership, leveraging outside resources as well. We have many different ideas. Operator: Next, Nagao-san of BofA Securities. Yoshitaka Nagao: Can you hear? Unknown Executive: Yes. Yoshitaka Nagao: This is Nagao speaking. My first question is on MINI App MAU is to be increased from 25 million to 75 million and from 35,000, the KPI direction is being presented, the price charging per app or how you consider retention. What are the methods you're going to take? 60% comes from OA and 40% comes from MINI Apps. So proactive monetization will be necessary. So can you explain concrete ways you have in mind for monetization of MINI Apps. Yuki Ikehata: Thank you for the question. This is Ikehata speaking. Let me answer your question. Right now, well, MINI App numbers are to be increased, and we are to increase the number of users significantly. That is the plan. So on MINI Apps themselves from LINE application, there will be a lot of touch point from the users. So we are increasing touch points by linking with LINE app and LINE media to increase the opportunity for as many people as possible to touch MINI App. On the monetization of MINI App, the payment function and also advertising within MINI App and receive ad placement fee. So those are 2 monetization sources. The application that can generate fruits in terms of profitability is what we are planning to build. The sales force, we are strengthening right now so that as many people as possible will utilize MINI App and open Official Accounts. From next fiscal year and beyond, we expect monetization of revenue. We already are seeing the account openings by many on Official Account. So we have confidence. Yoshitaka Nagao: My second question is related to Page 24 of the material, the target of EBITDA margin, 40% to 45%. Right now, 37% or 38% is the Media Business margin. Official Account and MINI App domain overlaps SaaS domain. So when you expand the scale, the sales staff or development cost will be heavier upfront. And I have a concern that the profitability may decline. The existing search and display ad by the sales of that part decline will affect the overall margin. So what is the overall ad margin? And in achieving 40% to 45%, what would be the contribution of OA and MINI Apps? If possible, could you disclose those information? Unknown Executive: Rather than speaking on the concrete number, it's more of a guide, the search, the basis is that profitability is not that high, and we have been communicating that from before. There's a certain fee that we pay to Google. So the search margin originally is low. And adding with display, it's shown as flat, but the search will be down trend and display, we achieved certain growth in Q2. So the ratio of display will likely to expand. So the margin on the lower part will increase -- will improve. And on display, as you know, there is a commission with the agents that is included in the COGS. So it's -- that is the margin structure. OA the margin will be similar to display. The SaaS part, it will be dependent on the pricing structure, but vertical MINI App or SaaS peers, when we look at them, the profitability is quite high. Compared to ad business, it's low, but still, it's high enough to be able to support. On top of that, MINI Apps, the ad on MINI Apps and within MINI Apps, we will place ads in a network style. So that's the type of ad business that we would like to deploy within apps. So we expect that we can secure profitability on a certain extent. Yoshitaka Nagao: One quick question on Page 11, the JPY 15 billion reduction plan is shown in the medium term, the Media Business ad expense, in some part will increase, in some part it can decline, but the fixed cost of the Media Business will it be unchanged? Unknown Executive: This slide is the company-wide figure. This fiscal year, JPY 10 billion for LLM cost will be incurred. And next year and beyond, LLM expense will continue to rise. But through various programming, we can expect improvement of operational efficiency. So JPY 15 billion, even LLM commission rises next year, we intend to reduce the fixed cost, even including that JPY 15 billion, the promotion expense and advertising for commerce, it is linked with GMV. So that is not included in this figure. And on Media segment, there are subcontractors and some of the human resources cost through use of AI, we can create a leaner structure. So those are combined to set the target margin at 40%. Operator: Next, from Nomura Securities. Mr. Masuno. Daisaku Masuno: This is Masuno speaking from Nomura. Can you hear me? Unknown Executive: Yes, we can. Daisaku Masuno: I just have one question, please. Renewal of LINE apps, you are -- been talking about adding a commerce tab. And I know you have been trying various scenarios under beta. Fundamentally, are you trying to transition the info traffic to service like LINE GIFTS? Or are you going to provide a brand-new shopping experience to LINE users. So I wonder what kind of inflow -- what kind of user experience are you trying to create through this commerce tab? Unknown Executive: What we are testing right now under the current version, all the products that's on LINE tabs are LINE GIFT products. Going forward, in addition to the LINE GIFT products, the stores that are present in Yahoo! Shopping, some of their merchandises we would like to post there. So not just for gift needs, LINE SHOPPING, Commerce products, we would like to offer through that tab. So comprehensive portal shopping corner is how we like this service to grow to be. So what type of stores, what type of products from Yahoo! Shopping really has to do with the previous questions and answers that we had. What kind of products will be the right fit, best resonate to the LINE user. It really depends on that. That's what we are testing right now. So we have to have a right product mix on top of the GIFT products, we've been carefully studying what would be the type of product group that is worth promoting heavily behind it on this new effort. Daisaku Masuno: Okay. So this is not a purchase intent visit. I can understand LINE GIFT. I wonder for those users who are not thinking of purchasing anything would ever be a real customer, whether they would convert by visiting the site? Unknown Executive: Other than Yahoo! Shopping, our customers right now are searching for what they want out of tens of thousands of our products with a certain purpose, compare prices and make decision-making. We have a massive number of products on Yahoo! Shopping. It doesn't make sense to put all of that on LINE tab. I don't think it will drive sales. So out of what's available in Yahoo! Shopping, those stores, we need to focus on products with more uniqueness, originality and some product group with extremely high demand once they release, always sells out. So those will be the right products, we think to be on the LINE tab. Those will be the right products for this casual shopper. Daisaku Masuno: Are you talking about hundreds or thousands? I don't think you're talking about dozens of thousands. So I just have no idea about the scale of the products that would be available through this LINE tab. Unknown Executive: That is exactly what we are trying to get to. That's why we've been repeating the test. So it really depends on the -- we don't know. There's nothing that we can share with you regarding the size or scale of the stores or the type of products or the scale of the product. Operator: Next, Kumazawa-san of Daiwa Securities. Shingo Kumazawa: On Page 11, fixed cost reduction of JPY 15 billion. This is the topic of my question. Currently, what is the fixed cost? And how much is this JPY 15 billion? And from last year, you have been spending on security-related costs. Is that included in this reduction of JPY 15 billion? I believe it's mostly outsourcing that you can reduce. Are there any major items that you expect to reduce significantly? And I believe AI agent is contributing to reduction. So from -- compared to last year, how much reduction is this? Ryosuke Sakaue: This is Sakaue. I will answer your question. LY stand-alone fixed cost is roughly JPY 700 billion. As you stated in your question, security-related costs will come down. On the other hand, LLM commission will almost offset that increase. From April of next year, we will increase the office space to accommodate a 3-day commuting of our employees, and that means the cost increase. And by using AI, we intend to reduce JPY 15 billion in total. If we do not take any action, the fixed cost will likely to go up by JPY 2.5 billion to JPY 2.6 billion. In the areas of reduction, outsourcing part and software license from outside, the system that employees use, we can make progress in the integration of the platform. So double payment can be eliminated. So that is included as the cost reduction on software license. Shingo Kumazawa: The areas you can reduce, I understand it's difficult to name the concrete name or ServiceNow or others or Salesforce. Is it possible to cut them entirely rather than specific ones? Unknown Executive: It's an overall effort, frankly speaking. And for example, there are licenses that are given to all of the employees. But if we identify the staff that really uses, then we can reduce the number of license. And also, there may be redundant functions on the software and cut one of them. Operator: Next from [ SBR. Mr. Jose ], please. Unknown Analyst: I have a question regarding capital structure and security governance. I understand in the past, administrative [ court ] instruction was given from Ministry of Internal Affairs and Communication, administrative guidance pointing out your capital structure. Now that under new administration, any risks that you foresee or any changes to the relationship with the government regarding capital structure, please? Unknown Executive: Regarding the administrative guidance, we've been responding appropriately. And from -- for the 2026 March, we are making progress toward it. And regarding the capital movements, we've been continuing the discussions, reflecting our past track record. No major changes to or the [ FY 2026 ]. Unknown Analyst: I understand. So for 2026 March, you will conclude all the measures to meet the administrative guidance? Unknown Executive: Correct. Yes on track. Unknown Executive: Now, we would like to close because the schedule ending time has arrived. I would like to now have Idezawa to offer a final reading. Before Idezawa's final remarks, I mentioned about the fixed cost of JPY 700 billion, that was a mistake. It's roughly JPY 400 billion to JPY 500 billion. Takeshi Idezawa: This is Idezawa speaking. Thank you very much for raising a lot of questions. The environment surrounding AI is rapidly changing. And our 2 core strategy is AI agents and OA, and we will continuously grow by changing our business structure. That is the message of today's presentation. I will ensure that these plans will be executed steadily, and we would like to ask for your continued support. With this, we would like to close LY Corporation's FY 2025 second quarter earnings call. Thank you for staying with us until the end. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Ana Soro: Good afternoon. I'm Ana Soro from Palantir's finance team, and I'd like to welcome you to our third quarter 2025 earnings call. We'll be discussing the results announced in our press release issued after the market close and posted on our Investor Relations website. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements regarding our fourth quarter and fiscal 2025 results, management's expectations for our future financial and operational performance, and other statements regarding our plans, prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed after the market closed today and in our SEC filings. We undertake no obligation to update forward-looking statements, except as required by law. Further, during the course of today's call, we will refer to certain adjusted financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP measures. Additional information about these non-GAAP measures, including reconciliation of non-GAAP to comparable GAAP measures is included in our press release and investor presentation provided today. Our press release, investor presentation and other earnings materials are available on our Investor Relations website at investors.palantir.com. Over the course of the call, we will refer to various growth rates when discussing our business. These rates reflect year-over-year comparisons unless otherwise stated. Joining me on today's call are Alex Karp, Chief Executive Officer; Shyam Sankar, Chief Technology Officer; Dave Glazer, Chief Financial Officer; and Ryan Taylor, Chief Revenue Officer and Chief Legal Officer. I'll now turn it over to Ryan to start the call. Ryan Taylor: We had a monumental third quarter shattering expectations yet again. Our overall revenue grew 63% year-over-year and 18% sequentially. We outperformed across the board, driven by strong execution in the U.S. which accounted for 3/4 of our business in Q3, growing 77% year-over-year and 20% sequentially. Our Rule of 40 score soared to an unprecedented 114%, up 4 points year-over-year and a full 20 points since last quarter alone, reinforcing our position as the defining enterprise software company of our generation. Our U.S. commercial business grew an incredible 121% year-over-year and 29% sequentially, driven both by insatiable demand and the quantified exceptionalism compelling customers to scale AIP across their operations. Organizations are embracing an undeniable truth. Real enterprise AI at scale requires Palantir. We're seeing that AIP again and again, is the only platform delivering transformational impact in this market. And critically, AIP is the only AI platform that has an actual plan for compounding your enterprise's AI leverage, not just the model makers' leverage over you. Sharing this leverage with our customers is our highest priority. Our whole company is singularly focused around value creation for our customers, and I'm proud to share with you all the fruits of our labor. We closed our highest TCV quarter ever at $2.8 billion. Underlying this performance, we closed a staggering 204 deals worth $1 million or more of which 91 deals were worth $5 million or more and 53 deals were worth $10 million or more. In our U.S. commercial business, which now accounts for 34% of our overall revenue. We closed $1.3 billion in TCV, a milestone achievement for the fastest-growing area of our business with a more than 6x year-over-year growth rate on a dollar-weighted duration basis. The trajectory is clear. Customers are converting to larger enterprise agreements in short time frames, reflecting both the expanding scope of their AI ambitions and the immediate impact our software delivers. A leading medical device manufacturer signed a multiyear expansion just 5 months after their initial contract, increasing ACV more than eightfold. 2 weeks into their initial contract, the conversation evolved from a single use case to pursuing the opportunity of becoming an AI-first enterprise. Their CEO approached me to embrace a shared vision for an enterprise-wide AIP deployment to transform their entire organization. This transformation reflects a broader pattern we're seeing across our customer base. AI is a strategic imperative owned at the C-suite level with executive leadership recognizing the enterprise-wide AI adoption is the defining factor separating the AI haves and the AI have-nots. We're seeing C-suite-driven AI transformations across our customers. At a leading insurance company, the CEO has taken personal ownership of their AI transformation, meeting with our team regularly to orchestrate a company-wide transformation around AIP, reimagining every function from underwriting to claims processing, leading to a significant expansion of our work together. Our partnership with TWG Global named Vergence.ai continues to gain momentum as TWG's Thomas Tull noted "what was once a competitive advantage is now a competitive necessity." Companies that fail to incorporate AI into their core operations will be outpaced by those that do. These examples underscore what we are seeing. We are the only platform bringing true transformational impact to the enterprise AI market. Turning to our U.S. government business. Revenue grew 52% year-over-year and 14% sequentially as we continue to deliver mission-critical capabilities. We remain deeply committed to our founding mission of supporting the U.S. government honored by the privilege of equipping our nation with transformative software that actually works. We remain focused on delivering the most advanced defense capabilities in the world to the U.S. government and internationally to our allied partners around the world. The momentum we're carrying into Q4 is extraordinary. As we look towards the end of the year, our mission is clear: deliver the production capabilities that turn AI from promise into performance for the enterprises defining the future of their industries through AIP's compounding AI leverage. I'll now turn it over to Shyam. Shyam Sankar: Thanks, Ryan. 20 years of grinding has built a unique moat and a growing lead. Our products were built for this moment, and the numbers continue to show it. Realizing value from AI in the enterprise requires the elegant integration of LLMs workflow and software. And this is only possible with ontology. Our foundational investments in ontology and infrastructure have positioned us to uniquely deliver on AI demand now and in the world ahead. The most significant product developments are the accelerating progress in our AI applications inside of AIP, our AIP native development agent that understands how to connect to data sources, how to integrate and transform data, how to create ontologies and functions and build applications. It's unleashing incredible speed and productivity for our FDEs and customer developer is alike. At 1 customer, 2 human FDEs spawned an army of AI FDEs to migrate a customer off their legacy data warehouse in 5 days, something that would have taken an army of SIs up to 2 years. This is not a prototype. This is production across our customers, the results are shocking. AI Hivemind is a new AIP capability that orchestrates a form of a dynamically generated agents to tackle hard problem solving, idea generation refinement and executable proposal generation that is integrated with ontology and therefore, aware of the context of your enterprise. AI Hivemind was originally developed to solve extremely complex problems in the classified space. But it's already been used to help our commercial customers identify bottlenecks in their supply chain, proactively developing possible solutions and then leveraging AI FDE to code that up into an actual solution. In the government space, AI Hivemind is able to take its proposals and generate intricate mission plans right in Gaia and Maverick. Our focus with AIP continues to be enterprise autonomy, our normative view of where the value is for AI in the enterprise. Hivemind now lets the AI develop novel solutions to emergent challenges and to identify hidden opportunities. And the rest of AIP enables you to turn those ideas into an implemented reality. Closed-loop evolution of the business with AI possible because of AIP in ontology. We continue to make investments that allow enterprises to extend AIP to the far edge. Edge Ontology is a new lightweight implementation of ontology that runs on mobile devices. It enables customers to build mobile applications or embedded software for hardware, things like drones and robots and is fully integrated with your enterprises' AIP instance. Turning to field-facing updates. The U.S. Army issued an official public memo directing all army organizations to consolidate and centralize on Vantage, the Army data platform built on foundry and AIP. The Army views this, not merely as a technical decision, but a cultural decision, enabling the data-driven decision-making that continues to make our army the most lethal in the world. This directive will enable the Army to rapidly sunset legacy systems and enable more investment in the Army's Future Force concept and systems. Warp Speed and the American Tech Fellowship are early investments to support manufacturing and reindustrialization in America are bearing fruit. While Warp Speed launched by helping new defense entrants meet their surging production goals, it's now being rapidly adopted across the traditional defense industrial base and the maritime industrial base. The second cohort of the American Tech Fellowship will be wrapping up in the next few weeks. We started the American Tech Fellowship because we noticed that many of our best builders were frontline workers. They don't come from conventional consulting backgrounds. They don't have formal computer science backgrounds. To highlight a few of these folks, Mason, a Louisiana-based civil engineer is building AI applications for more accurate estimates for heavy construction projects, something that is only going to grow with our reindustrialization. Michael, who works for a potato farm in North Dakota is streamlining its operations and Cody from Georgia, who is a utilities expert is building in foundry to deliver safe, reliable energy across the South. These Americans are the true face of innovation, underscoring that it will be the American worker with AI that drives reindustrialization and American prosperity. Our customers have taken notice and asked us to create American tech fellowship programs for their employees, specifically to include Lear who highlighted their fellowship in their recent earnings call. With that, I'll turn it over to Dave to take us through the numbers. David Glazer: Thanks, Shyam. We had an outstanding third quarter achieving a Rule of 40 score of 114%, our highest ever by 20 points. We also generated our highest ever reported revenue growth rate of 63% year-over-year exceeding the high end of our prior guidance by 1,300 basis points and representing a 3,300 basis point increase compared to the growth rate in Q3 of last year. On the back of this extraordinary strength, we are guiding to revenue of $1.329 billion in the fourth quarter, representing 13% growth quarter-over-quarter, our highest-ever sequential revenue growth guide and 61% growth year-over-year. We're also raising our full year 2025 revenue guidance midpoint to $4.398 billion, representing a 53% year-over-year growth rate and 8-point or $252 million increase over our full year 2025 revenue guidance last quarter. In addition, we're raising our full year U.S. commercial revenue guidance to an excess of $1.433 billion, representing a growth rate of at least 104% year-over-year, a 19-point increase over the guidance we gave just last quarter. Accelerating demand for AIP continues to drive the outperformance in our U.S. business overall, which grew 77% year-over-year and 20% sequentially in the third quarter. Our U.S. commercial business grew 121% year-over-year and 29% sequentially and our U.S. government business grew 52% year-over-year and 14% sequentially. We delivered these exceptional top line results while also achieving our highest ever reported adjusted operating margin of 51%, exceeding the high end of our prior guidance by 500 basis points and highlighting the unit economics of our business at scale. Our revenue and profitability drove a 20-point sequential increase to our Rule of 40 score from 94% in the second quarter to 114% in the third quarter. On a trailing 12-month basis, we generated $2 billion in adjusted free cash flow for the first time in the company's history. Turning to our global top line results. Third quarter revenue grew 63% year-over-year and 18% sequentially to $1.181 billion. Third quarter U.S. revenue grew 77% year-over-year and 20% sequentially to $883 million. Excluding the impact of revenue from strategic commercial contracts, third quarter revenue grew 65% year-over-year and 18% sequentially, and third quarter U.S. revenue grew 78% year-over-year and 20% sequentially. We closed our highest ever quarter of TCV bookings at $2.8 billion, up 151% year-over-year. This eclipses our prior highest quarter of TCV bookings just last quarter by nearly $0.5 billion. Customer count grew 45% year-over-year and 7% sequentially to 911 customers. Revenue from our largest customers continues to expand. Third quarter trailing 12 months revenue from our top 20 customers increased 38% year-over-year to $83 million per customer. Now moving to our commercial segment. Third quarter commercial revenue grew 73% year-over-year and 22% sequentially to $548 million. This is the fourth consecutive quarter that revenue from our commercial business has been larger than our U.S. government business. Excluding the impact from strategic commercial contracts, third quarter commercial revenue grew 77% year-over-year and 22% sequentially. We closed $1.4 billion in commercial TCV bookings representing 132% growth year-over-year and 32% sequentially. AIP continues to drive existing customer expansions and new customer conversions in the U.S. Third quarter U.S. commercial revenue grew 121% year-over-year and 29% sequentially to $397 million. Excluding revenue from strategic commercial contracts, third quarter U.S. commercial revenue grew 126% year-over-year and 29% sequentially. In the third quarter, we closed $1.3 billion of U.S. commercial TCV bookings representing growth of 342% year-over-year and surpassing the $1 billion mark for the first time. Over the past 12 months, we closed $3.8 billion of U.S. commercial TCV bookings a 217% increase from the prior 12 months, highlighting the demand for AI production use cases. Total remaining deal value in our U.S. commercial business grew 199% year-over-year and 30% sequentially. Our U.S. commercial customer count grew to 530 customers, reflecting growth of 65% year-over-year and 9% sequentially. Third quarter international commercial revenue grew 10% year-over-year and 5% sequentially to $152 million. For international commercial business, we continue to capitalize on targeted growth opportunities in Asia, the Middle East and beyond but remain focused on accelerating the growth in our U.S. business. Revenue from strategic commercial contracts was $2.9 million for the quarter. We anticipate fourth quarter 2025 revenue from these contracts to be between $2 million to $4 million compared to $9.6 million in the fourth quarter of 2024. We anticipate 2025 revenue from these contracts to be less than half of 1% of full year revenue. Shifting to our Government segment. Third quarter government revenue grew 55% year-over-year and 14% sequentially to $633 million. Third quarter U.S. government revenue grew 52% year-over-year and 14% sequentially to $486 million. This growth was driven by continued execution in existing programs and new awards reflecting the growing demand for AI and our government software offerings. Third quarter international government revenue grew 66% year-over-year and 16% sequentially to $147 million, bolstered primarily by our continued work in the U.K. As previously mentioned, we closed our highest ever quarter of TCV bookings at $2.8 billion, up 151% year-over-year. Net dollar retention was 134%, an increase of 600 basis points from last quarter. The increase was driven both by expansions of existing customers and new customers acquired in Q3 of last year as we see the effect of the AI revolution. As net dollar tension does not include revenue from new customers that were acquired in the past 12 months, it does not yet fully capture the acceleration and velocity in our U.S. business over the past year. We ended the third quarter with $8.6 billion in total remaining deal value, an increase of 91% year-over-year and 21% sequentially and $2.6 billion in the remaining performance obligations, an increase of 66% year-over-year and 8% sequentially. As a reminder, RPO is primarily comprised of our commercial business as it does not take into account contracts with an initial term of less than 12 months and contractual obligations that fall beyond termination for convenience clauses, both of which are common in most of our government business. Turning to margin and expense. Adjusted gross margin, which excludes stock-based compensation expense, was 84% for the quarter. Adjusted income from operations, which excludes stock-based compensation expense and related employer payroll taxes was $601 million, representing adjusted operating margin of 51%. Q3 adjusted expense was $581 million, up [ 8% ] sequentially and 29% year-over-year, primarily driven by our continued investment in AIP and technical hiring. We continue to expect expenses to increase in the fourth quarter as we remain committed to investing in the product pipeline and the most elite technical talent, all while delivering on our goals of sustained GAAP profitability. Third quarter GAAP operating income was $393 million, representing a 33% margin. Third quarter GAAP net income was $476 million, representing a 40% margin. Third quarter stock-based compensation expense was $172 million and equity-related employer payroll tax expense was $35 million. Third quarter GAAP earnings per share was $0.18. Third quarter adjusted earnings per share was $0.21. Additionally, our combined revenue growth and adjusted operating margin accelerated to 114% in the third quarter, a 20-point increase to our Rule of 40 score from the prior quarter and our ninth consecutive quarter of an expanding Rule of 40 score. With the increase in our 2025 revenue and adjusted operating income guidance, we are now guiding to a Rule of 40 score of 102% for the full year. Turning to our cash flow. In the third quarter, we generated $508 million in cash from operations and $540 million in adjusted free cash flow, representing margins of 43% and 46%, respectively. Additionally, we achieved $2 billion in trailing 12-month adjusted free cash flow for the first time. Through the end of the third quarter, we repurchased approximately 2.6 million shares as part of our share repurchase program. As of the end of the quarter, we have $880 million remaining of the original authorization. We ended the quarter with $6.4 billion in cash, cash equivalents and short-term U.S. Treasury securities. Now turning to our outlook. For Q4 2025, we expect revenue of between $1.327 billion and $1.331 billion and adjusted income from operations of between $695 million and $699 million. For full year 2025, we are raising our revenue guidance to between $4.396 billion and $4.400 billion. We are raising our U.S. commercial revenue guidance to an excess of $1.433 billion, representing a growth rate of at least 104%. We are raising our adjusted income from operations guidance to between $2.151 billion and $2.155 billion, we are raising our adjusted free cash flow guidance to between $1.9 billion and $2.1 billion, and we continue to expect GAAP operating income and net income in each quarter of this year. With that, I'll turn it over to Alex for a few remarks, and then Ana will kick off the Q&A. Alexander Karp: Greetings. By any normal or even reasonable standard, these are not normal results. These are not even strong results. These aren't extraordinary results. These are arguably the best results that any software company has ever delivered. And that's not hyperbolic, despite what your analyst friends may want you to believe because they've been wrong at every price, they're wrong in every -- at every single round. But of course, they're perspective and they're not investing our own money. But a normal enterprise company should not have a Rule of 40 above 100%. A normal enterprise company at our base should not have over 100% U.S. commercial growth should not have 77% growth in the U.S. And by the way, that growth is being held down by a stagnant Europe, which is still a significant part of our business. So the pure unvarnished numbers are 77% growth off of a massive significant base with very significant cash flow with a company that throws off a Rule of 40 of 114%. And then if this world was at all sane, every single person in the financial world would stop and say, how did this happen? How did a company, which stood by the American Warfighter, marine special operators, people in clandestine services who stood up for a right of free speech and was really the first company to be completely anti-woke. How did this company stick up for the American Warfighter, actually give normal Americans venture quality results. So one of the issues we have with the arbiters of truth is, it was the American worker that we supported and the American worker that we helped make rich. And arbiters of truth somehow did not participate in that because they were such experts. And of course -- but what these numbers show is doing that and taking the American worker along with it and doing it in a way that foreshadowed the future FDE, ontology foundry, making each specific institution, making the American Warfighter fight the way the American Warfighter is born to fight. Empowering the [ tenets ] of being free and having the ability to do creative things in the battlefield context and then taking enterprises instead of selling them commodity parasitic software with a massive sales force with a kind of lumbering jargon-bearing leaders, offering you stakes and dinners and other things we shall not mention in order that you turn the value -- the high-value revenue of your enterprise over to them in return for these accolades, we created direct alignment with our customers. And what does that mean? It means when our customers have a unique and triable way of doing something, whether it's underwriting or fighting or making workers even more valuable. We put an FDE, we orchestrated in ontology. We take tribal understanding of their business, the specific nature of their business that makes them particular and valuable and lethal and we empower that. And how do we participate in that? Unlike seemingly in the most obvious way, we are downstream from the value creation. So when you see 141% or you see 77% or 63% and you ask, and by the way, with really a workforce that is not growing in any way linearly proportional to that growth and also with a sales force which is declining, which seems improbable. The reason why that's working is because we are making our clients more money or we're making them more dominant on the battlefield, and they're paying us a subset of that. And this is why these numbers are so extraordinary. The sociological and political version of this should be, wait a minute, how can we learn from this? How can we implement institutions? By the way, we have all these people talking about AI [indiscernible]. I'll tell you what 114% proves. There is a massive part of the AI market that actually cares about value creation, and that's the part we own. And we own that part because to do this, you have to have [ FDE ] orchestration, you have to have ontology and you have to have foundry and you have to have access to the game, and you have to have a deep understanding of how to do that. And you have to have done this for a very, very long time with products, by the way, and then the products are getting better and better and better and better. And I'll let Shyam talk about what we're doing on the battlefield to the extent that he can, but you see the very similar trajectory where we're giving America, both in industry and in government, a massive, unfair advantage. And again, you see it like if you look at our numbers, look at how poorly Europe is doing. Look how well America is doing. Look how we're doing this. And again, it's not just top line. The Rule of 114 that we have shows top line and bottom line growth that is distinctive, massive and unique. And on top of everything else, there is this issue in the U.S. that we're all focused on at Palantir which is what access -- what portion of the GDP growth that we're blessed to have in this country, meaning GDP growth defined or helped out and bolstered by AI. What percentage of that is available to the American worker. And so when we're -- AI -- GDP availability for the American worker, meaning, do they participate in this growth? Or is it just people around this table who are getting richer and richer. And then you see our platform on the battlefield, as Shyam was mentioning, the people doing the coding in AIP are vocationally trained smart Americans with specific knowledge. They don't have -- and actually, and you have people on the factory floor, very same thing. People across the nation, truck drivers. Anybody with specific domain expertise is more powerful, more valuable in our product than they were yesterday. In fact, the real misalignment of AI is with people with commodity like high-trained elite institution, general specialists, that's just not as valuable as it was. And yes, the destructive -- positive destruction of capitalism is going to put that class of people. Typically, the class of people that also is kind of skeptical of Palantir under enormous pressure. But it is our -- what I see in these numbers and what I think we see in these numbers is to be -- put it slightly over the top. Yes, we were right, you were wrong. And we are going to go very, very deep on our rightness because it is exceedingly good for America. It's exceedingly good for the American economy. It's as good for American workers. And you know what, I really enjoy turning on TV and seeing some analysts explain why some other company is better than ours simply because they didn't make any on our company and probably aren't. And we're just going to keep going and going and going. And then we're obviously not going to forecast for next year. But I would say, if you're thinking about how this company is going to go, look at our ability to value create, look at our ability to create revenue on the top end, look at it -- look at the unit economics of our business. If you're a technical expert in how do you evaluate business, evaluate those numbers against any other business you've ever seen and then make your decision. But yes, I'm wildly enthusiastic. I think we're wildly enthusiastic. And thank you for those of you who stayed with us to enjoy these numbers, especially Palantirians who work day and night to deliver these kind of numbers. Ana Soro: Thank you, Alex. We'll now turn to questions from our shareholders before opening up the call. We received a few questions asking what do you see as Palantir's unique differentiator that others may not understand? Shyam Sankar: Well, Alex mentioned a bit of this here. It's become fashionable actually for lots of companies to start hiring FDEs. The Financial Times had an article about how it's the most popular new job title. But what you see is that they don't really understand it. It's just mimetic. And if you -- everything Alex, you said, like we build software that works, that not software that ought to work. We build software for the world as it exists, not a world that never was. And this ability to find what's true, that comes from the FDE. Our measure of success is not did we sell the software, it's did we solve the problem. And we have built an entire software stack over 2 decades, downstream of creating value for our customers. That led to the ontology a decade ago, more than a decade ago, which is a fundamental prerequisite to getting value out of LLMs in the enterprise. In this past year, it led to AI Hivemind and AI FDE. Alexander Karp: The other thing, which like is implicit in that is the way we work puts us -- forces us to go up the chain of complexity every day. So we're taking on the most painful, most integral, most valuable parts of the stack in every enterprise. And it's precisely because like that's the way we actually lever our ability to deploy and orchestrate FDEs. That's the way we make our products stronger. And quite frankly, that's the way we produce these numbers because the closer you are to the front line of the very complex problem that a black box was not meant to solve, cannot solve. And at this point, everyone knows a joke to believe it could solve, that's where you -- and by the way, it's the safest position for us because this company, we will always believe that we are outsiders. We need to be in the place where the most valuable problem is being solved because that's the way we end up staying, solving the problem tomorrow and the way we get paid. Ana Soro: Thank you both. Our next question is from Dan with Wedbush. [Operator Instructions]. Daniel Ives: Look, obviously, another monster quarter for you guys, congrats. So my question for you is for Alex and team. What -- can you just walk through just the accelerated sales cycles that you're seeing from so many companies that have gone to the boot camps? Like what surprised you from when they come to you at that first sort of contact to now actually launching deals. I mean, maybe you could talk about that just in terms of everything you're seeing anecdotally. Ryan Taylor: Thanks, Dan. So I think we look at U.S. commercial. We closed $1.3 billion in TCV at 6x on a dollar-weighted duration basis from what it was a year ago. And of those deals worth 83 were worth of $1 million or more 40 were $5 million or more, the 21 deals were $10 million or more. I've been involved in a lot of those directly. I'm feeling exactly what you're asking on the ground from customers. And what's happening now is from the C-suite across the company, customers are coming to us looking to not just say, let's do a use case. The customers who are having the most impact are coming to us saying, how do we deploy this across our entire organization, how do we reorganize our entire organization around Palantir and AIP. And that's what's happening on the ground. And we're singularly focused on delivering the value to the customers, and that's our go-to-market. How do we get the product to them and deliver... Alexander Karp: Where Ryan is like really very much on the front line here is there's both how many customers approach you. I think where we're seeing the biggest shift is the customers who've approached us very quickly want to move to how would I change my enterprise to express it in a way that's most valuable according to my terms in your product? And then one -- and literally want a reorg, a short-hand version that we often use is you used to have to take a company private to change the unit economics of it. Basically, just like we're providing venture results, high-end venture results to normal investors in the last couple of years, what we're doing actually in enterprise is, is providing a private equity like transformation in the public markets, in the public space under the current leadership. And that's essentially what our best -- and by the way, the other thing Ryan would tell you about is our newer clients have much higher expectations of us. Like they're like, essentially, I want to transform my business. I want to do it in months. I want to do it in the public eye, while being in the public market, mostly not exclusively. And I want you to not only do the product side but also tell us how would you actually implement AI, foundry, ontology, FDE model and our tribal knowledge to do that. And it's a completely different game. We used to have to beg and plead to be like -- when we first started talking, we were begging and pleading to be at the margin of a problem that could affect a subset of the business. By the way, Shyam, it's like, unfortunately, can only tell you 1% what he's involved in. But this is like exactly the same in the U.S. government around the world. It's like the things that we're sitting on and working on are like crazy, crazy and important and are not downstream of the problem. They are the problem, and we're reshaping them. Ana Soro: Thank you both. Our next question from Mariana with Bank of America. Mariana Perez Mora: I'm going to do, as usual, a couple of questions, one on commercial, one on defense or government. On commercial, I'd like to follow up to Dan's question. And let's see if you can discuss what changed from a behavioral perspective, from a customer perspective to see this accelerated appetite to incorporate Palantir to not only accelerating how many customers you have, but also the existing customers go to -- go up the value chain. And what changed internally as well? We recently saw in a visit the like AI agents or AI FDE is, like how are you incorporating tech internally to be able to accelerate and catch up with that demand? And on the government side, U.S. government up 50% plus is really impressive. And how do you think about opportunities like Golden Dome going forward adding up to this? Alexander Karp: Well, you guys want to answer these questions? I think that there's an external one, which is like what does it feel like? That's clearly you. The internal one is a really subtle question. And I don't know anyone should jump in there? And then obviously, you should have Shyam opine on. Shyam Sankar: Yes. Well, do you want to start with commercial or... Ryan Taylor: Sure. Yes. I think on the external, I think it's like going deeper and deeper and more and more like tangible results with customers where they're -- there's a network effect in coming, like customer sharing impact that we're having and direct impact we're having with customers. Customers are seeing as we -- it's a continuation of what we've been doing, but going deeper and deeper with the customers on that impact. And I think that what we're seeing is more and more are now coming to us saying -- and the ones that are most impactful are coming to us saying, let's do more. Alexander Karp: Ryan is our best at being a wonderful -- I'll just give a vulgar version here. Our clients realize the choice is suck basically. And they've tried a lot of stuff. It hasn't worked. And then we're in so many verticals. We're -- let's just say, we're in vertical 252 and we dominate for one customer. People see that. And then they're like, "Oh, well, I'll try this with some, I don't know, knock off half fake thing. It's just like -- and then a lot of people really still don't understand that are still trying to do this long migration where LLMs are going to perform as if they're LLMs and ontology. And as if they are LLMs were not a commodity. And then -- but then in the marketplace, they see the final result of someone else using ontology, foundry, FDE. And now it's like, wait a minute, I'm paying hundreds of millions of dollars in getting nothing. And the person down the road, I kind of looked down on is way ahead of me and their unit economics are transforming overnight. And that just shifts the whole conversation because then we're like, okay, well, if you want it to work, you can have to do these 5 things. And these things are like you're going to have to talk to Ryan and they're going to have to -- I don't know, occasionally meet with me, and you're going to have to actually allow us to come in with engineers. And you're going to -- we're going to have to actually work on the problems that are valuable for your business and also look at the costs that are dragging you down. By the way, the cost for most businesses is not just the actual money they're wasting. That wasted money creates an ecosystem of waste. They're talking to all these vendors all the time about all these things will never work instead of solving the problem. And so like -- and so getting the pathogens out of their business is a real issue, and now they're really, really interested in this. And so -- and then on the internal front, I would say it's just we have to double down. The most important thing for us internally is with all this success, we do not want to give up the unique attributes of Palantir and somehow purchase fake ways for us that are artificial for us. And so making sure we are very, very close to the problem and making sure everyone here, like if you heard our internal dialogue, it's much more like who's on the factory floor here. What are we doing internally? How do we make sure our products are better and better? How do we make sure, say, Shyam is a savant at going around and figuring out what the underlying tech issue is, how are we making sure we have the best product team and the very, very exact right fit for every single deployment across our deployments that we care about, especially mission deployments, which we highly, highly overvalue in terms of our time and energy. And like how do you make sure Palantir stays as tribal and cultus and unique as it was 20 years ago? How do we double and triple down on that? And how do we recruit the right people. And then internally, we have, look, we power ICE, we power efforts to defend America and Ukraine and with allies. We're on the front line of all adversaries, including vis-a-vis China. And we support -- we're at ICE and we're -- we've supported Israel. Okay. These are very controversies. I don't know why this is all controversial, but many people find that controversial. Okay? So how do you align people to focus on these things in a way that is actually beneficial for us and our clients. These are really hard and tricky issues that we spend a lot of time. I would say, as an overarching thing, because what we found is the more we focus on our internal dynamics, the better our numbers are. That's why we have less salespeople, and we have 77% growth in 75% of our market, 121% growth in U.S. comp. Please tell that to some of your friends. I don't even understand how they can look at these numbers and not drop the key out of their [ Immortal Six ] and just like say, I mean, they're like they're fantastic numbers but it's like internal focus. Shyam Sankar: I'll make the mistake of trying to follow Alex there and just say on the internal side with AIFDE, that's why we actually originally built it. Our headcount has grown roughly 10%, but revenue grew 63%. How are we doing that? We've made our FDEs wildly more productive. And I mean, so much so that we decided to give it to our customers. And we've started to make our customers more productive. When you have a note like the Army Vantage note, where the Army is consolidating into the Army data platform, you now have an army, literal army of green suiters who need to become proficient developers in the software. And you have a generation of green suiters whose first interaction with the software is going to be with AI FDE. They're going to be super heroes on day 1. I think that it's accelerating adoption. It's accelerating understanding like the depth of adoption, not just are you using it, but how much of it are you really using? How much of it can you understand? And then quickly on your comment on the U.S. government business, like, yes, the number of opportunities out there are great. I can't comment on all the opportunities you mentioned there, but whether it's NGC2, the continued growth of, Maven, I mean we have, of course, America is involved with 3 conflicts right now in the world from Europe, the Middle East and in our own hemisphere right now. And things are getting a little spicy. By the way, let me say something slightly political, and I'm not saying other people agree with this. But when people are attacking our soldiers for stopping fentanyl from coming to this country, I want people to remember, if fentanyl was killing 60,000 Yale grads instead of 60,000 working class people, we'd be dropping a nuclear bomb on whoever was sending it for South America. So it's slightly -- like we -- in this -- at Palantir, we are on the side of the American -- average American who sometimes gets screwed because all the empathy goes to elite people and none of it goes to the people who are actually dying on our streets. And that's why it's like when you have an open border, it means that the average poor American earns less. I know my fellow progressives believe having an open border is going to make things, but that's because they're actually repping elite people instead of the working class. And the same thing in South America, is like to believe our constitution does not give us the right to stop 60,000 deaths a year of working class men and women is insane. And this company -- this country is right to stop that. And I am very proud. I don't know all the efforts we're involved in, but to the extent we're involved in these efforts, I and most Palantirians are very proud of this. Ana Soro: Thank you. Alex, as always, we have a lot of individual investors on the line. Is there anything you'd like to say before we end the call? Alexander Karp: We're rocking along. Please turn on the conventional television and see how unhappy those that didn't invest in us are, enjoy get some popcorn, they're crying. We are every day making this company better, and we're doing it for this nation, for allied countries and also for -- and I never really like the term retail investors. How about same people who put up their own money and fight for us -- and by the way, you are fighting for the right side of what should work in this country, meritocracy, lethal technology vis-a-vis adversaries, products that spread GDP to working-class women, men and women by making their value creation higher and by the way, your bank account. And thank you for that. Ana Soro: Thank you. That concludes Q&A for today's call.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Sanmina's Fourth Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 3, 2025. I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Communications. Please go ahead. Paige Bombino: Thank you, John. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Fourth Quarter and Fiscal 2025 Earnings Call. A copy of our press release and slides for today's discussion are available on our website at sanmina.com in the Investor Relations section. Joining me on today's call is Jure Sola, Chairman and Chief Executive Officer. Jure Sola: Good afternoon, ladies and gentlemen. Paige Bombino: And Jon Faust, Executive Vice President and Chief Financial Officer. Jonathan Faust: Good afternoon. Paige Bombino: Before I turn the call over to Jure, let me remind everyone that today's call is being webcasted and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website. Please turn to Slide 3 of the presentation and take note of our safe harbor statement. During this conference call, we may make projections or other forward-looking statements regarding the future events or the future financial performance of the company. We caution you that such statements are just projections. The company's actual results could differ materially from those projections in these statements as a result of factors set forth in the safe harbor statement. The company is under no obligation to and expressly disclaims any such obligation to update or alter any of the forward-looking statements made in the earnings release, the earnings presentation, this conference call or our Investor Relations section of the website, whether as a result of new information, future events or otherwise, unless otherwise required by law. Included in our press release and slides issued today, we have provided you with statements of operations for the fourth quarter and fiscal year ended September 27, 2025, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on the website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash stock-based compensation expense, amortization expenses and other unusual or infrequent items. Any comments we make on this call as it relates to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, taxes, net income and earnings per share, we are referring to our non-GAAP information. I'd now like to turn the call over to Jure. Jure Sola: Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today. Please turn to Slide #4. First, I would like to take this opportunity to recognize Sanmina's leadership team and our employees for doing a great job. So to you, Sanmina's team, thank you for your dedication, hard work and delivering excellent service to our customers. Ladies and gentlemen, I can tell you that I'm very pleased with our performance for fiscal year 2025. Revenue came in at $8.13 billion, growth of 7.4% year-over-year. Non-GAAP operating margin came in at 5.7%. We're able to expand these margins by 30 basis points year-over-year. Non-GAAP EPS came in at $6.04. That's growth of 14.4% year-over-year. We also delivered very strong cash flow from operations of $621 million. And for the fourth quarter fiscal year 2025, we delivered solid revenue of $2.1 billion and non-GAAP EPS of $1.67 per share. Now let's go to our agenda for today's call. We have Jon, our CFO, to review details of results for you. I will follow with additional comments about Sanmina results and future goals. Then Jon and I will open for question and answers. And now I'd like to turn this call over to Jon. Jon? Jonathan Faust: Great. Thank you, Jure, and good afternoon, ladies and gentlemen. We appreciate your participation in today's earnings call. Before I discuss our financial results, I would like to thank the entire Sanmina team for their hard work and dedication and for executing a strong close to the fiscal year. The team has demonstrated exceptional focus and agility in meeting our customers' evolving needs all year long. Jure and I, along with the entire Sanmina management team, commend these efforts, which have resulted in strong fourth quarter and fiscal 2025 performance. Now please turn to Slide 6, where I'll speak to the financial highlights. We're very pleased to report that our fourth quarter results either met or exceeded our previously communicated outlook. To be specific, our non-GAAP gross margin of 9.4% and our non-GAAP diluted earnings per share of $1.67 both exceeded our outlook. Furthermore, our revenue of $2.1 billion and our non-GAAP operating margin of 6.0% were both at the high end of our outlook. These strong quarterly results as well as our performance throughout the year contributed to our ability to achieve fiscal 2025 results in line with our expectations, as Jure mentioned at the beginning of the call. Now please turn to Slide 7, where I'll speak to our P&L performance for the fourth quarter. As previously noted, we generated revenue of $2.1 billion, which represents an increase of 3.9% year-over-year. This growth was primarily driven by broad-based demand across the majority of our end markets with particular strength in the communication networks and cloud and AI end markets, which Jure will speak to in more detail in his prepared remarks. Non-GAAP gross profit was $196 million, representing 9.4% of revenue and a 70 basis point improvement versus the same period a year ago. This expansion in our gross margin was a result of favorable product mix and ongoing operational efficiencies. Non-GAAP operating expenses totaled $70 million, slightly above our outlook, reflecting our continued strategic investments aimed at driving future growth. Non-GAAP operating income was $126 million or 6.0% of revenue, representing a 70 basis point improvement versus the same period a year ago. This improvement was driven by a combination of revenue growth, favorable mix and disciplined execution. Non-GAAP other income and expense resulted in a net expense of $5.1 million, slightly above our outlook, largely due to foreign currency. And finally, non-GAAP diluted earnings per share was $1.67 based on approximately 54.9 million shares outstanding, representing a 16.7% increase compared to the same period a year ago. Now please turn to Slide 8, where I'll speak to our segment results. IMS revenue came in at $1.68 billion, up 3.3% year-over-year. This was driven by growth across most end markets with particular strength in the communication networks and cloud and AI end markets. IMS non-GAAP gross margin was 7.8%, up 50 basis points versus the same period a year ago. CPS revenue came in at $448 million, up 7.3% year-over-year. And CPS non-GAAP gross margin was 14.5%, up 90 basis points versus the same period a year ago. The strong performance in CPS was driven by revenue growth, favorable mix and ongoing operational efficiencies. While we're pleased with the performance of both the IMS and CPS businesses this quarter, we have not yet reached our full potential. We recognize the ongoing opportunity for further improvement in both revenue growth and margin expansion, which will remain key focus areas going forward. Now please turn to Slide 9, where I'll speak to our P&L performance for fiscal 2025 as compared to the same period a year ago. At the beginning of the year, when we provided our outlook for fiscal 2025, we said we expected revenue to grow high single digits, that non-GAAP diluted earnings per share would grow faster than revenue and that we generate strong cash flow. And I'm pleased to report that we delivered on all of those commitments. In fiscal 2025, we executed to our plan, and we continue to see positive trends as we move into fiscal 2026. Revenue for the 12 months increased by 7.4% year-over-year. This growth was driven by solid performance across the majority of our end markets with notable strength in the communication networks and cloud and AI end markets. Non-GAAP gross profit was $744 million or 9.2% of revenue, up 50 basis points compared to the prior year. Non-GAAP operating income was $465 million or 5.7% of revenue, up 30 basis points compared to the prior year. These improvements were the result of revenue growth, favorable product mix and strong operational execution. Non-GAAP diluted earnings per share was $6.04, which equates to an increase of 14.4% year-over-year. Now please turn to Slide 10, where I'll speak to the balance sheet highlights. For many years, Sanmina has had one of the strongest balance sheets in the industry, and we continue to add to that strong foundation this quarter. Cash and cash equivalents were $926 million. At quarter end, we had no outstanding borrowings on our $800 million revolver, leaving us with substantial liquidity of approximately $1.8 billion. We ended the quarter with inventory net of customer advances of $1.1 billion, representing a 12.1% decrease in absolute dollar terms versus the same period a year ago. Inventory turns, net of customer advances improved to 6.7x for the quarter as compared to 5.7x in the same period a year ago. Our non-GAAP pretax ROIC for the quarter was 28.3%, well above our weighted average cost of capital and a sizable improvement from 23.0% in the same period a year ago. The company continued to be in a net cash position at the end of the quarter, and our gross leverage ratio was 0.32x. This robust financial profile enables us to effectively execute on our strategic initiatives while still navigating macroeconomic uncertainties. Now please turn to Slide 11, where I'll speak to the cash flow highlights. Thanks to the disciplined working capital management of the Sanmina team, cash flow from operations for the fourth quarter was $199 million and came in very strong for the fiscal year at $621 million. Net capital expenditures for the quarter were $62 million and totaled $142 million for the fiscal year or 1.8% of revenue. This is in line with historic levels of CapEx spending, which typically ranges between 1% to 2% of revenue. As we move forward into the new year, we remain committed to making strategic investments in the capabilities and technologies necessary to strengthen our market position and support our long-term financial goals. To that end, we anticipate ongoing targeted investments in both capacity and technologies across our operations in the U.S., India and Mexico. Free cash flow for the quarter was $137 million and $478 million for the full fiscal year. We repurchased 1.44 million shares for $113.7 million for the year. And as of September 27, 2025, we had $239 million remaining under our authorized share repurchase program. Our strong cash flow performance has provided us with the financial flexibility to allow for continued investments in the business while also returning capital to shareholders, all within a disciplined and balanced capital allocation framework. Now please turn to Slide 13, where I'll speak to the transaction details around the ZT Systems acquisition. This is an exciting time for Sanmina as the acquisition of ZT Systems is truly transformative. It increases our scale, expands our capabilities and enables us to capitalize on the significant growth opportunities in the cloud and AI end market. On this slide, I'm comparing the original transaction details to our latest estimates as of the closing date, some of which are still pending a 90-day working capital true-up process. First, as a result of the hard work and dedication of all the teams involved, we were able to close the transaction earlier than expected. Second, pending the working capital true-up process I mentioned earlier and assuming a full earn-out of the contingent consideration, we estimate the closing purchase price to be $2.05 billion, which is based on $1.05 billion of net working capital. The lower net working capital dollar amount is primarily the result of production seasonality given the earlier-than-anticipated closing date as well as disciplined inventory management. Third, as we discussed in May, the purchase price reflects a premium of $300 million to the book value of the acquired net working capital and property, plant and equipment with $150 million of this premium in cash and $150 million in Sanmina equity. At closing, AMD received approximately 1.15 million shares based on a share price of $130.32 calculated based on the volume weighted average price for the 5 trading days prior to closing. We believe that having AMD as a shareholder will only further align our interest, especially as it relates to our new strategic partnership. Lastly, as referenced earlier, there is also a contingent consideration of up to $450 million, which is based on the financial performance of the business over the next 3 years. Now please turn to Slide 14, where I'll speak to our strong balance sheet and liquidity position. As a result of our industry-leading balance sheet, we were able to secure the necessary financing for this transaction on attractive terms. This puts us in a position to capitalize on future opportunities, both for ZT Systems and for the legacy Sanmina business. We secured a Term Loan A of $2.0 billion, of which $600 million is a delayed draw and a Term Loan B of $800 million. With these funds, we repaid Sanmina's existing Term Loan A and at closing, we have $2.2 billion of funded debt. As a reminder, we are targeting a net leverage ratio of 1.0x to 2.0x over time with the goal of achieving an investment-grade rating. At the end of the fourth quarter, stand-alone Sanmina had $926 million of cash and cash equivalents. As a part of the new financing structure, we also increased our revolver from $800 million to $1.5 billion. The combination of cash, our revolver and the delayed draw on our Term Loan A gives us a significant amount of liquidity to support the growth of both ZT Systems and the legacy Sanmina business. Also, I want to emphasize our commitment to maintaining a healthy balance sheet, which means carefully managing the liquidity needed to invest in the business and capitalize on the strategic opportunities that further excel our position in the market with strong fiscal policies and controls. Now please turn to Slide 15, where I'll cover our first quarter 2026 outlook. Our guidance is based on current customer forecasts, 2 months of the ZT Systems acquisition and ongoing market uncertainties stemming from tariffs and the geopolitical landscape. Our first quarter outlook is as follows. We expect revenue between $2.9 billion to $3.2 billion. We expect legacy Sanmina revenue to be in the range of $2.05 billion to $2.15 billion, which at the midpoint reflects 4.7% growth versus the same period a year ago. We expect ZT Systems to be in the range of $850 million to $1.05 billion for the 2 months after closing, pending final accounting policy alignment. At the midpoint of $3.05 billion for the total company, that reflects 52% growth versus the same period a year ago. Non-GAAP operating margin of 5.6% to 6.1%. We expect other income and expense to be a net expense of approximately $23 million; an effective tax rate of 21% to 23%, which is up slightly from legacy Sanmina due to the U.S.-based earnings pickup from ZT Systems. We estimate an approximate $4 million noncash reduction to our net income to reflect our India joint venture partners' equity interest. Non-GAAP diluted earnings per share in the range of $1.95 to $2.25 based on approximately 56 million fully diluted shares outstanding. At the midpoint of $2.10, that represents a 46.3% increase versus the same period a year ago. Capital expenditures are expected to be around $85 million as we continue to invest strategically to support our future growth expectations. And finally, depreciation of approximately $45 million. In summary, we're very pleased with our Q4 and fiscal 2025 performance as we've made great progress towards our financial goals. Also, now that we've completed the ZT Systems acquisition, we're very excited about our growth potential, both in that part of the business and the legacy Sanmina business, too. And with that, let me turn the call back over to Jure. Jure Sola: Thank you, Jon. Ladies and gentlemen, let me add more comments about the results for fiscal year 2025 and also talk to you what we are planning to do for fiscal year 2026 and beyond. As you know, Sanmina completed acquisition of ZT Systems data center AI infrastructure business from AMD last week. So before I talk about our results, I would like to take this opportunity to welcome ZT Systems team to Sanmina's family. As we said, together, now we are a stronger company. And I can tell you, this is an exciting time for all of us. Please turn to Slide 17. As you heard from Jon, we delivered strong results for the fourth quarter, revenue, non-GAAP operating margin at the high end of our outlook, and non-GAAP gross margin and non-GAAP diluted EPS exceeded our outlook. Fiscal year 2025 was a good year for Sanmina. Most importantly is that we positioned our company for a better and stronger future. In summary, our consistent execution is driving financial performance. Please turn to Slide 18. Let me talk to you about revenue by end market for the fourth quarter of fiscal year '25. Industrial, energy, medical, defense, aerospace and automotive segments have been very consistent segment for us. For the quarter, that was 59% of our revenue and for the year, that was 62%. For the year, we saw the growth 2.2% year-over-year. Communication networks and cloud and AI infrastructure, overall, we had a strong demand with -- that was 41% of our quarterly revenue. And for the year, that was 38%, and we saw great growth of 17% year-over-year. For fiscal year '25, top 10 customers represented 51.7% of our revenue. As you can see, we are well diversified and no customers over 10%. Overall, bookings were solid. Book-to-bill came around 1:1. We see very positive trends for the future. To tell you more about it, please turn to Slide 19. As we look at our end markets, we see positive trends. For Industrial and Energy, we have strong customer base and new projects in the pipeline that should drive the growth in fiscal year '26. For medical, we are well diversified within the market itself, and we expect to see nice growth in fiscal year '26. For defense and aerospace, we continue to see solid demand. This segment continues to do well from technology components segment to a full system assembly. Automotive and Transportation, short term, we see some softness in the market, but we do have a great customer base and some good new opportunities, and we expect to see some growth in fiscal year '26. For Communication Networks and Cloud and AI infrastructure, overall, we saw strong demand for high-performance switches and enterprise storage. We're also growing our optical advanced packaging. And we have a strong pipeline for second half of calendar year '26 and calendar year '27. For cloud and AI infrastructure, we feel good about the future. New programs will drive the growth for calendar year '26 and beyond. Please turn to Slide 20. Now let me talk to you a little bit more about Sanmina AI and ZT Systems. This strategic acquisition from AMD complements Sanmina's advanced cloud AI technology and gives us the ability to do full system integration at scale. Our strategy is to provide industry-leading capabilities from design to full system end-to-end solutions for cloud, AI infrastructure end markets. As you can see in this slide, what Sanmina brings to the table, combining with ZT is providing to end-to-end. We get involved early stage of product design. We are expanding this group, and we're transferring a fair amount of engineering individuals to our Viking enterprise that will support the ZT going forward. We provide high-technology printed circuit boards. We provide high-technology board assembly and test. We provide mechanical racks and enclosures, both custom and open compute. We provide liquid cooling, both with our partners and ourselves. We provide server and storage, both from a joint development with our customers to ODM, custom memory, custom optical modules all the way to the full system. And you can see why ZT Systems aligns very well with Sanmina's strategic growth priorities. And as Jon said, we will continue to invest in this key end market. Please turn to Slide 21. Let me talk to you right now about priorities for '26 actually today. Number one is focus on our customers. Part of our strategy is always to focus on our customers and build around customer needs. We have a strong long-term partnership with many market leaders already. We're expanding our customer base in these key markets. And our technology is continued to be competitive advantage as we've been investing and we'll continue to invest in our key technologies. Number two is to how we're going to execute on ZT Systems opportunities. As we said, we believe there's a lot of great opportunities in front of us. First of all, we're keeping the same management team at ZT that will be led by our founder, Frank Zhang. He's been running this operation for 30 years plus. We learned a lot about the management, and we believe -- with additional help from our President and Chief Operating Officer, Mike Landy, I believe we have a #1 team in our company to really lead this organization going forward. We expect very smooth integration of ZT Systems with Sanmina. And as we both said, Jon and I, we have large opportunities for ZT Systems right in front of us to build on. And number three for us is to drive the profitable growth. It's easy to get the growth, but driving the right segments to allow us to improve the -- to have a customer that's going to be with us for many, many years, but also to improve the margin. We are optimizing our capital structure to drive the growth in the next 2 to 3 years, '26 through '28. ZT Systems', as John said, current annual run rate revenue is about $5 billion to $6 billion. Last quarter, we told you that within next 3 years, we would double Sanmina's revenue to around $16 billion. Now we see opportunity to do it sooner with the next 2 years. As I mentioned, we are focused on margin expansion by delivering competitive advantage for our customers. Short term, we're forecasting margin to be in the range of 5.6% to 6.1% plus. Longer term, we expect to expand our margin and our goal to be in a range of 6% to 7% plus. In a simple English, our strategy is to build a bigger and stronger company for the future. Please turn to Slide 22. In summary, we finished the fiscal year 2025 with a strong momentum. We are focused on executing on transformation from position of strength. For growth, we expect legacy Sanmina business to continue to grow high single digits. And we expect solid growth in cloud and AI end market in the second half of calendar year '26 and continue through calendar year '27 and beyond. Our capabilities in cloud and AI will bring solutions from concept to development with quality, speed and flexibility at scale. This is competitive advantage for Sanmina. Also, Sanmina has efficient manufacturing footprint. It is aligned to support customers' global production requirements, and we have strong U.S.A. presence in place. Overall, great opportunities to drive profitable growth. So ladies and gentlemen, now I would like to thank you all for your time and support. Operator, we're now ready to open the lines for question and answers. Thank you again. Operator: [Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya from Bank of America. Ruplu Bhattacharya: Jure, congrats on closing the ZT Systems acquisition. Just to confirm, did you say that it's still at a $5 billion to $6 billion annual run rate? And one of the slides says that it's at corporate average margins. You're guiding margins -- operating margin to 5.9%. Should we assume that the ZT Systems business is also in that range of high 5%, so around 5.9% operating margin. So can you just first confirm the revenue and operating margins for the ZT Systems? Jure Sola: Well, first of all, thank you for the compliment. I'm very excited about the ZT acquisitions. We've got to know the team at ZT. We got excellent people there and it fits to our culture. So we're really excited in front of us. Maybe I'll turn it over to Jon when it comes to the margins, but we are very optimistic. Go ahead. Jonathan Faust: Yes. Ruplu, on the first point about the revenue. So we did want to give some color on ZT Systems for that 2 months, and we guided a range of $850 million to $1.05 billion. You take that midpoint to $950 million for the 2 months and annualize it, puts you at about $5.7 billion. So check the box. We said that we closed in that $5 billion to $6 billion run rate on an annual basis, and we did that. And then to your second question on the margin profile, like as it shows on the slide, we expect ZT, we guided on a combined basis, but said that ZT is in line with Sanmina. So yes, the short answer to the question is we expect both sides of the business to be within that 5.6% to 6.1% range. Ruplu Bhattacharya: Okay. Great. For my next question, can I ask on the legacy business? If we look at the guide Jon, for the first quarter, $2.05 billion to $2.15 billion. So it's growing like mid-single digits at this point in the first quarter. But I think one of the slides later on talks about the legacy business grows high single digits. Is that -- are you expecting high single-digit growth for the legacy business ex ZT in fiscal '26? And what drives -- if so, what drives that acceleration in the second half for the legacy business? Jonathan Faust: Yes, that's exactly right, Ruplu. We disclosed ZT a week ago, so we didn't want to touch too much on a full year basis for that, but we'll come back in January in our next earnings call and give some more specifics. But at least for the legacy Sanmina business, very similar to how we guided fiscal year 2025. We expect '26 to be -- have revenue growth in that high single-digit range. To your point, the midpoint would be just shy of 5%, so in the mid-single-digit range, but we expect that to accelerate. And that's based on all the opportunities that Jure spoke to on the end market slide. We see a lot of opportunity ahead. In the first quarter here, it will be more in that midrange. But as we continue on throughout the year, particularly into the back half or the second half of the fiscal year, we expect that to accelerate. Jure Sola: Yes. If I can add, Ruplu, to that, definitely, we're seeing more positive activities as we go into next year around industrial, energy, medical. Defense continue to be stable. We are expanding our component capabilities there. Our military circuit boards are doing well, very profitable business. Automotive only short term is slightly down, but we do have some new programs that will offset that. Communication networks and cloud AI infrastructure without ZT. ZT we're really looking at the integration infrastructure. But if you look at the AI, what Sanmina provides, including our capabilities around the storage ODM, circuit boards, mechanical racks, that part of the business is very active right now, and we expect it to grow more than we did last year. So overall, we feel very strong with Sanmina legacy business. And also, we've been -- as we said last year, our goal is how do we take this business back to the $9 billion, $10 billion, $11 billion, $12 billion run rate. That's our still plan. So the key for Sanmina is to be a diversified company, not just to depend on one segment of the market or not. So we're excited about the growth. We're excited about what we can build around AI with the ZT. And I said earlier, ZT fits like a glove. Most important, we have great management in there. We're going to be investing -- well, first of all, AMD invested a fair amount of money in the last year plus, and we'll continue to do that. And we have some of the best capabilities for new technology that is coming out end of this year in the future. So overall, Ruplu, I think there's a lot of upside. It's all about how well do we execute. Ruplu Bhattacharya: Okay. If we put all of what you said together, so if the legacy business grows high single digits, that would be about $8.9 billion in fiscal '26. And then ZT is $5.7 billion at the midpoint, like Jon said. So total for fiscal '26 looks like the implied guidance is about $14.5 billion or $14.6 billion. Did you say then that looking forward, the comment that you made, Jure, on the $16 billion 1 year ahead of time. So are we essentially saying that, that $14.5 billion in fiscal '26 can then grow to $16 billion, so about 10% year-on-year growth between fiscal '26 and fiscal '27. Was that the comment? Jure Sola: Okay. First of all, I'm very optimistic what's in front of us, okay? That's number one. Number two, we're going to give you a lot more -- as Jon said, we're going to give you a lot more details in January because we just -- as you know, for legal reasons, we couldn't get all the details about forecast and so on and so on. So we'll share a lot more with you in January. But looking what's in front of us, we basically said about 6 months ago or 3 months ago, we think we can double the size of Sanmina within 3 years. What we see in front of us with legacy business, plus what we believe that we can grow around ZT plus AI opportunities that are in the pipeline that we can accomplish that hopefully, in the next 2 years. So that's all I'm saying. Ruplu Bhattacharya: Right. And the 2 years would put it at calendar '27 for the $16 billion? Jure Sola: Yes. Ruplu Bhattacharya: But maybe one last question. Jure Sola: But Ruplu, let me just say, trust me, we're going to give you a lot more information in January. Ruplu Bhattacharya: Okay. Understood. Let me just ask one more quick question on working capital because you're taking on working capital. Jon, how should we think about cash conversion cycle and free cash flow going forward? Jonathan Faust: Yes. I mean, first of all, I'm very pleased with how we performed in Q4 and all fiscal year '25, right? Jure and I both talked about that cash flow from operations for the full year being at $621 million, which you don't see very often when you're driving growth. We drove revenue growth of 7%. So our cash conversion cycle exiting Q4 is back in the 50s, which is a good place to be. That's where we wanted to get to. Now we still see some room for improvement. And I'm talking about the legacy business right now. We still see the opportunity to generate cash from that perspective. And for ZT, it will really depend. As Jure was saying, at this point, we're just guiding Q1 because we just closed the transaction last week. Now depending on growth and working capital needs, that might become a draw on cash. But we think we're in a good position right now. So bottom line being legacy business, continue to expect to generate cash flow from operations. And ZT, more to come on what we think for the full year and what that will mean from a cash perspective. Operator: Your next question comes from the line of Steven Fox from Fox Advisors. Steven Fox: A couple of questions for me. So without putting numbers around it, I was just curious how you think about the opportunity to rebuild the accelerated compute arm of ZT. There's been, I guess, public questions about the ability to do that relative to competition. There was some hint here, but I was just wondering how we should think about how long that takes to sort of get going and how broad you can be with the opportunity? And then I had a follow-up, please. Jure Sola: Yes. First of all, as I said, I'm very excited about the talent that we got through in the ZT acquisitions. This is a very strong team. The founder is going to stay with us to help us take this business to the next level. He's excited. I'm excited. We're putting a great team around it. We're going to invest in it. We are also taking our Viking Enterprise group and moving that over to support ZT as you know, ZT is an ODM operations. And we're also transferring a fair amount -- we have an engineering services group. We're going to transfer a big portion of that into the Viking to build the Viking team bigger. so that we have a stronger engineering team. And we are hiring to really drive our ODM business at a high level. So Sanmina has a lot of technology and the goal here for us to provide and basically connect the 2 together from a system architecture, electrical mechanical design, providing, as you know, especially in AI, there's a demand for a lot of high-technology circuit boards. We believe we can add value there through assembly of the subsystems through mechanical design around the liquid cooling. We're using partners and some of our own rock enclosures, both customs and open compute. You know a lot about the Viking storage. We also have a Viking technology around custom memory, custom optical modules. And we believe bus bars, we believe all of these things will help us improve the margin for our communication and AI business. So a lot of work in front of us, but good things don't happen easy, Steve. Steven Fox: Yes. Absolutely not. I guess just to interpret what you said, though, Jure, is that you're implying that you need to pull the full system solution from soups and nuts together first before you can then sort of go after the accelerated compute business again? Is that fair to say? Jure Sola: No, no, no. We're going to go after -- first of all, we have a great partner with AMD through NPI. So we enter that part right away. And we are expanding our engineering team to work with AMD and other platforms immediately. Yes, we have to -- as you know, ZT had a big engineering team, and we expect to build that whatever is necessary to be able to support our customer requirements. Steven Fox: That's helpful. And then just on the cash flows in the transaction, just to be clear, Jon, the $2 billion purchase price, is that close to what the final number would be? Or could it balloon back to $3 billion? And then when we think about cash flows, it sounded like you can grow cash flows on legacy Sanmina. And then depending on growth, we'll see if you need to invest in working capital on the ZT business. Am I reading all that right? If you can provide some color there? Jonathan Faust: Yes, you got that correct, Steve. So on the first point, I don't think the number will move too much. So it's subject to a 90-day true-up process. And that's because we're closing in the middle of the quarter, we worked on some estimates. So we'll have to work through that to reconcile it, but I wouldn't expect it to move materially. So that's -- it should be pretty close to where we land. And then as far as future cash flow generation, yes, on the legacy side of the business, still some opportunity to generate cash even though we'll be growing. This year, we made huge progress in inventory this past year, I mean, in fiscal 2025. And that's how we were able to generate the $621 million. There's not as much opportunity as that anymore, but we still think we can generate cash. And then ZT, yes, still early days, just closed a week ago. We'll see how the trajectory of the business continues, particularly as we get into the back half, and that could become a use of cash. But more -- as we guide each quarter, we'll provide more specifics on that. Operator: [Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti. Anja Soderstrom: Congrats on closing that the ZT Systems acquisition so early. You mentioned you see a lot of AI opportunity in the pipeline for ZT Systems. What do you see potential beyond what you currently have in the book? Jure Sola: Could you repeat the question, Anja? Anja Soderstrom: Yes. You see a lot of AI opportunity in the pipeline for the ZT systems. What kind of opportunities do you see there? Jure Sola: Okay. Well, first of all, we've been building our capability to support data center AI all the way from high-technology boards to assembly, mechanical, liquid cooling, ODM, JDM and so on, both in custom memory and custom optical modules, we've been expanding that. ZT brings to us is a complete, what I would call strategic acquisition that complements Sanmina's advanced cloud AI technology that gives us the ability to full system integration at scale. We have that today. So when you really look at the ZT today specifically, there's great opportunities in our pipeline that will allow us to really grow in '26, '27, '28. I mean, let's focus on the next 3 years. Who knows what's going to happen 5 years from now. But at least next 3 years, we see a lot of opportunities that based on our capabilities today, we can compete in this segment with anybody. And especially, as I said earlier, I think the key for us is to make sure that we execute on these opportunities. And I have a very high confidence because we have a strong leadership in there. We're basically letting them go ahead and take it to the next level. We took one of our top managers from Sanmina that ran all our IMS business for the last 25 years to basically help us together with the founder to take this to the next level. So opportunities are great. A lot of work in front of us, but we are excited. We think we can build something big, something good that's going to be good for our employees, for our investors, and we'll be able to provide some great capabilities for our customers and give them a competitive advantage. Anja Soderstrom: Okay. And then how do you expect this to affect your Indian joint venture? Jure Sola: Actually, it can complement India joint venture. There's a lot of opportunities in India when it comes to the cloud AI growth. We are working with our partners in India right now for opportunities that are happening in India. We have a new factory that we are building right now that we will have -- we will -- how do I say, expand our AI capabilities. We're investing right now, and that will come online early next year, and it's going to be very positive. Anja Soderstrom: Okay. And then it seems like auto was a bit challenging for you. What do you see there? And you were also talking about new opportunities there that could help you drive growth there. Jure Sola: Yes. Automotive -- overall for us, automotive was pretty strong beginning of the year and slowed down a little bit end of the year. But overall, it's pretty good. We have some new programs that we won in the last 60, 90 days for end of the '26, '27 and beyond. So overall, we are pretty optimistic, and we're well positioned with a couple of very critical customers. Operator: We don't have any other questions at this time. Please continue, sir. Jure Sola: Operator, is there any other questions? Operator: We don't have any other questions at this time. Jure Sola: Well, first of all, I'd like to thank everybody on this call. If there is any questions, please let us know. Otherwise, we're looking forward to talking to you in 90 days from now. Thanks a lot for your support. Bye-bye. Jonathan Faust: Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Sota Endo: Thank you for joining us for NTT DATA's briefing session for the 6 months ended September 30, 2025. I will serve as your facilitator. I'm Endo from IR. In terms of today's documents, please refer to our IR website presentation materials. First, let me introduce the speakers. Representative Director, President and CEO, Mr. Sasaki; Representative Director and Senior Executive Vice President, Mr. Nakayama; Director and Executive Vice President, CSO, Mr. Nishimura and Senior Vice President, Head of Finance Headquarters, Mr. Kusakabe. These are the 4 speakers. Today, we will skip the earnings presentation and start with a Q&A session. Sota Endo: [Operator Instructions] First, we will take questions from the floor. On the first row on the right-hand side from my side, please. Unknown Analyst: SMBC Nikko Securities. My name is [ Sakiguchi ]. I have 2 questions. The first question is regarding the domestic public and social infrastructure business. There was unprofitable projects is what I've heard. So with the -- there is an unprofitable projects with the government agency-related type of projects, it actually drags along. So what amount of this unprofitable project amount is recorded for the second quarter and the overall scale of the project and that what's going to happen of that for the second half of profit line for the public and social infrastructure. Well, Public and Social Infrastructure recently was performing strongly. So there was one way of looking at it that it probably did increase to a peak, but there was more orders after that, but also including the treatment of unprofitable projects, what is your outlook for this business segment is what I'd like to know. Sota Endo: So Sasaki would like to answer your question. Yutaka Sasaki: For the second quarter, what we posted for unproduct -- it's unprofitable business for public area was JPY 3 billion in total. Basically, in the past cases in several large-scale projects, and within over several quarters, there was a track record that we have posted this unprofitable amount. But this time, we have actually have visibility all the way to the risk. So for the third quarter and fourth quarter, our assumption is that there are no further losses that will be made. And how we look at the market, we believe that it's going to be still strong for the central -- this public and social infrastructure is central government and the local governments and also the telecom utility. And we believe that this is going to continue to steadily grow strong. So we would like to continue to bring in that demand and further grow. But as you have pointed out, for this fiscal year, on a year-on-year basis, profit-wise was a negative number. That means that it requires some measures to be injected. The SG&A that is spent towards the second half, we would like to thoroughly look into it and thoroughly so that we will be able to turn around for the remaining year and next year. And 2 projects and JPY 3 billion, looking at your scale of the business and comparing to the past, it's something that shouldn't be that worried about. Unknown Analyst: The second question, overseas, especially North America, you have quite a few orders of large-scale projects was explained. What is the content of that? Recently, the continuing project of the existing customers, but also there is the expansion projects receiving the large-scale orders was the explanation. So if that is the same way of thinking, so how are you evaluating the orders that you have received this time? And at the last press conference, you said that you want the contribution from these orders to come about from the third quarter. But around what timing is that going to be recognized? Yutaka Sasaki: Well, NTT DATA Inc. overall, there's a Chief Growth Officer person that is appointed now and acquiring the large-scale projects or targeting the large-scale accounts. To surely acquire them is the activities that is conducted under this Chief Growth Officer. And one more thing we're working on is a global practice, meaning they're not saying that to each region to do your best, but looking at it more like a global-wide perspective like global security or digital workplace. These are several offerings and solutions, the offerings that utilize the Indian resources, accumulating the know-how of that, and we wanted to roll that out to several large accounts. And this initiative has been worked on in a full scale since last year. And finally, we have the CGO and the global practice initiatives are being well combined. And especially in North America, it has enabled them to acquire large-scale orders or projects. So what's the content of it? Like in cloud and security is the large-scale project to cloud migration. It's one case. And the contract period is 3 to 5 years, multiple years. So it seems that the order received amount is larger. But from the second half of this fiscal year, it is going to be booked as net sales. So from the third quarter net sales for North American region, it is going to exceed what it has achieved last fiscal year. So the North American turnaround based on these orders received, we would like to surely pursue it. And by having the net sales being recorded or posted, that means the gross profit is also going to increase. And in North America, thorough initiatives are conducted in terms of reducing the SG&A. So they will be able to surely accumulate the profit. If that is so, the expansion growth, so that means new orders you're receiving, yes, quite an amount. Sota Endo: Next question from the floor. Over there, please. Daisaku Masuno: Masuno from Nomura. I'd like to ask about overseas data center. In the press conference, I asked the question, why don't you accelerate even more than the current plan? And you said that you will carefully select partners and consider the approach in a balanced manner. But I feel like now we are at a stage where you can take on more risk. So what are your thoughts regarding taking on further risk to accelerate? What kind of reference do you take in order to make that decision? And now that you are 100% subsidiary, rather than relying on the cash from the REIT -- sales to REIT, I believe that you can take on more risk in that perspective as well. Yutaka Sasaki: So becoming a 100% subsidiary of NTT, we are able to take action based on a bigger balance sheet, and we have the room to make investments with more leverage. I understand that. On the other hand, for cash allocation, there is data center and there's also M&A and also investment into pure assets. So there are different investment targets. And especially with regards to M&A in the age of AI, the rules of competition are changing. And so what kind of company should we acquire in order to win in a global competition is something that we really need to strategize on. Over the next 1 to 2 years, the competitive landscape in the age of AI will start to emerge. And so we don't want to just bet on data centers. We would like to also consider M&A opportunities to have the optimal cash allocation. On the other hand, as you said, we have a REIT, and we're able to do a cash cycle based on that. And we're also studying possibilities for utilizing third party in making investments. So rather than leveraging our balance sheet, how much we can expand our investment. That is something that we continue to study. Daisaku Masuno: So in terms of considering the allocation into data center, what are the indices or the environmental factors that do you look at in order to make the decision? Is it the investment into North America? I also heard that India is more profitable. So is it the demand from India? Yutaka Sasaki: Well, we have placed much importance on our communication with hyperscalers. The team's head is in North America and the North American team is talking to the big techs on a day-to-day level. And so we're able to grasp the demand going forward very directly. And the team is making various investments. And we also look at other areas where we can complement that team and make the investment decision. Sota Endo: Are there any questions from the room, from the floor? If you do, please raise your hand. It seems that no further questions from the floor. So we would like to ask those of you participating online, if you have any questions. First of all, Ueno-san from Daiwa Securities. Makoto Ueno: This is Ueno from Daiwa Securities. Can you hear my voice? Sota Endo: Yes, we can hear you. Makoto Ueno: The previous person asked the same question regarding Page 7, excluding the 2 projects that are unprofitable, which shows the operating profit trend, that was JPY 3 billion. But with that, there's still a JPY 2.5 billion decline in profit. But if you look more in detail on Page 6, net sales, the Public & Social Infrastructure, JPY 22.6 billion increase in net sales. So you are securing the increase in sales, but you have JPY 3 billion of a loss. But in other areas, there's about a JPY 7.4 billion of a decline. What is the content of that remaining JPY 7.4 billion? Yutaka Sasaki: Public and Social Infrastructure up to the operating profit, I would like to break down the declining factors. About JPY 3 billion of unprofitable projects exist. In addition to that, on a gross profit basis, about JPY 3 billion is added. So gross profit in total JPY 6 billion, we experienced a JPY 6 billion decline. As you mentioned, the sales increased, but -- and there's about 15% growth rate. However, excluding unprofitable projects, it's still JPY 3 billion decline in profit. Last year, there was a onetime large-scale, very profitable projects. So that not existing this fiscal year had the largest -- that was the largest factor. And SG&A, there's an increase of about JPY 4 billion. And that also was a factor to press down the operating profit. So the JPY 4 billion in gross profit decline and SG&A increasing by JPY 4 billion and JPY 10 billion, so a total of JPY 10 billion decline. So for SG&A activities and also the orders that are -- demand is strong, we have to hire the engineers and including the agent fees that is attached to hiring the people is also included in SG&A as well. But in a full year perspective, we would like to control the areas so that we'll be able to achieve the target. Makoto Ueno: So I just want to confirm the breakdown. So profitability is JPY 3 billion, and there's additional JPY 3 billion of gross profit because no large project that you've seen last year. And then there's SG&A and that total of JPY 10 billion, yes. So the impact of this to the second half. So the gross profit, the large project not being there is okay. But this JPY 4 billion SG&A, you probably can recover that through sales increase. So if you just compare second half and second half, there's no remaining, right? Yutaka Sasaki: For the SG&A, it depends on the order situation. But in the full year, we are aiming to achieve the full year target. Sorry to be very detailed. Makoto Ueno: But just looking at the enterprise, the [ BOJ ] short-term outlook and looking at the other companies' performance, the demand is extremely strong. But for you, the enterprise net sales is that from JPY 279 billion to JPY 289 billion, a 1.4% increase. So is it just that second half is lower or you're strong at the social financial -- social infrastructure financial and you're strong. So maybe you don't expect that much growth in enterprise, but why is this growth rate so low? What is the factor behind it? Yutaka Sasaki: The one thing is maybe -- apologies for lacking the explanation. the payment where this agent to collect the payment, their rate has changed. And there's about JPY 17 billion of that impact. And excluding this -- if you reverse that JPY 17 billion, there will be increase of about JPY 10 billion in revenue -- JPY 20 billion. And towards manufacturing businesses, the demand is strong. So as a momentum, we are placed in a good -- very good situation. So the new -- the net sales from the gross, we changed to net. Makoto Ueno: So include that the enterprise is having a strong growth. Is this going to continue into the second half? Yutaka Sasaki: Yes, we do expect it to continue. Makoto Ueno: Okay. And also regarding the data center question towards holding companies and towards your companies, there's repeating questions regarding data center. Maybe this is a different angle way of looking at it. The AI, which is strong globally, honestly speaking, I think this area has risks. And honestly, you have to have a several trillion yen fundraising capability or else NVIDIA is not even going to look at you. So regarding this AI area, you're not focusing that much and the data center that's going to grow as a real business, you are focusing on the AI investment for the data centers. Is that a wrong way of looking at it? Or are you going to invest in AI as well? Yutaka Sasaki: We have an alliance with OpenAI as well. But the public giant language model, we have no intention of creating something like that. So NVIDIA's GPU buying thousands of them and us creating a large-scale learning model, we have no intention of doing that as well. But on the other hand, the private AI like Tsuzumi or Mistral AI, relatively small-sized model we think that enterprise customers will utilize that more than now, and we call it private AI. So in Tsuzumi 2, with -- it only requires 1 GPU. So as NTT already made the announcement, especially LLM that's strong in Japanese and finance and medical areas, it's already learning. And if the customers add a learning area, then the learning speed is extremely fast. So towards those customers that are in need for that, we rent out our data center space and also combine that with the public AI and to have our customers utilize AI in this combined manner. And we believe that this can be rolled out globally as well. So conducting business with the hyperscalers. But in the private AI area, the government customers or manufacturing customers or finance industry customers, we would like to provide our service to them as well. So in that sense, regarding AI, including the infrastructure, we would like to become in a way that we'll be able to provide the service in a full stack manner. Makoto Ueno: That part, I highly evaluate that like IBM and Oracle being very strong is that instead of trying to develop a huge AI, but at the customer side, meeting the customer demand is enabling you more to make money. But the AI solution like AI agent, something that will gain sales, not the data center, but AI, you're mentioning Tsuzumi. But application-wise, are you already prepared or around what timing are you going to be able to record net sales? Yutaka Sasaki: Well, the so-called AI agent, we are paying attention to that. And up to now, we have conducted many POC and there are actual orders that we have received in this area. And we believe that there will be a business growth in this area moving forward. We are sure about that. That is why even within the hand that we wrote it, we are going to establish a new company making investments in Silicon Valley. For AI agent, as several offerings, there are something that will made into a certain template, but we would like to have a thorough analysis of the customer and making and developing an AI agent tailored to our customers. So the AI services or computing services that are tailored to the customer needs will be something that we are going to provide. So it's not that simply one can -- we are going to purchase packages and resell that, a lot of them. But instead of that, we are going to be on the customer side and provide the service that is required. And as AI evolved, we will update our services also. And AI in times will actually not tell the truth or lie to you. So in order to provide a thorough service, a managed service of our services that are provided is going to become important. So we would like to establish a thorough business model to provide our services. Makoto Ueno: At Page 17, OpenAI-related business, JPY 100 billion. So in agent-related separate from them in 2027, JPY 300 billion is what we aim for agent management. I believe that you were saying JPY 100 billion for overseas. Is that true? Yutaka Sasaki: Yes. Sota Endo: That concludes the question from Ueno. Next question, please? We have passed the planned time, but we were also late in starting this session. So if there is a question, we'll be happy to answer additional questions. And if you like to ask another question for those of you who have already asked a question, we are welcoming that as well. No questions? We -- either from the floor or from the remote participants? Well, we see no hands. And this concludes the NTT DATA Group's earnings presentation. Thank you very much.
Operator: Ladies and gentlemen, welcome to the Schaeffler Group Q3 2025 Earnings Conference Call. I'm Sergen, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Heiko Eber, Head of Investor Relations. Please go ahead. Heiko Eber: Thank you, operator. Ladies and gentlemen, I'm very happy to welcome you to today's call on the financial results Q3 2025. The press release, the following presentation and our interim statement has been published today at 8 a.m. CET on our Investor Relations web page. And for sure, after the meeting, we will provide the recording and the transcript of this webcast. As a quick reminder, please note that all figures for 2024 are pro forma figures unless they are marked separately as reported figures, and the mentioned pro forma figures 2024 and related information are unaudited. As always, Klaus Rosenfeld, our CEO; and Christophe Hannequin, our CFO, have joined the conference call to guide you through the key information in our presentation. And, of course, afterwards, both gentlemen will be available for our Q&A. Now, without further ado, let me hand over to our CEO. Klaus Rosenfeld: Thank you, Heiko. Ladies and gentlemen, welcome to our Q3 call. You all have the presentation in front of you that we distributed this morning. You also saw the 3 press releases we published. I will start immediately on Page #4 with the summary. Good performance in a soft market environment is the headline. You see sales growth of plus 1.3% in Q3. I will go into a little bit more detail there. Gross margin at 20.3%. Please read the footnote. This is the gross margin excluding an extraordinary one-off loss of EUR 100 million due to the depreciation of SAP licenses. It's a comparable number to the 19.1% in Q3 previous year. So you see a quarter-over-quarter improvement there. EBIT margin at 4.5%, nearly a percentage point better than Q3 2024, also sequentially, clearly pointing in the right direction. Positive development and free cash flow, EUR 175 million in Q3, really points also in the right direction, also led us to upgrade our free cash flow guidance, as you saw in the last days. And then EPS is negative, in particular, due to the one-off restructuring, but also due to the depreciation of SAP licenses on an adjusted basis, it is positive. Now with this, let me quickly go through the business performance. You see on Page 6 the usual breakdown of where is the growth coming from. And we can basically say that except for the flattish development in Powertrain & Chassis overall, all divisions and regions contributed here. Europe is a little weaker than we would like to see it with minus 1.6%, also driven by Powertrain & Chassis. You see some of the unusual developments. Strong growth in Asia/Pacific is the same trend that we explained last time. It has to do with the shift of an important project from China to South Korea. And Americas with 18.4% in E-Mobility is new contracts that are now starting to perform. Vehicle Lifetime Solutions was 2.3%, weaker than in the previous quarters. But we always said this 2-digit growth is not going to continue. So with strong growth in Americas, also in the 2 other regions, Europe here, again, is the reason why this was not as strong as before. And Bearings & Industrials with 2.2%, I think, is in line with market. So a trend from our point of view that should not surprise anyone with 1.3%. At least the Q3 was a growth quarter despite all this turbulent environment. Page 7 then gives you more detail in our OEM business, auto powertrain, that's what we promised to give you, the breakdown by powertrain type both for the outperformance number and also for order intake and book-to-bill. And what you see is a continuation of the trend that we showed you for the first 6 months. 9 months, plus 13% outperformance in BEV shows that we are well on track there. And HEV is, for these 9 months, still below market. The same with ICE. The number has come down a little bit. Key for going forward is not what we are pointing today, but the order intake and the book-to-bill, and there you see that BEV and HEV are more or less on the same level with 1.8x. Let me say here, as we outlined also during our Capital Markets Day, we have a significant order book. Our key priority is to deliver that order book. We appreciate new projects, but only if they make sense and also drive our profitability. E-Mobility, next page, Page 8. As you probably expected, sales growth on the positive side, 4.7%, clearly driven by Americas and Asia/Pacific. Order intake in that quarter was EUR 1.2 billion, slightly below the second quarter, but still on track. That also leads to a book-to-bill in Q3 of 0.9. What really counts here is, from my point of view, the full 9 months. What is on the positive side here is the continuous improvement of the gross profit margin, plus 3 percentage points in Q3. And this also excludes the impact from the SAP licenses that for E-Mobility would have been EUR 24 million. You see 2 examples for new products -- for new projects. And with the development that we see here, we feel good that we are on track to deliver what we promised for the midterm. Powertrain & Chassis, slight sales decline. Gross margin continues to be strong and further improvement, 1.2 percentage points. Good order intake, but clearly with a book-to-bill that is below 1. As we always said, you need to, at the end of the day look at these 2 divisions somehow together, in particular when you think about the Powertrain business. And our idea that these hedges each other is clearly paying off. Vehicle Lifetime Solutions, I already said it, lower growth compared to previous quarters, in line with market and gross profit margin further improving. We always said it's not going to grow every quarter by 10%. But I'm really proud to say that our gross profit margin stays at a very high and satisfactory level. Bearings & Industrial Solutions, also here, we decided to improve our guidance a bit. The 5% to 7% was after a further improved third quarter. It's little bit outdated, so we moved it up to 6% to 8%. And we feel good that the business is further improving due to the various self-help measures, but also due to growth, in particular, in aerospace, but also in construction, agriculture, machinery, 2-wheelers and the new emerging area of medical equipment. Let's wait for the fourth quarter and see where we end up there. Capital allocation, Page #12. We continue our course here. Capital allocation schemes are known to you. We are very disciplined here. You see the reinvestment rate at 0.5x for the whole year -- for the whole business, excuse me, and that clearly means we are releasing capital at the moment. That is important to bring the SVA number back on track. We are now slightly below previous quarter with EUR 12.3 billion. And we will manage capital tightly. Let me also say this does not mean that we have restricted any type of growth because there's enough cash flow available to fund the projects that we're seeing. But as you know, we are restricted and want to bring SVA back to where it should be. Last page from my side before I hand over to Christophe, a short follow-up on the top 3 priorities that I explained during the Capital Markets Day. First is delivery of our order book. Again, we have seen a prominent SOP of electric drive products for a Chinese OEM. Again, an interesting player who is a pure play on the new energy vehicles. Several other SOPs, one in Europe for a premium European OEM and another one, again, for a European OEM and a Chinese OEM in chassis, rear wheel steering. So happy to say that the delivery of the order book is on track. The size is big and challenging, but we are learning. We are moving forward. And we are seeing good results from these 3 examples. Synergies is also on track. You'll remember what we said in the Capital Markets Day. We have more or less finalized our program that we call our Program Forward. Here is more detail on the plant in Steinhagen that was already in the numbers that we showed you. We will finish production in the year 2026, the portfolio. We consolidated into another plant, headcount in production is outlined, and at the moment, negotiated with workers' council. And I can tell you that this cooperation with employee representatives has always been an asset. It's painful for everybody, but it's the right track to -- it's the right step to streamline in particular our German operations. And last but not least, you saw the press release. We promised to streamline the business portfolio and reallocate capital. We said during the Capital Markets Day, there are 10 portfolio elements in the pipeline. This is now a first example. We have yesterday or this morning closed the contract with a Chinese specialist in turbocharger technology that requires our turbocharger business in China. It's a business that we inherited through Vitesco. It made EUR 100 million and is at the moment in a structural decline. So it makes a lot of sense to get rid of this. The agreement is signed. Please understand we're not disclosing more details, but it's a proof point of our promise to streamline. With that, I hand over to Christophe and -- for the financial performance. Christophe Hannequin: Thank you, Klaus. Good morning, everyone. After looking at the division look, let's take a step back and look at a single group level. Starting with sales. We delivered a strong quarter of growth once you adjust for foreign exchange. That growth, I'm happy to report, is profitable, as you can see on the gross profit evolution on the right side, EUR 119 million worth of volume effect. That's further proof point to the roadmap that we drew during the CMD. If you look at that EUR 119 million, close to half of it is driven by E-Mob. So we are growing, and we are growing profitably. The rest comes from the other divisions. We are also improving our cost structure or operational performance. That's the EUR 111 million that you see there. E-Mobility, again, displaying some improvements, about EUR 20 million worth of improvement linked with E-Mob. The bulk of the improvement actually comes from Bearings & Industrial, close to EUR 90 million quarter-over-quarter, demonstrating the measures, both for structural and in terms of operational performance, are paying off and are improving our gross profit and thereby our bottom line. A little bit of what I would call background noise on the next column with a mixture of inventory valuation, customer claims and a little bit of a restatement issued to be 100% transparent in the EUR 109 million. Foreign exchange, EUR 45 million, reflects the evolution year-over-year and our exposure to the different markets. All in all, from 19.1% to 20.3%. Again, this is corrected to neutralize the SAP license and not pollute the reading. If I go to the bottom line and now look at EBIT, this is even clearer, 1 full point worth of improvement from 3.5% to 4.5% of EBIT BSI year-over-year. You find again on the right side the strong gross profit improvement, excluding foreign exchange, the very controlled approach to R&D, some negative impact on SG&A, which is mostly driven by integration impacts. And foreign exchange, you can actually see here that the foreign exchange impact is lower at EBIT level than it is at gross profit level, thereby showing that the group has a little bit of an internal hedge even though the impact is still negative. And again, this drives a strong quarter at 4.5%. If we spend a little bit of time on each division, E-Mobility, as I mentioned, growing by almost 5%, improving its profitability by over 2 points, growing across all divisions and doing so in many regions, double digit in North America and some strong growth as well in China. So, again, the roadmap that we have announced quarter after quarter, we are delivering on it. On the PTC side, comment is one that you will hear, I guess, quite often from me in the next few quarters, it's all about balancing some slightly negative impact on the top line. There we see a slight decline. It was expected. It's linked to the phaseout business. But it is being balanced by an absolute laser-like focus on cost structure and restructuring to ensure that we protect margins and that we deliver the bottom line. In this quarter, the unit actually does more than that. And the improvement is over 1 point worth of EBIT year-over-year. Also, interesting to see that some business divisions are still in positive territories, so Engine & Transmission Systems at 3.4%. And when you look at the details, this is actually also driven by China, which is encouraging in terms of balancing our exposure. Vehicle Lifetime Solution, on the next slide, growing, still growing, slightly less than what you had seen in the past, but the environment is a little bit different. Nevertheless, delivering solid 2.3% worth of growth, 1.3 points worth of improvement in terms EBIT. Again, the interesting part there is where is the growth happening. It's happening outside of the traditional geographies for VLS, so strong growth in the Americas, which is still very much a conquest territory for us. And it's also happening if I look at it in terms of business division outside of the core Repair & Maintenance Solutions business division, but in the Specialty business in the Platform business. So resistance in, I guess, the home turf for VLS while the unit growth in terms of geography or in terms of product offering to the customer. Pricing, also on the favorable side, driving some of the EBIT improvement quarter-over-quarter -- year-over-year. Bearings & Industrial, if you go back to my initial comment, some growth, very -- double-digit growth in our Aerospace Bearings, plus 20%. Even more interesting, in my mind, positive growth in Automotive Bearings in a complicated automotive context. The division is still growing in that sector by 2%. Combining this growth with the very, very strong work done in terms of, a, restructuring, and b, focus on operational performance delivers an improvement of 1.4 points in terms of EBIT, almost at 8%. You can see the 7.9% for Q3 2025. This all translates into positive evolution of our free cash flow generation year-over-year, so we see almost a little bit more than EUR 0.5 billion worth of improvement from Q3 '24 to Q3 '25. I draw your attention on the bridge on the right side in echo to what Klaus said before to the EUR 244 million linked with CapEx, which is essentially us managing our CapEx spending to match it as close as possible to the need and the actual ramp-up of the different programs that are going through SOP and trying not to be too far ahead of the curve, not behind either in order not to put our customers at risk. So some really, really fine steering there in terms of pacing the spending and then also some steering in terms of focusing the spending where we create value. On what would be the last slide for me, our usual slide on debt profile, you can see the leverage ratio peaking in 2025 during Q2 at 2.4, now slightly improving in 2025. On the right side, our usual maturity profile, you can see that the 2025 topic is taken care of at this point through the bond issue earlier this year. Also, happy to report that the RCF facilities have been all extended as per our contracts all the way to the end of 2030, which is an interesting check in the box to have. When you look at 2026 and 2027, you can see that this is all quite manageable given the current conditions of the bond markets either this year or early next year. At this point, I will hand back over to Klaus to conclude on the guidance. Klaus Rosenfeld: Christophe, thank you very much. Ladies and gentlemen, I will be brief. You've seen that page. Just to repeat the basic logic, we increased guidance on free cash flow and also for Bearings & Industrial Solutions in those numbers. Let me finish with one more page on the other announcement we made today next to our numbers and also the little transaction in China selling turbocharger business. We announced this morning a cooperation agreement with NEURA. NEURA is, as most of you probably have heard, a leading German high-tech company active in the humanoid space. They don't -- not only do humanoids but other things as well. And we have agreed a partnership with them that will allow us to supply innovative actuation technology to them, which are, as you all know, key components for humanoid robots. NEURA and their founder, David Reger, are well known to the capital markets. It's the European player from our point of view. We're very proud of this -- for this agreement. Second, that's already digested, I think, last week, October 29, you heard about the U.K.-based robotics innovation company called Humanoid, also something where we are active. We completed a proof-of-concept phase with them with what is called the pre-alpha robot, also a specific design. And we are now moving into a second phase. This is just to show you 2 examples that will help us to grow into that new ecosystem. We will continue to report on this. It's clearly an attractive growth opportunity where Schaeffler is very well positioned to conquer a significant space as a technology provider and a supplier of choice. I'll leave it here. The last page is then the financial calendar. We are going on road show, separating West Coast and East Coast next week. And then there are the usual conferences for year-end. We also look forward to seeing some of you then in the new year in Frankfurt, New York and elsewhere. March 3 is our earnings release, and I am confident that we will bring the year to a successful close despite all the challenges that we have around us. With that, back to you, Heiko. Heiko Eber: Thank you. So operator, we would be ready for the first question, please. Operator: [Operator Instructions] And we have the first question coming from Horst Schneider from Bank of America. Horst Schneider: My questions, I would ask them one by one, please. The first one relates to this ongoing underperformance in automotive, which is driven by the phaseout of some of the Vitesco business. Can you maybe say how would the business have grown without these phaseout effects? And how long these phaseout effects still continue? So just try to get a feeling how long this drags down basically the outperformance. Klaus Rosenfeld: Horst, thank you for the question. I'm not 100% sure what you're referring to when you say outperformance. I mean, E-Mobility grew by 4.7%. Powertrain & Chassis is, as I showed on Page 6, more flattish. Yes, we are -- we were selling business, as I said, but that's a new thing. Maybe you can repeat or give a little bit more color on... Horst Schneider: Sorry, Klaus, I'm referring to Slide 7, which is a year-to-date perspective, to be honest. Maybe the effect is already over. Yes. Klaus Rosenfeld: Okay. You're saying the -- okay, now I understand it. It's 7, where you're saying ICE is below where market growth is. Well, I mean this is, from my point of view, a situation that clearly comes from a phaseout of certain things. I mean, this is a market growth for the whole ICE powertrain portfolio, and it's a function of how present are you with what kind of customer. As you know, we are strong in dampener technology. We are strong in the sort of old classical Schaeffler technologies, but there's also business here from Vitesco that drives us to some extent, but I don't have more detail at the moment. Horst Schneider: Yes. Okay. No worries. The next question refers more short term. Maybe if you can shed some light on the outlook for the fourth quarter. I know you have got your full year guidance in place, and that looks also fine. I just remember Q4 can be sometimes a tricky quarter, right, because unforeseen things can happen, as we experienced last year in industrial. So maybe it's also difficult for you to answer this question. But what trends do you see now in the fourth quarter? So I would assume that E-Mobility gross margin because the reimbursements come in and the highest share of that happens in Q4. And then Powertrain & Chassis, I was surprised about the good margin in third quarter. Is that something that continues also in the fourth quarter in that trend? And then, am I right to assume that industrial usually is a weak quarter in quarter 4? Klaus Rosenfeld: Well, I would phrase it like this. Q4 is typically a weaker quarter than the previous quarters because December, in particular, also is not as vibrant than before. Your description for E-Mobility, I think, is pretty spot on. I think that they will further grow and further improve because that's the trend. PTC, I just spoke with Matthias this morning in our preparation, and he said the call-offs are stable. That's a positive sign. He also clearly said that China is developing better than expected, what is also something on the positive. And when you look at tariffs, I think it's also fair to assume -- you're mentioning reimbursements on the E-Mobility side, classical situation, more Vitesco driven, but there is a synchronization benefit on the tariff side. We always said this, that will also support a little bit. So I think PTC, E-Mob will also benefit a little bit from this. Yes, Industrial is clearly a little bit of a question mark. If we wouldn't be confident that this quarter continues in the right direction, we wouldn't have raised guidance. The 6% to 8% is not a big move upwards, but what we see so far is with all the headwinds that are existing in that business, looking like a solid fourth quarter, let's put it this way. And in aftermarket, aftermarket is clearly something where I would expect that we don't get back to 2-digit growth numbers. But also there, the underlying fundamentals are continuing strong. So let's see what October brings and then we know more, but I would be cautiously optimistic that the fourth quarter is okay. Horst Schneider: Okay. That's great. The last one that I have is typically... Klaus Rosenfeld: For next year and all of that, that's clearly something that there are some unknowns and there are some uncertainties. Horst Schneider: That's great. The last question that I would have refers to E-Mobility because Valeo talked about negotiations with OEMs to get reimbursement on some contracts where the volume expectations have not been met. Do you see the same? Could that be a driver going forward that we have not yet in our forecast? Klaus Rosenfeld: Well, for sure. I mean, if you ask contracts where volume assumptions are massively under cut, then you seek compensation. That's a normal part of our business. But yes, that's -- there's nothing that we do not factor in. That's normal course of business from my point of view. But you all know that there is -- in the U.S., things have changed more dramatically because of the -- also the regulatory environment and the decisions that President Trump has taken. But in the other countries, that's not the case. But for the U.S., you clearly have a little bit of a shift in terms of how important is e-mobility going forward. Operator: The next question comes from Vanessa Jeffriess from Jefferies. Vanessa Jeffriess: Just wondering if you could please speak a bit more about the E-Mobility book-to-bill. I know you said you look on a 9-month basis. But with those customer postponements, are you seeing any exacerbation in those over the last few weeks? Klaus Rosenfeld: This was very difficult to hear. Can you -- madam, can you please repeat this? I don't know where this is coming from, but if you could speak a little slower, that would be good for us, excuse me. Vanessa Jeffriess: Sorry. Just with the E-Mobility book-to-bill and the customer postponements, I was wondering if you're seeing more postponements over the last couple of weeks, if that's exacerbating throughout the quarter. Klaus Rosenfeld: No. I think we have seen what, in particular, the big U.S. customers did, but there is no increasing trend of people giving back business. That's not the case. But any adjustments are part of our normal course of business, but I wouldn't. Christophe, maybe you have more insight. I don't know anything that points to a bigger trend towards the year-end, where we lose contracts or where volume goes back. Christophe Hannequin: Usually, our business tells us that the customer decisions are not always synced up with our communication deadline. So to have some volatility quarter-over-quarter during the year, it's not unusual. But as Klaus said, no underlying strong trend that we can detect on this. Vanessa Jeffriess: Okay. And then just on B&IS, just to be a bit more specific on what you said before. I know you said there might be some headwinds in the fourth quarter, but it seems in your new 6% to 8% range, it would be pretty difficult for you to get down to 6%. So I was just wondering your thinking around that and if there's anything specific in terms of headwinds. Klaus Rosenfeld: I would call it a cautious approach. We have -- you have seen that the last 2 quarters were all pointing in the right direction and above 7%. You saw what happened in Q4 2024. So we are certainly positive, but to increase it even further would have not been, from my point of view, responsible. Operator: The next question comes from Ross MacDonald from Citi. Ross MacDonald: Klaus and Christophe, it's Ross from Citi. My first question, Klaus, you mentioned Nexperia briefly in answering Horst's question. Can you maybe summarize where we stand on that issue as of today? I'm aware there's been some news flow over the weekend around potential exceptions. How do you see that situation playing out from here? Is it effectively resolved from your vantage point? Klaus Rosenfeld: It's definitely not resolved yet. But I can say for Schaeffler, so far, we have been -- not really been forced to stop any customer. I can praise the agility of our teams here, the risk management work when this came in. And we're clearly benefiting here from the strong experience and the insight that the Vitesco colleagues brought here to the table. Again, we have so far managed through this, knock on wood. It's different than the crisis that we saw some years ago because it is driven by this specific and certainly unusual Nexperia situation. It's, like before, a little bit of a race for where do you get a second source, how much do you have as inventory, which customer is asking for what. You need clear rules internally how you allocate what you have, and you need to be very quick to open up new purchasing channels. So far, that has worked well. But again, we are managing through that shortage like any other supplier as well. And I do hope that we get out of this with -- again, with not too much trouble. So far, that's okay. But we manage it on a day-by-day, week-by-week basis. But you need to look at that a little bit in a broader context. They agreed that certain export control restrictions will be relaxed. But the Nexperia situation is a little bit unusual. So you can't just simply apply this on Nexperia here because you have the insolvency situation in the Netherlands, you have the Chinese reaction to this. That's a specific situation that we need to handle separately. The agreement between the 2 presidents is clearly pointing in the right direction, and hope -- our hope is that this relaxes other situations as well. Ross MacDonald: Very clear. My next question is -- 2 questions really. But first one on the humanoid, and obviously, very nice to see continued momentum for that business. A lot of investors are asking around the volume implications, let's say, for '26, '27 on the back of these partnerships. I'm not sure if you can give any soft guidance on what we should expect in terms of growth for that start-up from here. Klaus Rosenfeld: Ross, it's one of the most relevant questions in that ecosystem, how many humanoids will be produced in 2030 or 2035. You have different projections. And again, we are a supplier in this situation. We think about this as a business where we can show our industrialization strengths. So the number of the volume per robot -- sorry, the volume of robots is critical here, as critical as our content per robot. Don't forget there are different types of robots. This is not only one design, but there are several designs. When you talk to different players, and take David Reger, for example, who is clearly one of the most prominent ones, he normally says 5 million. That's a larger number than what we are expecting at the moment, but it's good to be cautious here. But it's also good to know what you do when this really takes off quicker. But we are at the beginning. It's not that we can show you already numerous volume contracts. But the interest in this and also the interest in Schaeffler as one prominent player who is able to scale is definitely increasing, and that's shown by this contract. But I'm not in a position to give you an accurate prediction of what will come. That's the nature of the game. But what I can say is we will and want to be prepared for the next year and the year thereafter. I think we'll see more clearly in the next 12 to 24 months. I can also say we are looking at this from the 3 main regions, both U.S., China and NEURA is the main -- the top European player. Christophe and myself will be in China end of November also to look at our humanoid factory that we're building there, not to produce humanoids, but to deploy humanoids to see how they can help us in production. So this whole ecosystem is emerging. It's a very interesting play for us, and we will stay on top of the development. But I'm not in the position to give you now an accurate number how much robots you will see in 2030. We are cautious, but are prepared for a steeper ramp-up. Ross MacDonald: I actually have 2 more questions, but I promise to keep these very brief. The first one, actually from an investor, just thinking about the U.S. business for Vehicle Lifetime Solutions, we've seen a bankruptcy in that space with First Brands recently. Do you see that as an opportunity for Schaeffler to potentially gain some market share in the aftermarket tactically? And then my second question for Christophe on the free cash flow, just a housekeeping question, there is a significant benefit in the third quarter from the Other bucket, a positive EUR 91 million contribution. Could you maybe just give us some breakdown of what's driving that? How much is one-off in nature versus potentially carrying forward into the coming quarters? Klaus Rosenfeld: I will be brief on the first one. I mean, First Brand is an unfortunate situation, but it doesn't really affect us. I mean, your question was more on M&A type of growth, I would assume. The focus here is clearly on organic growth. Jens is at the moment in Las Vegas for the AAPEX show, a significant potential, and as we said, broadening our spectrum. You saw, I didn't comment on this, in the deck, also the NOx sensor. That's a great example for portfolio extension and tackling the truck and bus part. So I would not think about our growth predominantly being external growth, but internal growth. That doesn't mean that we are not looking at opportunities if they are there, but we will be very careful. Christophe Hannequin: On the cash side, I wish there was an easy answer to this one. It is a very long list of plus and minuses centering around restructuring from one end, incentive payments, payroll and taxes. It's leasing liabilities. Again, I struggle to give you a summary answer, happy to get into details offline after if you wish to, but there's no real one topic that we would point to. If we had to pick one, it maybe around the pension side. But even that, it's only tackling one part of your answer -- of your question. Ross MacDonald: Okay. Christophe, I mean, maybe it would be interesting just to understand if potentially on the restructuring costs you've sort of guided us to whether those are coming in below expectations, and therefore, you're able to write back some of that free cash flow, if that's an element of this or whether it's really just a big, commingled list of pluses and minuses, as you said. Christophe Hannequin: No, we're not signaling restructuring costs lower than expected. What you do have is some timing issues quarter-over-quarter. I mean, restructuring cash flows, it's as much of an art as it is a science. So we do have some movements quarter-over-quarter from 1 year into another potentially, but no signal so far that there would be less cash outflows related to restructuring. Operator: The next question comes from Michael Punzet from DZ Bank. Michael Punzet: I have 1 question on your special items. Maybe you can explain in a bit more detail what you have booked in Q3, especially with regard to the impairments? And maybe you can give us any kind of guidance what we should expect for the full year? Klaus Rosenfeld: I think it's on the SAP. Christophe Hannequin: The main one in Q3, again, it's the fact that we are moving from an on-premise solution to SAP to a cloud-based solution. So we're not able to apply the same accounting treatment that we would have in the past. So you have EUR 204 million being written off for that topic alone that's flowing through the adjustment line. The other ones are the usual ones that we have had from the previous quarters related to the merger of the 2 companies and the restructuring that come with it. The big ticket item this month for this quarter, it's SAP. Klaus Rosenfeld: And it's driven by the fact that we're moving into the cloud and that we have to give up the utilization rates that we were assuming so far. That triggers this. It's a little bit of an awkward situation that was heavily discussed with auditors. But it's not a classical impairment in a sense that you have an asset that doesn't function anymore, that doesn't produce value. We are changing here the way we are treating it because we are moving from on-premise what we had so far into the cloud. Christophe Hannequin: This was heavily discussed with our auditors. We are not the only group out there that's facing the situation. I'll just say that the accounting standard there is a very conservative approach to the topic. Michael Punzet: Okay. And what should we expect for Q4 or the full year in the overall figures for the special items or one-offs? Christophe Hannequin: For the SAP, there will be a little bit of it, just to close that topic, impacting October. But we are talking single or -- single-digit or low double-digit amount that's done for the rest of the year. For the other topics, again, the usual suspects that you find in every quarter since the merger and the announcement of restructuring programs. Operator: [Operator Instructions] We have a follow-up question coming from Horst Schneider from Bank of America. Horst Schneider: I have got follow-up questions. The first one is related to Defense business. We saw this week that the first German auto supplier says he wants to get into drone production. I just want to get an update where you stand on that, if that could be something for you as well. And maybe you can talk about the outlook of your Defense business maybe in that context. The second one is a follow-up on the Humanoid business. I know you cannot share a lot of details, but could you maybe say, given the order intake that you got so far, where you see the main business potential for you? Is it more in the U.S.? Or is it more in China? Or it's all over the world and you cannot say? Klaus Rosenfeld: Let me tackle -- take the last one. As I said, we want to play in all the 3 regions that you mentioned. There is a -- the jury is out there who comes with the first volume contract, and you clearly need to define what that is. It's, at the moment, not clear what's happening there. We see the U.S. there with the prominent names probably as the leaders because there is more concentrated on one prominent company. While in China, there are many, many players at the moment, where it's a little bit more difficult to distinguish who are the ones that we maybe should bank on. NEURA is, I think, the most prominent player here. At the end of the day, of course, this is all depending on the end customer demand. And I can only say this Amazon announcement that was also well received, we need more of these kinds of players to articulate their needs. And that will then flow through the Humanoid OEM and also through the supply chain. I personally think that the U.S. will drive that first phase, and we'll then see significant competition between U.S. and China. When you go to the 5-year plan, it's obvious that the industrial automation in China is key to the next 5 years in China. There is massive support there. But on the short term, my view is that we will -- we need to watch out for what's happening in the U.S. They will drive it. Yesterday, when David was here with us, also in the Board meeting, he gave us a little bit more insight. And it looks that the next 1 or 2 years will be decisive on who is going to be ahead. Maybe it's a little bit a statement that is more diplomatic, but we need to see how it unfolds. In terms of Defense, let me quickly put that in perspective. We have said at the Capital Markets Day, Phase 1, that the basic decision that we want to play in defense or play more in defense is taken also with our shareholders from the family side. We are now in Phase 2. Phase 2 has 3 main deliverables. The one is a more articulated product, sales and also industrialization strategy. Without saying too much detail, we are today in a situation where we are looking at the key opportunities for us, for sure. Flying objects, let me call it like this, are super interesting because there is scale in that area and there is a product that is needed in particular when you think about high-performing electric motors. That's also where the fact that we are automotive and aerospace helps us. There is opportunity in everything that are vehicles for us. There is opportunity also in some of the high energy weapons. There's also opportunity when you think about spare parts and repair solutions. So we're looking at focused areas with dedicated customers. We have a lot of calls, a lot of demand, a lot of people that are coming, can you help us with your supply chain experience, also from the start-up side. But we are, at the moment, still in that selection phase. The second phase will last probably until Q1 2026. What is key then if you want to really turn this into a solid business? You need a structure. You need a legal entity. You need to have the right certification, qualification, in particular, if you want to play at scale. And that's a second key element that we are working on. So all good in that second phase. More to come when we are finished with this phase and have decided where do we really want to play in terms of products and application. Operator: There are no more questions at this time. I would now like to turn the conference back over to Heiko Eber for any closing remarks. Heiko Eber: Thank you very much. So with this, we would like to close today's call. Thanks to our speakers. Thanks to everyone dialing in for your questions, your interest. And, of course, thanks to the team for the preparation. As always, if there are additional questions, please reach out to our IR team. And I would already like to draw your attention and block your calendars for January for the CES. The formal invitation to visit us at our booths in Las Vegas will be sent out shortly. I guess you have it on the radar anyhow. Thank you very much. Have a good rest of the day, and talk to you soon. Klaus Rosenfeld: Bye-bye. Thanks, everyone. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Christina Glenn: Good morning, and welcome to the presentation of Aker's Third Quarter Results for 2025. My name is Christina Schartum, and I'm the Head of Communications at Aker. I am joined in the studio today by our President and CEO, Oyvind Eriksen, who will walk you through the key highlights and recent developments across the portfolio. Our CFO, Svein Oskar Stoknes, will then take you through the financial results in more detail. After the presentation, we'll open up for questions. You're welcome to submit your questions at any time using the chat function. And with that, I'll hand it over to Oyvind. Øyvind Eriksen: Thank you, Christina, and good morning, everyone. Since launching a more focused Aker at the start of 2024, we have taken clear steps to simplify the portfolio, concentrate on fewer larger companies and invest in new growth areas. This quarter shows that the strategy is bearing fruit. Net asset value increased to NOK 67.5 billion, NOK 909 per share, and our share price rose nearly 20%, clearly outperforming both the Oslo Stock Exchange Benchmark Index and the oil price. We are seeing strong contributions from both our core energy business and our newer platforms: AI infrastructure, industrial software and real estate. The portfolio is becoming more balanced and less tied to commodity cycles. That's an important shift. Year-to-date, total shareholder return is nearly 50%, including dividends. We have increased the number of companies paying upstream dividends and received NOK 5 billion so far this year. In line with our dividend policy, the Board has approved a second dividend of NOK 26.5 per share, bringing the total to NOK 53 per share or NOK 4 billion in total. The strong performance is due to a number of value-accretive developments in our portfolio like the launch of Aker Nscale 50-50 joint venture for AI factory developments in the Nordics; our subscription of a 9.3% stake in Nscale with earn-out that can bring our shareholding up to 12.2%; the expansion of our real estate platform by acquiring 7.48% of the shares in Sveafastigheter; Aker BP delivering another solid quarter, raising its full year production guidance and making the Omega Alpha Discovery, one of Norway's largest in a decade; Cognite continuing its strong commercial development with Q3 SaaS bookings growing 425% year-over-year across multiple industries and geographies; and lastly, the Philly Shipyard delisting being completed. In short, our strategy is working. We are building more focused, more resilient Aker and creating long-term value for shareholders. Let me add a bit more context on how we're putting our strategy into action. We have made steady progress in simplifying the portfolio and building new platforms for growth in shareholder value and cash dividends. We have crystallized value through several transactions and exited noncore holdings. This allows us to focus our time and capital on a smaller number of companies with strong potential for returns. At the same time, we have invested in areas where we see long-term demand and attractive cash flows, particularly AI infrastructure and real estate. I will return to both of these shortly. This summer, we established Aker Nscale, a 50-50 joint venture between Aker and Nscale dedicated to developing large-scale AI data centers in the Nordics, starting with Northern Norway. This marks a new chapter for Aker. After previous attempts to build green industries proved unviable for realizing Narvik's potential. Momentum has accelerated. We announced two landmark customer agreements. OpenAI for the Stargate Norway project and Microsoft with a USD 6.2 billion 5-year contract. Construction is underway at the first site in Kvandal Narvik, with 230 megawatts of grid capacity secured and installed. Aker Nscale is now in the queue for an additional 290 megawatts. Thus, at full build-out, Kvandal is expected to reach up to 500 megawatts in total. The JV has a total of 10 plots in the portfolio. The company is actively working to secure grid access and regulatory approvals for several of these, a process that is essential for future development. At the same time, Aker Nscale is undergoing an intensive ramp-up with organizational development and active hiring underway to support project delivery and growth. Beyond infrastructure, the ambition is to build future digital industry in Norway, not just as a host for global tech but as an active developer and partner. We are working closely with Norwegian universities and technology communities to ensure knowledge transfer, competence development and local value creation. The data centers will run on 100% renewable energy. Its approach emphasizes data sovereignty and responsible AI development, which is of utmost importance to protect security interest in the future, which will be even more digitally integrated despite higher geopolitical tension and uncertainties. To support this, the JV is delivering sovereign cloud infrastructure, enabling AI workloads to be processed securely and in full compliance with European data regulations. Aker Nscale is creating new jobs supporting local suppliers and positioning Norway as a main hub in the European AI infrastructure market. This is a strategic move that diversifies our portfolio and delivers on our commitment to build new pillars for growth. Let me walk you through the core economics of how the business model for Aker Nscale is structured and why we see this as a significant value creation opportunity. The business model is designed for scalability, high profitability and predictable cash flows. The target is an unlevered return above 12% for a 3- to 5-year contract across GPU and data center investments, exceeding Aker's required rate of return. The model is based on GPU as a Service where we enter into long-term take-or-pay contracts running for 3 to 5 years with solid counterparts. This ensures full utilization over the contract period and gives a strong visibility on cash flow. These contracts typically include significant prepayments, which supports CapEx funding and reduce risk. The GPUs are installed in stages with prepayments for each phase. This approach allows us to manage CapEx efficiently and align investments with demand. The industry benchmark for EBITDA margins is above 70%, and our project is designed to deliver at or above this level. Importantly, the GPUs are fully amortized over the contract period, limiting residual risk. Consequently, there is a significant upside in terms of residual value potential after the contract period as the hardware is fully amortized and can be repurposed or sold. The cost structure is straightforward. GPUs account for about 80% of CapEx and OpEx is low. We hedged most of the power price for the entire contract period, minimizing exposure. And most of our contracts are with investment-grade counterparties and hence, financing is also robust. The scale is impressive. Significant customer agreements so far, including the USD 6.2 contract with Microsoft, more than 62,000 NVIDIA GPUs committed, 5-year contract periods with full utilization and residual value upside. First, development are targeted for August 2026 onwards, positioning Aker's Nscale in Narvik as one of the largest and most advanced AI data center projects in Europe. In short, this investment offers an attractive combination of scale, profitability and predictability underpinned by strong counterparties and robust risk management, all key qualities to become a key driver of value for Aker moving forward. Moving on to our direct ownership in Nscale, which is another cornerstone of our strategy in AI infrastructure. Earlier this quarter, Aker subscribed for a 9.3% stake in Nscale through Europe's largest ever Series B fundraising for AI infrastructure. This which was made alongside partners like NVIDIA, Nokia and Dell is not just a financial investment, it's a strategic position in one of the fastest-growing AI hyperscalers globally. Our agreement includes an earn-out mechanism, giving us the opportunity to increase our ownership to 12.2%. On top of that, our joint venture stake can be converted into additional shares in Nscale no later than at the future IPO positioning us for further upside as the company scales. Nscale itself is a remarkable story. Founded in 2023, the company has already secured multibillion-U.S. dollar contracts with the world's largest tech companies, and is delivering some of the largest GPU developments in the world. Nscale's vertically integrated model from data centers to software orchestration and its focus on renewable energy, have made it a partner of choice for leading technology companies. The pace of growth is extraordinary, with operations expanding across Europe, North America and the Middle East. This direct ownership gives Aker a seat at the table in a rapidly expanding market, with exposure to global growth, innovation and long-term value creation. It complements our operational partnership and strengthens our ability to shape the future of AI infrastructure in Europe. So in short, our stake in Nscale is a strategic lever for growth, innovation and shareholder value. AI infrastructure is only one part of the equation. The real value comes from transforming raw industrial data into actionable intelligence, and that's where Cognite stands out. Cognite's platform built around Cognite Data Fusion and Atlas AI is purpose-built for complex industrial environments, which is a huge market with high barriers to entry. The Cognite technologies unifies and contextualize data from operational sources, IT and engineering systems breaking down silos and creating a one single source of truth. This enables customers to deploy AI at scale, automate workflows and unlock new levels of efficiency, safety and sustainability. Q3 was Cognite's strongest quarter-to-date, with SaaS bookings growing record high 425% year-over-year and Q3 annual recurring revenue, up over 34%. While this performance was exceptional, we expect growth rates to normalize again next quarter, whatever that means in a boiling hot AI market. However, Cognite's momentum is more than just numbers. What sets it apart is its ability to deliver real impact in production. The Atlas AI platform allows customers to build and deploy industrial AI agents quickly using low code tools and preconfigured templates. These agents automate complex tasks from root cause analysis to predictive maintenance and generate significant business value. Cognite's reach now spans in energy, manufacturing, utilities and renewables with strong traction across Europe, North America, Middle East and Asia. Strategic partnerships with NVIDIA, Databricks and Snowflake reinforce Cognite's position as the go-to platform for industrial AI, enabling seamless integration and real-time AI-ready data sharing. More than commercial traction, this is a strategic validation. Cognite is becoming the trusted choice for companies seeking operational excellence through AI powered by structured data and domain expertise. In sum, Cognite is scaling with discipline, executing on its strategy and building a business positioned for long-term value creation. As we build new pillars for growth, real estate is playing a more central part in Aker's strategy as an active platform for long-term value creation. We have moved from passive ownership to operational excellence with scale across three listed platforms. Starting with SBB, the Nordic's leading real estate company in social infrastructure with SEK 93.7 billion in total property value. Despite recent challenges with a complex legal and financial structure, the fundamentals remain attractive. Our ownership gives us access to a substantial asset base and long-term potential. We are focused on strengthening governance, capital structure and operational discipline to support a more resilient platform. Next, Public Property Invest or PPI. Norway's leading player in social infrastructure, managing more than NOK 16 billion in property value. PPI continues to deliver predictable returns supported by strong tenants and disciplined dividend strategy. And finally, Sveafastigheter, Sweden's largest listed company in the regulated residential market with SEK 30 billion in property value. Sveafastigheter is our latest addition further expanding our footprint and operational reach. In addition, Aker Property Group manages NOK 5 billion in unlisted assets. focused on offices, logistics and industrial properties. Across these platforms, we are managing more than NOK 100 billion in property values combined. Our role is to support, strengthen and unlock the long-term potential, building a resilient real estate platform that complements our ambitions in AI and technology. So to sum up, Aker is executing on a strategy built for resilience and long-term value creation. We are delivering with sharper focus, simplifying our portfolio, investing in new pillars like AI infrastructure, industrial software and real estate, while also maintaining our industrial backbone. Our portfolio is now more diversified, less exposed to commodity cycles and positioned to benefit from long-term growth trends. Looking ahead, we remain committed to active ownership, disciplined execution and building trust with all stakeholders. The steps we have taken this year lay a solid foundation for continued value creation, financial flexibility and strategic progress. It's worth noting that our unlisted companies and liquidity reserve, together representing substantial value are still priced at virtually 0 by the market, highlighting a disconnect we see as a long-term opportunity. Aker is well positioned to capture opportunities in a changing market, and we will continue to build on our strengths as we move forward. That concludes my part of the presentation. I will now hand it over to our CFO, Svein Oskar Stoknes. Svein Stoknes: Thank you, Oyvind, and good morning. To begin, I will provide a brief overview of the key numbers for our listed and unlisted equity investments along with cash and other assets, followed by a more detailed discussion of our financial results. At the end of the third quarter, Aker's listed equity investments were valued at NOK 55 billion. This represented 72% of the company's total assets equivalent to NOK 743 per share. This was marginally down compared to the previous quarter and primarily due to negative value adjustments of NOK 1 billion related to Aker Solutions and NOK 0.6 billion related to Aker BP. And this was offset by a NOK 2.2 billion value increase of Aker BioMarine during the quarter. The net asset value of Aker Property Group's listed real estate investments in PPI and SBB is now also included under listed equity investments and included net of single-purpose debt. The investment in Sveafastigheter came after quarter end. Total dividends received from listed investments in the third quarter amounted to NOK 1.1 billion, with Aker BP accounting for NOK 856 million, Solstad Maritime for NOK 186 million and Akastor for NOK 35 million. Then over to Aker's unlisted equity investments, which represented 17% of Aker's total assets at the end of the quarter. These assets were valued at NOK 13 billion or NOK 179 per share. This represents an increase of NOK 0.7 billion from the previous quarter. The inclusion of Aker Holdco following the completion of the merger of Aker Horizons into Aker Holdco was the main driver of this increase. And this was partly offset by a negative value adjustment related to our investment in Gaia Salmon. Finally, cash and other assets, which represented 11% of Aker's total assets at the end of the quarter, equivalent to NOK 112 per share. Cash inflows totaled NOK 1.8 billion composed of cash dividends received from Aker BP, Solstad Maritime, Akastor and SalMar of and totaled NOK 1.1 billion in the quarter. In addition, we received a part down payment of the Aker Holdco shareholder loan of NOK 750 million. Cash outflows amounted to NOK 1.3 billion, including debt repayment of NOK 800 million and net investments and loans to portfolio companies of NOK 184 million, of which NOK 69 million to Aker Property Group. And cash outflows related to operating expenses and net interest totaled NOK 247 million for the quarter. This gave a cash balance at the end of the quarter of NOK 1.2 billion. The main components of fixed and interest-free assets are accumulated interest on receivables and NOK 0.5 billion of fixed assets. Then let's move to the third quarter financials for Aker ASA and holding companies, starting with the balance sheet. In accordance with our accounting principles, investments are recognized at the lower of historical cost and market value. At the end of the quarter, the book value of Aker's investments was NOK 28.6 billion, which represents a decrease of NOK 57 million compared to the previous quarter. This change primarily reflects negative value adjustments of our investments in Gaia Salmon and ICP of in total NOK 390 million. This decrease was partly offset by an increased book value of the investment in Aker Holdco of net NOK 233 million, in addition to a value increase of the shares in SalMar of NOK 96 million. The book value of equity at quarter end was NOK 27.6 billion, up NOK 445 million, mainly due to the profit before tax in the period. On a fair value adjusted basis, Aker's gross asset value was NOK 76.8 billion. After subtracting for liabilities, the net asset value amounted to NOK 67.5 billion or NOK 909 per share and the value-adjusted equity ratio was 88%. Of the total liabilities of NOK 9.3 billion, NOK 8.2 billion is related to bond debt and bank loans. And the noninterest-bearing liabilities includes NOK 545 million negative value on the AMSC TRS agreements. After quarter end, the TRS agreements were all settled at the end of October in connection with the liquidation of the company. Aker's financial position remains robust with a total liquidity buffer of NOK 7.8 billion, including undrawn credit facilities and liquid funds. After quarter end, our revolving credit facilities have been upped in size by NOK 2 billion, bringing the total RCFs to NOK 12 billion. Net interest-bearing debt amounted to NOK 1.7 billion at the end of the quarter, down from NOK 2 billion in the previous quarter, reflecting capital allocations made during the period and an increased cash balance at the end of the quarter. The loan-to-value ratio stood at 10%, reflecting our conservative approach to capital structure and Aker's weighted average debt maturity was 3 years. Including available options for credit and loan extensions, the overall effective loan maturity is approximately 4.1 years. Finally, moving to the income statement. Operating expenses in the third quarter were NOK 103 million. Dividend income was NOK 1.1 billion, mainly from Aker BP, Solstad Maritime and Akastor. The net value change was negative NOK 415 million, primarily due to a couple of negative value adjustments already mentioned, partially offset by gains in SalMar. Net other financial items totaled negative NOK 92 million. And finally, our profit before tax was NOK 460 million for the quarter. Thank you. That concludes today's presentation, and we will now proceed to Q&A. Christina Glenn: Thank you. We'll now continue with the Q&A. We have received several questions, starting with the data center initiative. Oyvind, can you elaborate on the risk profile for the Aker Nscale joint venture? And maybe also say a little bit more about whether you expect Aker needing to contribute more equity capital in addition to the USD 125 million already contributed? Øyvind Eriksen: Sure. The USD 125 million already committed and communicated relates to the Stargate Norway project. But generally speaking, it's likely that Aker will allocate more capital to AI infrastructure in the future provided that the investments will meet our investment criteria. As far as the risk profile or I would turn it around, the attractive business model is concerned. We signed a long-term take-or-pay contracts 3 to 5 years, with some of the most robust investment-grade companies in the world like Microsoft. And the contracts will typically contain significant upfront payments in order to help the financing of the CapEx-intensive developments. . Then the target is to amortize the GPUs, which accounts for 80% of the total investment during the course of the initial 5-year contract period, and to amortize 50% of the investment in the data center, the building and the infrastructure during the same initial 5-year contract period. And then it's obviously a huge opportunity to sell the GPUs and beyond the initial contract period. So that's the super profit for data center investments, which we believe will materialize but which is not a part of the initial investment decision and business case. Christina Glenn: What is the time line for revenue generation? Øyvind Eriksen: Well, the target is to commence operation for the Microsoft site in Narvik in August next year. And then revenues will start to stream. Christina Glenn: Great. There has been information on the Kvandal site in Narvik. There's also a little bit of information trickling out about other sites. Can you say a little bit more about how that's progressing? Has there been any investment committed on those sites and what the status is? Øyvind Eriksen: Well, we would like to grow the JV beyond the initial projects. And we have already dialogue with both existing customers and new customers about further data center developments, primarily in the Narvik region, but also in other parts of the Nordic region. So short term, it's about access to land and renewable power. Next step will be to negotiate customer contracts. And based on customer contracts, we will be able to make new investment decisions. Christina Glenn: Nordics going beyond Norway. Øyvind Eriksen: Of course, but the by far most attractive region in the world. to build data center is actually the Narvik area. Christina Glenn: Great. Then there's a question on the IPO of the Aker Nscale joint venture. Do you want to clarify anything on that? Øyvind Eriksen: The Aker Nscale joint venture. Christina Glenn: It says a possible IPO of the Aker Nscale joint venture. . Øyvind Eriksen: Yes. Well, we have no plan to IPO the JV as such. But the way the contract with Nscale is structured is that Nscale has a plan to IPO the company in a not-too-distant future, most likely in the United States. And prior to an Nscale listing, we have a right to roll up over 50% shareholding in the JV and exchange that shareholding in an additional Nscale shareholding. So the end game according to the current plan, is to end up as a significant shareholder in Nscale and with the JV consolidated 100%. Christina Glenn: So no IPO for the joint venture? Øyvind Eriksen: No IPO plan for the JV as such directly, but through Nscale. Christina Glenn: On the topic of IPOs. Can you say anything about timing for Cognite, which has seen an extraordinary quarter and year? Øyvind Eriksen: Well, I think I've been asked that question in most quarterly presentations since we established Cognite. And the answer is the same. We have no specific time line for a Cognite IPO yet. However, it's great to see that the inbound interest from investors continues to increase. So we have numerous financial and industrial players asking for shares in Cognite. So the optionality has always been high. And with the recent success, it continues to grow. Christina Glenn: Great. There's a question from an Aker Horizons shareholder wanting to know a little bit more about the path forward for Aker Horizons. Øyvind Eriksen: Well, you should read the announcement made by the Aker Horizons Board last week. We have no specific plans to develop and grow Horizon for the time being. The Board continues to explore different alternatives, including a liquidation of the company. Christina Glenn: And then the last question is, if you can give some more color on the process to solve SBB's financial situation. Is there a need to contribute more capital into that company and the real estate? Øyvind Eriksen: We are in a live dialogue with SBB both as a significant shareholder, but also as Board members. And the way Aker look upon SBB is that it is a company with great assets but a challenging balance sheet. So to fix the balance sheet of SBB is a matter of strategic importance in order to reposition the company for future growth. So I take for granted that the Board of SBB will announce the different steps to be taken when the Board has concluded the ongoing discussions. But the goal is clear, and that's to reposition SBB, strengthen the balance sheet and grow the company longer term. And we assume and expect that SBB like PPI and Sveafastigheter will be important assets in the Aker real estate portfolio going forward. Christina Glenn: Great. Thank you. That concludes today's presentation and Q&A. If you have other questions, please don't hesitate to reach out. Thank you for following.
Katarina Rautenberg: Welcome to the presentation of Investment AB Latour's Interim Report for the Third Quarter 2025. [Operator Instructions] I will now hand over to CEO, Johan Hjertonsson; and CFO, Mikael Johnsson Albrektsson. Johan Hjertonsson: Thank you very much, Katarina. Welcome, everybody. I'm here together with our CFO, Mikael, and we will take you through our Q3 report that we published earlier this morning. So if we start with the first slide, the overall group structure is unchanged. Continued good performance of our operations despite the challenging business climate. The construction market is still slow overall, but some areas are growing, thanks to trends like energy efficiency, automation, where several of our businesses are well positioned. I will comment more on the financial outcome more in detail later on in this presentation. As for the U.S. tariffs, Latour's exposure in the U.S. corresponds to the 11% of our total net sales and the effects from tariffs are limited. Caljan, Hultafors Group, Nord-Lock Group and REAC within Latour Industries have the most exposure in the U.S. And we aim to pass on as much of the increased cost to customers as possible related to tariffs. Then if we go to the next slide with our portfolio on the 10 listed companies. The majority of our companies have reported for the Q3 and the picture of a weaker business climate is fairly consistent. However, the financial effects varies depending on the industry and geographic exposure. And I think in general, our 10 listed companies in general, show strong resilience. And many of the listed companies has reported strong Q3 results, for example, ASSA ABLOY, Sweco and HMS. The acquisition activities are high in our listed holdings. One example among several is Tomra, who acquired C&C during the third quarter, a leading provider of bag drop solutions for collection and processing of beverage containers in the U.S. And if we go to the next slide, no major changes with the listed portfolio during the quarter. Earlier this year, however, we increased our holding in CTEK to 35.3%. In the 9 months period, the value development of the listed portfolio was minus 2%, whereas the SIXRX was 5.8%. And the value has increased since then. And until yesterday, November 3, the portfolio value was SEK 90 billion, and the total return amounts to 3% so far this year, whereas the SIXRX is 9.6%. And if we go to the next slide again, about the wholly owned industrial operations. The order intake has increased by 70% of which 10% was organic and net sales increased by 8%, of which 2% was organic. This is a strong development, especially considering the somewhat weak business climate. The overall demand is difficult to predict, and the picture is mixed between regions and industries. For example, Caljan's order intake is very strong in the quarter, indicating renewed investment activities in the logistics sector, while Hultafors Group, for example, is still suffering from a weak construction market. The total order backlog is on a strong level, ensuring stable net sales going forward for the next couple of quarters. We have good cost control, but various growth initiatives, combined with currency headwind puts pressure on the operating margin on a short-term perspective. Continuing investments in our companies, however, key to ensure long-term growth and profitability. Hence, we can tolerate somewhat lower margin for a shorter period of time, confidence that will pay off looking ahead. And the adjusted operating profit increased to SEK 936 million compared to SEK 935 million with an operating margin of 13.9%. And if we go to the acquisition slide, during the quarter, Nord-Lock Group has finalized the acquisition of 75% of the shares in Energy Bolting in the U.K. and Latour Industries has signed an agreement to divest Batec in Italy to the Swedish Company, Decon. Batec is a manufacturer of electric and manual handbikes with an annual revenue of approximately EUR 5 million. With Decon as a new owner, the company will get great support to further develop the Batec's product offering. Energy Bolting is a U.K.-based manufacturer of critical fasteners. The company has an annual net sales exceeding GBP 7 billion -- GBP 7 million. Earlier this year, we have finalized 6 acquisitions. All in all, the conducted acquisitions so far this year adds more than SEK 1.8 billion in net sales on an annual basis. And we're very happy with that with good M&A activity so far this year. And having said that, I hand over with a warm hand to Mikael to take us through our business areas to comment on that. So over to you, Mikael. Mikael Albrektsson: Thank you very much, Johan. And in ordinary fashion, we turn page and we start with the business area of Bemsiq Group. And Bemsiq had a continued good performance in the quarter with growing order intake driven by both organic growth and acquisitions. The total organic growth in net sales was 5%, which is a strong performance considering the challenging market within the real estate and construction industries. The operations in North America recorded the most robust development over the quarter. The adjusted operating profit amounted to SEK 110 million with a good margin of 21.4%. The margin was slightly negatively affected by ongoing growth initiatives and recent recruitments. Very well done Anselmi and team. We then turn page and move over to Caljan. And as Johan mentioned earlier, Caljan has recorded a very strong order intake during the quarter, well ahead of last year and a strong order backlog has been established for coming quarters. Net sales is down organically by 8% during the quarter. Aftermarket is growing while product divisions are below last year, adversely impacted by geopolitical uncertainty. But I think it's worth again to mention the very strong order intake in the period that shows a clear positive sentiment from customers' willingness to invest again. Caljan continued to have a good cost control and gross margin, however, not to fully compensate for the lower volumes and the operating margin amount to 13.3% in the period. Thank you, and very well done, Henrik and team. We then turn page and go to Hultafors Group. And the overall market conditions continues to be challenging for Hultafors Group in both Europe and North America and especially for the hardware divisions. The PPE division is, however, growing during the quarter. Total net sales grew organically by 2% compared to the corresponding quarter last year. The profit margin is lower than last year, mainly due to long-term investments for future growth and the adjusted operating profit amounted to SEK 214 million with a margin of 13.4%, which is good under the circumstances. All in all, very well managed by Anders and his team. We then turn page again and look at Innovalift. And order intake is growing by 41% in the period, supported by acquisitions and with a very healthy organic growth of 10%. Net sales grew by 36%, driven by both acquisitions and organic growth, especially within the Components & Modernisation segments. And the gross margin continues to improve step by step, however, slightly negatively affected by the cost inflation in Turkey. But as you can see on the chart, there is a very positive underlying trend on the margin within Innovalift. The quarterly adjusted operating profit amounted to SEK 109 million with a margin of 13.4%. All in all, very well done, Andrea and team. We then continue with business area Latour Industries, and the picture is somewhat mixed for Latour Industries business units, where we see a continued underlying good demand for REAC while the other business units are operating on somewhat slower markets. Order intake is growing organically by 7% during the quarter. Net sales is up 3% from last year and driven by a good performance by LSAB. The adjusted operating profit amounted to SEK 47 million, driven by strong results from MAXAGV. And the result is negatively affected by currency effects and the weak market climate as well as ongoing investments for the future. And it shall also be mentioned that Latour Industries currently has an under-absorption of their fixed cost on the central level following the distribution of Innovalift, putting additional pressure on the margin. But despite this, we are very happy to see a positive development on the margin during the quarter. And as the heading of the future states, the focus of Latour Industries continues to be on developing the existing holdings and to find new platform investments for future growth. So well done, Tina and your team. We then turn page again and look at Nord-Lock Group, who continues to develop very strongly despite a tough business climate, reporting growth across several metrics. Order intake grew organically by 5% during the quarter, and the net sales grew organically by a very healthy 13%, where all sales units contributed to the growth. And the order backlog is now on good levels. The quarterly adjusted operating profit increased to SEK 130 million with a strong operating margin of 25.5%. And as Johan mentioned before, Nord-Lock has acquired 75% of the shares in Energy Bolting in U.K., complementing the product portfolio in a very nice way. Very well done, Daniel and your team. We then turn page again to our last business area, Swegon, where we see that order intake is up 4% organically from last year. And given the business climate, this is a fairly good performance. Net sales were hampered by the general market uncertainty during the quarter. Total net sales grew by 10%, driven by acquisitions and organically, it was in line with last year. Profit margin is somewhat lower than last year, affected negatively by lower volumes, currency effects as well as investments in product development and other growth-oriented investments. And the adjusted operating profit came in at SEK 280 million with a margin of 11.2%. Very well done, Andreas and your team. We then continue the presentation to take a look at our net asset value. That decreased by 0.6% adjusted for dividends during the 9 months and amounted to SEK 210 per share compared to SIXRX that increased by 5.8%. The share price at the end of September was SEK 223, which means that there is a premium of 6% compared to how we present the net asset value. And as of yesterday, the net asset value was SEK 216 per share. The share price on the same day closed at SEK 238, which gives a premium to our way of describing the net asset value of about 10%. The consolidated net debt decreased during the quarter from SEK 16.9 billion to SEK 16.8 billion. And the net debt corresponds to about 11% of the market value of our investments, leaving headroom for further acquisitions going forward. And that summarizes my presentation, and I hand over back to you, Johan. Johan Hjertonsson: Thank you, Mikael, and some comments around the financial targets. The summary of the financial target during the last 12 months, we have had growth of 10%, EBIT margin of 13.8% and return on operating capital of 13.8%. And if this is the bottom of the cycle, the low cycle that we're in right now, I have to say that's fairly strong because our targets, as you can see here, growth above 10%, operating margin above 15% and return on operating capital above 15% are to be seen over a business cycle. And it's nice to see that growth is once again increasing, and it's driven both by acquisitions and organic growth. And the operating margin I have commented. So let's go to the next slide. And to summarize, we are very happy with the development during the third quarter, especially considering the business climate with a 10% organic growth in order intake and 17%, including M&A. Latour is a long-term sustainable investment company and a responsible owner of creating value for our shareholders. In our wholly owned operations, we continue to invest with a forward-looking view to enable future growth and profitability and in the end, create value for our shareholders. We have a strong corporate culture that we treasure, which is of great value when we move forward in a volatile and rapidly changing world. Thank you for listening. And thereby, we also open up for questions and the Q&A section. Operator: [Operator Instructions] The next question comes from Linus Sigurdson from DNB Carnegie. Linus Sigurdson: Starting off with a question on Bemsiq. So by no means is this a bad quarter, but we're seeing some deceleration of growth here. And you also talked about this short-term pressure on margin from growth initiatives. Could you just help us understand what kind of initiatives these are? And how material the impact is in the quarter and going forward? Mikael Albrektsson: Yes, absolutely. So good morning Linus, thanks for the question. And I mean, I think it's worth to mention that if you look on the historical growth rate for Bemsiq, it's been growing, I mean, double-digit 20% -- north of 20% for multiple years. And I think, of course, that takes its toll to the organization that every now and then you need to, in some way, also step up both, I mean, a bit of central resources, but also to, I mean, invest in the companies to be able to continue to bear that growth level. So I say, I mean, from -- it's that type of investment that is going into Bemsiq to I mean, build a bit more of a central structure as it is, as you know, very much an acquisition-driven growth journey as well in combination with taking the acquired companies to levels where we see that the quality of processes and quality of reporting and everything gets up to standard, which we think is necessarily to continue to grow organically over time. So I think that's what Johan means when that we are investing, but it will pay off over time. Johan Hjertonsson: And a more general answer to your question, Linus, we see that more than 1/3 of the drop on the EBIT margin is currency related that goes directly on the gross margin. And then I would say a large portion is that we have not taken down any forward-looking costs or investments in R&D, marketing or sales activities. And that's a kind of a credo for Latour that we continue those investments on a high level even in a tough market. And then I would say maybe 1/3 of the drop is related to that we have managed to get pricing out quite strongly related to tariffs and other things, but like maybe not 100% but almost. Linus Sigurdson: That is very helpful. And then I had a question on Caljan. Obviously, very impressive order intake and nice to see that the underlying demand is healthy. But it's been a while since we had sort of a normal environment for this company. Could you remind us the typical order book duration for a company like Caljan? Johan Hjertonsson: I would say the order book duration is a bit hard to say exactly, but about 6 months out, you could say, 3 to 6 months out on an average on the order book. Caljan do operate in a market that is fairly volatile. And you could see if we backtrack some years in the onset of the pandemic, there were some extremely heavy investments into the logistics sector because of e-commerce and so on. And then at the end of the pandemic, you could say the sector was overinvested. So it was very low demand, but it's also now very nice to see that the investments are coming back into the logistics sector. So it looks quite good for Caljan now. But to your point, Linus, there has been over the years, some swings in the demand in that market. Linus Sigurdson: Okay. My final question is on MAXAGV. Could you talk a bit about what kinds of end customers this company has? And if it's fair to assume that their geographic exposure is fairly local? Johan Hjertonsson: Yes. And please add on, Mikael. MAXAGV is automated guided vehicles is mainly for manufacturing and factories to help move material in an automatic way in factories. And I would say it's a fairly Nordic-based market that they are addressing. Do you want to add to that, Mikael? Mikael Albrektsson: No. I think that summarized it well. Johan Hjertonsson: Thank you. Thanks for your questions. Highly appreciate it. Let's see if we have any more questions or in the chat. Mikael Albrektsson: No questions in the chat. Johan Hjertonsson: Well, we have to assume it was crystal clear then. So thank you, everybody, for listening in and looking forward to speak to you when we present the full year report in the beginning of next year. Thank you all.
Naoki Akaishi: Thank you very much for joining us in spite of your busy schedule. We would like to begin NTT Holdings briefing session for the 6 months ended September 30, 2025. I am Akaishi from IR. I will be serving as the facilitator. First, let me introduce the speakers. Mr. Shimada, Representative Member of the Board, President and CEO; Mr. Hiroi, Representative Member of the Board, Senior Executive Vice President and CFO; Mr. Nakamura, Senior Vice President, Head of Finance and Accounting; and Mr. Hattori, Senior Vice President, Head of Corporate Strategy Planning. The announcement will be broadcasted live, and the video will be available on demand later. Also today, we will skip the earnings presentation and start with a Q&A session. Please refer to our IR website presentation materials for the documents regarding this presentation. We will take questions from those who are attending in person and then those who are preregistered attending via the web conference system. [Operator Instructions]. Now we will start the Q&A session. Naoki Akaishi: First, we will take questions from the floor. [Operator Instructions]. In the front row, on the right-hand side from my side. Satoru Kikuchi: My name is Kikuchi from SMBC Nikko Securities. Your company plan, you have not revised the plans. But looking at the contents of it or the breakdown of it, there are quite a change. The data center transfer gain is about JPY 20 billion less than the fiscal year start plan and SBI Sumishin due to the TOB of that, there's an overlap there, too. And NTT DATA, TOB has been completed, and noncontrolled interest is going down. So the profit is going to be boosted upwards. And also at the press conference, Mr. Shimada, you were saying that DOCOMO in the second half is going to accelerate its reinforcement of the customer base. At the start of the fiscal year, you were saying that the second half, the expenses will be controlled a bit more. It was the explanation. So I feel that there is a difference from there. And even though DOCOMO underperforms, the other areas, there's a buffer about around several -- [ JPY 10 billion ]. And I believe in the first half, there wasn't much that was used over there. So there are various changing factors that have occurred, but the content of the plan has not been revised at this point. You're saying, "It's okay. We're going to completely achieve it. Don't be worried about it." If that is the case, that's fine. But it seems that, that is actually not the case. So can you explain thoroughly one by one, that will be greatly appreciated. That's my first question. Akira Shimada: Kikuchi-san, thank you very much for your question. First of all, what we don't have a clear visibility yet is DOCOMO's competitive environment. From the second half of last year, in practice, the MNP as well as the quality issues were the focus point of Mr. Maeda and has been implementing initiatives to respond to that. So no more thinking. You think that last year in the second half, a lot of money has already been injected, therefore, compared to the first half of this fiscal year, you may think that the second half will not have an increase in cost, especially on a year-on-year basis. Normally, that will be the situation. However, if you look at the current most recent competitive arena, the competitors are seriously responding to the competition. And also for us, this fiscal year, we have in mind that we cannot lose this race. Therefore, if they're going to further strengthen their competitive -- competition measures, then we have to respond to that. But this is the area that we don't have a complete visibility. But on the other hand, how are we going to absorb that cost? This as well, just simply revising the forecast and allocate expenses to this. That's not the case, but utilizing the unutilized assets or reduce the cost where competition is not the issue. We need to look at the situation in a comprehensive manner. But having said that, on the other hand, selling assets, that is going to require a certain amount of time. Therefore, suddenly, if we try to do it in the fourth quarter, that will be difficult to do. Therefore, in this third quarter period, what kind of competitive environment is going to face us is what we need to see. And depending on that, things will be changing. So for now, we are responding to various things, and we would like to achieve the targets. But depending on the environment, we don't know what the environment of the competition is going to become. We don't know various things. So we would like to keep a very close eye on the third quarter competitive arena and respond to that. And for the data center, you said one by one. So regarding the data center is JPY 26 billion less than what we have originally assumed. However, as Sasaki-san from NTT DATA was explaining, actually, the order situation is quite strong. And net sales for the second half -- second quarter, the domestic unprofitable projects came about, and there was negative factors, both domestically and internationally. However, for domestic and overseas, the order situation is strong. So whether all that is going to cover this negativity, we don't have a clear picture, but they're also reinforcing the sales activities as well. So I'm hoping that they will be able to absorb this. And also, wholly owning NTT DATA, whether that will -- regarding boosting the bottom line because of that, currently, the financial expense is slightly increasing. So of course, this is one factor. However, we have not revised it because of this. And regarding the Sumishin SBI or SBI Sumishin, moving forward, how much of the services can be brought about that will bring synergy to us is the key. And so within DOCOMO, it is thoroughly being reviewed -- well, not just DOCOMO, but SBI Sumishin Net Bank as well. They want to grow. So together with them, this part is being considered and reviewed. And of course, I would like them to come out with a certain outcome. Well, the key is the mobile business is a consumer side competitive environment. That is going to be the key. Satoru Kikuchi: So that means that looking at various situations, you will consider selling assets. Well, you have done quite a bit of that 2 years ago. And there are assets that will generate profit? Are there any left, because you've done it 2 years ago? Unkown Executive: What we did 2 years ago is the [ sale of ] asset of NTT EAST and WEST. So DOCOMO business also has various assets on hand. So within DOCOMO Group, I want them to think of what can be done. Satoru Kikuchi: My second question is about the finance part. Regarding the business, I want to take a deep dive later for each company. But the finance part, then you have issued foreign bonds the other day. And I thought that you will provide us with explanation after everything is done, like the NTT DATA's TOB expenses and SBI Sumishin Net Bank's TOB that will be covered with DOCOMO's asset sales and the data center investment. So from next fiscal year onwards, the necessary capital -- what we are concerned about is the shareholders' return, which is the dividend and share buybacks. 6 months ago, you were saying that the direction and policy is not going to change and will be continued. And is that really possible? And also, when you wholly owned DOCOMO through TOB, the cash flow at the holdings company, you had about JPY 900 billion, and you were going to pay back your debt and shareholders' return investment. With that amount, you were able to make it through somehow. But currently, with NTT nonconsolidated, how much of cash flow are you expecting? And that cash flow, do you have to repay your debt? I think that's a discussion point. I think you don't have to repay and lower the leverage. But what kind of allocation of cash are you thinking of to maintain shareholder returns or maintain investment? I would like you to share your views. Takashi Hiroi: So Hiroi is speaking. I would like to answer your question. Well, this fiscal year, NTT DATA has been wholly owned, and SBI Sumishin Net Bank, we have acquired them. So cash-wise, it is quite tight. And also looking at NTT DOCOMO's performance with the cash flow that is recorded, they are using the surplus of the cash flow for the -- responding to the competition. So I think we will be at the bottom and a tight situation in terms of cash flow this fiscal year, making investments for growth and increasing cash is what we're aiming for. EBITDA is JPY 4 trillion, is the target we have. And we are progressing towards that. So once we see the effect of the investment in the medium term, this gap is going to be fulfilled, and the financial position is going to improve. But in terms of the soundness of the financial situation and balancing that with the shareholder return, basically, what we are doing right now is, the share buyback and the dividend level, basically, we are continuing to increase the dividend. We believe we will be able to solidly maintain that. And this fiscal year and next fiscal year for a little bit, we will have a tight cash flow situation. And of course, we can think of utilizing debt. But basically, the current credit rating of A-, we would like to maintain that rating and to do things so that we don't cause trouble for the bondholders or bond investors as well. That is how we would like to manage the financial position. That is all. Naoki Akaishi: We will take the next question in the front row, left-hand side, please. Daisaku Masuno: I'm Masuno from Nomura. I have a question for each segment. Starting with the Global Solutions overseas data center. Earlier, NTT DATA President made a press announcement. I believe that we can accelerate investment. I believe that more risk should be taken to accelerate investment. I felt that the President was a bit cautious. Do you have any thoughts about accelerating investment for DATA? Akira Shimada: Well, we want to accelerate. To be honest, we do want to accelerate our investment. But there's the construction capacity that needs to be factored in. So construction speed and also, are we going to do this with our own equity? That is another question. If we're going to tap into the funds from third party, then that will give us more power. And that is something that we are studying. We studied that possibility earlier, but the environment did not work out. Now the current environment is more favorable to involving third-party investment. So we will consider that in more earnest. And in terms of the construction speed, it does depend on the location, but we would like to accelerate investment globally in a way that is well balanced. And of course, we have to enhance projects with higher profit. For example, in India, the return is quite high. And so we would like to focus in areas where the return is higher. In terms of the construction capacity, that is a physical impediment. In terms of funding, from equity investors, lowering the equity ratio or involving third party is not that favorable, rather increasing debt through project finance rather than lowering the equity ratio. That would be our hope. We have no idea about -- we don't think about increasing equity or decreasing the equity ratio. We're just talking about using third-party funds for investment. So it's not like a third-party joint venture. No, that is not the case. Daisaku Masuno: My second question is regarding DOCOMO. One year ago, at the IR Day, when the medium-term plan was presented, DOCOMO's consumer business operating profit was to rise. And the premises for that was that the sales promotion will be made more efficient for the year ended March '27. But looking at the current situation, the promotion efficiency is actually declining. And so if the competitive landscape doesn't change, I believe that the current sales promotion efficiency will continue into the next fiscal year. So if your competitors don't reduce the sales promotion, what's going to happen in the next fiscal year? So the final year of the medium-term plan? Akira Shimada: Well, this may be similar to my answer to Kikuchi-san earlier. You are right that the scenario has changed somewhat from what we had imagined it to be 1 year ago. So our sales promotion cost is about the same as our competitors. In the past, DOCOMO was able to keep the sales promotion cost lower than our competitors. So what happened as a result of that was that our market share was going down. So now we are expanding about the same level of marketing cost as our peers. Now with the current status continue, if that is the case, then, of course, we will need to revisit the scenario. So reducing the marketing cost just by ourselves would mean that we reduce market share, the customer base itself. So we need to think about the balance. But the overall market is also seeing cost increase across different items, and how we absorb that cost increase is a struggle for not just us, but for all our competitors. So what kind of the competitive landscape you will see going forward is -- needs to be watched. And by closely observing that, I'm sure that I'll be able to better answer your question. Then accounting-wise, even if DOCOMO sells some of its assets, then, for example, we exclude that. And the data center sales, that is also excluded as well. So going up or down, that will not have a bearing on how it is valued. I think we need to show that DOCOMO recovers on its normalized basis. Daisaku Masuno: Lastly, for the regional communication business, can we say that the recovery is on track? I'm sure that the quarterly result is not sufficient, but the second quarter results didn't seem that satisfactory. Do you think that the structural reform is on track? Akira Shimada: In terms of NTT EAST and WEST, basically, the situation is on track. NTT WEST had some profit decline factors, which we had communicated to you before. There are assets that needed to be reduced from the books, which have become unnecessary. And these were already in the plan. So for making efficiency, introduction of AI at the call centers and using more AI in the support teams, all of that is on track. So for the NTT EAST and WEST, I'm not worried about the projections. Naoki Akaishi: [Operator Instructions] The person in the second row, please. Kazuki Tokunaga: Tokunaga from Daiwa Securities. I have two questions. The first is regarding the new Takaichi administration. Looking at the media report and looking at the Minister of MIC's press conference, they are going to work on the amendment of NTT law. However, having said that, up to now, quite a bit has been considered. And it seems that it has settled down once. So moving forward, what else can be considered is something that I cannot imagine. Therefore, at this point, for your company regarding NTT law, what you are seeking for? Or do you have any expectations for the new government is my first question. Akira Shimada: How the NTT law should be, as you have mentioned, Tokunaga-san, with the amendment that was done in the last 2 years, we believe that it has been moved forward quite a bit, is how we look at it. The major issue that remains, if I may say, is the total volume regulation, meaning that only have that imposed on NTT and is NTT the only one that should abide that due to securities manner -- securities reasons. And as Masuno-san mentioned, to improve the efficiency of NTT EAST and WEST, how they should do their work or how the organization should be, how they should conduct their work this time, there was quite of a deregulation done. So regarding the organization, changes are still remaining for improving efficiency. But within the law, it's stipulated that the discussions will resume 3 years from now. So there is no necessity at this point to rush on things at this point. However, at this point, what we would like the government to consider is regarding universal service provision. Well, the rule itself has been amended. But regarding the detailed how the system should be designed is not completed. So more than the amendment of the NTT law itself, but what has been amended this year -- up to this year, the content of that, we need to accelerate working on the details of that. Kazuki Tokunaga: The second question is kind of a follow-up question to Masuno-san. So there's -- in two parts. Regarding NTT DOCOMO, there may be a possibility of a scenario change and NTT EAST and WEST are in line as the plan. But I'm actually looking at a different direction. NTT DOCOMO, maybe July and September was tough. But in October, the MNP is turning positive. So in terms of the customer acquisitions, I believe that for the mobile communications, it's going to come back. But compared to the IR Day that was done -- IR Day, maybe the profit recovery level is quicker than that. So the first point is that the changes of scenario for DOCOMO, which KPIs is it? The revenues? The profit? And the second question is, including the rate change of NTT EAST and WEST, maybe we should not expect a large increase in profitability. Akira Shimada: So first of all, regarding NTT DOCOMO and NTT EAST and WEST, Tokunaga-san, regarding DOCOMO, you are a bit optimistic. But as Shimada mentioned before, that's different from how we look at it because the market competitive environment is quite intense. In October, the MNP has recovered, as you have mentioned. But at DOCOMO side, the marketing activities have been reinforced, and that's been increasing. And as a result of that, they're gaining the numbers. And we believe that this situation is going to continue, or we have to look at it that this is going to continue. So regarding NTT DOCOMO, in terms of the revenues and profits, we cannot be optimistic about it. But regarding NTT EAST and WEST, it is true that regarding the rate increase, we are implementing initiatives so that we'll be able to do so. But as we have assumed at the beginning of the fiscal year, the revenue and also the cost efficiency initiatives are progressing as planned. So I don't think there is a major change. And this fiscal year, GIGA School -- as we see in GIGA School and others, there's a large-scale investment, and that is done by the regional areas' sales rep for NTT EAST and WEST. And actually, that is bearing fruits, and that is contributing to the operating profit. That is the current situation. Thank you very much. Naoki Akaishi: We will now ask the members. [Operator Instructions] Okumura-san from Okasan Securities. Yusuke Okumura: I'm Okumura from Okasan. Can you hear me? Unkown Executive: Yes. Yusuke Okumura: I have two questions. First, regarding the data center business. This may be a question that I should pose to NTT DATA, but about JPY 90 billion book value asset was sold at about 2x the price. But the total IRR of these assets -- what was the total IRR? And also, the data center book value is around JPY 2 trillion now. So what is the unrealized value -- unrealized profit from this? Should we assume that it's about JPY 1 trillion? And also regarding the data center portfolio, what is the utilization rate? Or what is the contract period? Can you provide some KPIs for investors? Takashi Hiroi: So this Hiroi speaking. In terms of the data center REIT, IRR, we are not able to provide concrete numbers, but we are aiming for pricing that is aligned to the investors' perspective. So we believe that a fair valuation is being realized. And in terms of our entire data center business, what is the total value? What is something that we can provide better color on? Well, we are promoting more disclosure on the data center business. Data center valuation, there is a market for that. So EBITDA and profit-based multiple. So some kind of a total value can be assumed for our assets. And perhaps you can reference that in order to value the data center business as a whole. Yusuke Okumura: Now in terms of my second question, in terms of the creation of synergy with NTT DATA, I'd like to ask about the revisions to your medium-term plan. What kind of discussions are ongoing? So the synergy of having NTT DATA as a 100% subsidiary, will you just be updating EBITDA or the leverage ratio? Or will you be introducing new KPIs, like EPS? Or will you be considering balance sheet restructuring or changing the medium-term targets? Are you having those wide-ranging discussions? Can you share with us what is being discussed? Akira Shimada: This is Shimada. We are still in the process of discussing the synergy. And I actually mentioned this in the press conference. We need to first review NTT DATA's medium-term plan. And President Sasaki of NTT DATA also mentioned in terms of the global synergy that can be harnessed as a group. That is one very important factor. So NTT DATA's medium-term plan will be announced in spring next year. And the consolidated business plan will also be revisited at that time. So at this time, numerical targets or contents, how much we will review the medium-term plan, it is too premature to say because we need to have more concrete items to be able to provide more color on this. Yusuke Okumura: I apologize for asking a premature question. Naoki Akaishi: I would like to take a question from Morgan Stanley MUFJ Securities, Mr. Tsusaka. Tetsuro Tsusaka: This is Tsusaka from Morgan Stanley. Can you hear my voice? Unkown Executive: Yes. Tetsuro Tsusaka: I have one question regarding the mobile business and also a question related to the NTT DATA. Regarding the mobile business, before, you were not spending money than your competitors, but you are spending now at the same level as competitors, and you're still losing. And I think this is quite of a serious situation. And the other point is listening to Mr. Maeda's presentation for NTT DOCOMO, it seems that various things are being in place or prepared. However, didn't feel something that will stand out as becoming the core for them. So as a holding company, the strategy of NTT DOCOMO, are you making a decision that is really going well? Or if there is a question -- if your question towards the NTT DOCOMO's strategies, towards NTT DOCOMO directly, are you in a position that you can instruct them directly as a holding company? Or are you taking such an action to them is what I'd like to know? And the second question is related to NTT DATA. And at the NTT DATA, the President of NTT, Sasaki-san, was saying that it's global. And Shimada-san, you mentioned that it's global as well. And for global center business, you hold the #3 position globally. So you have quite of a solid presence there. But for the other businesses, I don't think they -- you can say that they have succeeded overseas, well, numerically -- from the new number perspective. So the reason why you are focusing on global -- the data center being a global business is fine. I understand that very well. But for the other businesses, that being global, I feel that there's no track record that has been achieved, is how we can see it. So how should we think about that? Akira Shimada: First of all, Mr. Tsusaka, thank you very much. Regarding the mobile business, whether a discussion is done or not, we are having a discussion with them. Because we are having the discussion, that is why the direction has been changed since last fiscal year, basically. They need to solidly and surely protect their customer base. And as I mentioned before, without spending cost or money and just damage their existing customer base, there's no future for the business. Therefore, we wanted them to thoroughly respond to the situation. For the second quarter, actually, the [ Elmos 0.5 giga ] was stopped as a plan, and there's an impact of that. And in fact, we slightly lost against the competitors. But as of October, MNP is net positive now. And the second quarter situation, I think, is a temporary situation, is how I look at it. But what's more important than that is regarding quality. We need to improve the quality, especially because everybody now is watching a lot of video. So the challenge is in the metropolitan areas, around the railway routes. We need to work on that, and we need to increase the number of base stations. However, today, it was said that in the second half that they're going to increase the construction process by threefold, but that needs to continue into next fiscal year. And also the 5G base station that has become old needs to be new, and we are replacing that to a new one. And that needs to be completed through this fiscal year and next fiscal year. So those are the two key points. And we are aligned with DOCOMO on this. And they are thinking of various cost reductions, but these are the necessary costs that needs to be spent. So for this year and next fiscal year as well, in terms of implementing new equipment and facilities is something that is necessary. Therefore, how are we going to overcome this situation and have a bright prospect for FY '27. Of course, I don't know the numbers for FY '27 yet. However, these type of factors will come about, and we are aware of that, and we are continuing our discussions on it. And regarding NTT DATA, at the global discussion, recently, the demand for AI is coming about quite strongly. And the tech services customers, conventional tech service customers is where the AI demand is coming from, especially South Europe, like Spain, Italy, in that region, the needs is heightening. In Germany, unfortunately, the automobile industry is not doing well. So there's an impact from that. And the U.K., performance is coming back slightly. And in the United States -- well, the U.S.A. is about the same situation like Southern part or Southern Europe. So we do have expectations to a certain extent in those regions. So the product itself is transforming and having the customer base is quite valuable. So in the areas other than data center business, to turn it around into a positive business, I want the business to be managed in that way. Thank you very much. Naoki Akaishi: Thank you very much. So we have exceeded the allocated time. We would like to take one more question either from the floor or remotely. Since there seems to be no further questions, we would like to conclude NTT Holdings presentation. Next will be from NTT DOCOMO. So please stay in your seats. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to the Boozt Group Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Hermann Haraldsson; and CFO, Michael Bjergby. Please go ahead. Hermann Haraldsson: Thank you, and good morning, all, and welcome to our Q3 2025 webcast. Let's turn to the first slide, the agenda. We will have the usual agenda for the presentation. I will present the highlights of the quarter and the business update before handing over to Michael for the financials. So if we look at the next slide, our highlights. Overall, Q3 was a decent quarter with strong operational performance. We had good margin progression and a solid free cash flow, which is a testament to our strong business model. Our revenue growth is not where we wanted to be, but we have seen a gradual improvement, which is important heading into the most important part of the year for Boozt. This increase in the quarter was achieved despite a slightly difficult September, which was impacted by less favorable weather conditions for the autumn/winter collection. It was a bit warm. In the quarter, Boozt.com gradually gained revenue traction and particularly in September, where we made a very clear strategic shift to focus on premium in-season sale on Boozt.com. This change in September changed the composition of growth between Boozt and Booztlet and improved the gross margin significantly. I will come back to this shift later. Our profitability improved significantly in the quarter despite continued headwind from currency. The increase was driven by all OpEx ratios. Free cash flow was again strong. The underlying business is fundamentally very cash generative and with our disciplined management of inventory, it shows in the free cash flow. We have now generated almost SEK 500 million in the last 12 months and expect to generate more than SEK 500 million in cash in the year 2025. With this performance in Q3, we are pleased to be able to both upgrade our EBIT margin guidance and expand our share buyback program. The Board has now initiated the process to increase the current share buyback program from the current SEK 300 million to now SEK 415 million. With this increase, we will have delivered on our target to return SEK 800 million of capital back to our shareholders in 3 years as communicated at the Capital Market Day in 2023. On the outlook for the year, we now expect revenue growth of 0% to 3% or 2% to 5% in constant currency growth. Additionally, we increased our margin guidance. We now expect the adjusted EBIT margin for '25 to end between 5% and 6%. Now let's turn to Slide 5 for the business update. Driving multi-category purchases remains a key strategic goal of our department store model as it directly correlates with customer loyalty and improved financial performance. And crucially, in the current market environment, our diverse categories also helped mitigate the impact of a muted fashion demand. Over the last 12 months, we have successfully increased the purchase percentage of customers shopping from more than one category to 53% on Boozt.com. This is a step-up from 51% last quarter. This improvement occurred despite a strong inflow of new customers, around 170,000 joined this quarter, who typically start by shopping in a single category. Our total active customer base over the last 12 months was broadly unchanged and stands around 2.7 million. This is a number that we need to improve. It has, in 2025, been impacted by a slight decline in female shoppers, and this is now starting to improve. Please move to the next slide, please. I want to provide a few comments on the trend of our female shoppers. This is critical for us as we move forward on our growth journey. Revenue from the women's fashion category is gradually stabilizing after a longer period with some softness. This improvement is important because a stronger performance in women's fashion directly benefits our other categories as women are more often shopping from non-fashion categories, home, sport, beauty and kids. The improving trend is supported by the number of women shopping on our site. If we isolate the numbers for Q3, active customers shopping women's fashion on Boozt.com declined by 2%. We are taking several strategic steps to strengthen our women's category and continue the positive momentum we're seeing. First and foremost, we have expanded our teams within buying, merchandising and marketing to bring in new expertise and fresh perspectives. This enables us to create an even stronger and more relevant brand and product mix that meets the evolving needs of our female customers. The results are already showing. In October alone, we saw a good increase in women's shopping on Boozt.com compared to last year. At the same time, we are reinforcing Boozt.com as a premium destination by elevating the customer experience, making it more inspirational, personalized and fashion-driven. Through richer storytelling, curated campaigns and the use of advanced AI tools, we are creating a more seamless and engaging shopping journey. By the [ SS '26 ] season, our product listings and pages will feature more enriched and inspirational content to help customers find what they love even faster. Finally, we are diversifying our media mix to reach and inspire more women and men across platforms such as Meta and TikTok, while also experimenting with new opportunities on emerging AI-driven platforms. This improvement is supported by the clearer strategic distinction between Boozt.com and Booztlet.com. Please turn to the next slide. This slide summarizes the strategic clarification that is fundamental to performance going forward. We have since September and into Q4, deliberately made a clear distinction for the roles of our 2 platforms to maximize both brand value and operational efficiency. For Boozt.com, the strategy is firmly centered on its position as a premium destination. We are actively reducing the promotional activity to protect our brand equity as well as the value of our brands, strengthening long-term partner relationships. On top of that, our customers' multi-category shopping is the engine that drives loyalty and diversification as well as reducing our overall risk. We believe this has been an important step to get Boozt.com back to growth with 3% organic growth in Q3. Booztlet's prime focus, on the other hand, is on selling prior season stock with very limited access to current season products. Current season products could be accessed by Booztlet campaign buys, for example. Booztlet will continue to help reduce risk when purchasing and to maintain our current inventory. Overall, Booztlet's role as a clearing mechanism is working exactly as planned as we are managing inventory well even in a year like '25, where our growth is not what we had planned for. On top of this, Booztlet also gives us access to another customer group, which is looking for bargains when shopping. Active customers on Booztlet are now over 1 million, showing the relevance of the channel. Of these, 60% shopped only on Boozt.com and not Boozt.com in the last 12 months. The clear distinction between the sites is a fundamental part of our business model. It is long-term sustainable and ensures that we can optimize our premium market position by simultaneously safeguarding our balance sheet through effective inventory management. Next slide, before I hand over to Michael, I want to highlight the significant effect of our clearance sales on Booztlet. The clearance sale, which was started in September last year, is now fully concluded and our inventory is definitively rightsized and at the right quality. This crucial derisking would not have been possible without Booztlet as a dedicated clearing channel as deep discounts on our main site, Boozt.com would have tinted our brand equity. Inventory as a share of last 12 months revenue is now down to 38.2%, which we believe is a healthy level in our current state. This is a significant decrease of 5 percentage points compared to the same period last year, illustrating the importance of this exercise. It also supported our cash generation, driving our free cash flow to SEK 292 million in the quarter, a solid improvement compared to last year. We are now entering the most important trading season with a healthy and high-quality inventory position. This puts us in an optimal position to capture demand and to exploit market opportunities without excess risk. With that, I will now hand over to Michael and the financial review. Michael Bjergby: Yes. Thank you, Hermann, and good morning to all from me as well. I'll start on Slide 10 as we start off with a review of the revenue performance of the quarter. Now in Q3, it was important for us to get back to growth after Q2 and see an incremental improvement in the growth rate. With 3% organic or constant currency growth, we delivered this improvement and from a category perspective, driven by a recovery in women's fashion, as Hermann also described, our largest and most important -- strategically most important category. When reviewing the revenue across the 2 stores, Boozt and Booztlet, it appears like quite stable and uniform growth, but the quarter was, in fact, divided into 2 very different trading periods. Booztlet generated strong growth in the first months of the quarter during the clearance sales, and this reversed actually in September. For Boozt, it was opposite and the store generated very strong growth in September as the clearance sales was concluded. With our sharper distinction between the 2 sites and our focus on premium sales on Boozt.com, the relatively stronger growth in Booz compared to Booztlet continued into early Q4, and we believe that this is the right composition and the most healthy growth dynamics. Looking at the geographical revenue, the growth was relatively uniform across our key markets and all growing in the low single-digit area from a constant currency perspective. I'll move to the next slide and provide some comments on the profitability of the quarter because overall, we are satisfied with our profit development. It shows the strength of our business model, which can be quite scalable and something that we can continue to optimize across the value chain. It should not be a surprise that the gross margin is down in the quarter. It's quite natural when it is driven by the clearance sales in July and August. And it is quite natural that the gross margin is affected in a year, where revenue is lower than planned and expected. On top of this, we continue to see a negative impact in the gross margin from the FX development. But as Hermann mentioned also in September, when the clearance sales was finalized, the year-over-year development on the gross margin actually was positive and in local currency improving compared to last year. We improved the EBIT margin as we were able to more than offset the gross margin development through leverage on OpEx lines. We are continuously striving to optimize our efficiencies. We see that within the marketing spend. We see it within our fulfillment and distribution ratio. And as we continue to deliver -- to develop and also grow, we see long-term room for improvement on these lines continuously. We also saw a continued good development on the admin ratio driven by the previously communicated ceasing of Norwegian customs as well as the downsizing of field [indiscernible] FTEs in year. Depreciation was slightly up, driven by continued investment at our automated warehouse at Angelholm, but also investments in our best-in-class IT and [indiscernible]. Now please move to Slide 12, as I turn focus to our cash flow. The cash development was strong in Q3, and it's really a representation of our operating model and setup between Boozt and Booztlet, as we are managing our inventory and working capital. It's quite an achievement to manage inventory and even reduce inventory in a year, where sales is lower than planned. This is a key strength and risk mitigating accomplishment of the business model and the dynamics between the stores. Now generating free cash flow, which is 7x larger than EBIT as we did in this quarter is clearly not sustainable, but the quarter illustrates how working capital is the determining factor for our cash generation, and that is an important characteristic in a business like ours, where we trade massive volumes at relatively low margins, and I'll discuss these fundamentals of the cash flow over the cycle a bit more on the next slide. Because the more appropriate performance view of the cash generation is to review the last 12 months, i.e., over the full 4 quarters of the year. And in the last 12 months, our cash conversion has been close to 100%, and that's even with a slight outflow from working capital. We generated free cash flow of SEK 483 million out of a reported SEK 500 million EBIT. It shows how strong our underlying cash generation potential is. It is clear that when the business is growing very fast, it requires investments in working capital and in our warehouse capacity, but with more module growth, the cash conversion is fundamentally highly attractive like this year. As we are guiding free cash flow of more than SEK 500 million for the full year 2025, it can also be concluded and again, in Q4 '25, we expect to generate more cash than we did last year, reflecting continued operational improvements and continued strong management of working capital. Please move to the next slide for some comments on how the cash is used and generally our capital structure. As discussed, the business is highly cash generative in periods without the excessive growth. We are demonstrating this with our performance this quarter and with our outlook for the year. We do not want to sit on that cash. It has to work and it has to create return, and we strive to be disciplined in our return of excess cash to shareholders, currently mainly through share buybacks. As we are now extending our share buyback to purchase treasury shares worth more than SEK 400 million in the 1-year period since last AGM, we are actually returning quite a lot, and we're also achieving the target that we set out in our Capital Markets Day in 2023 and importantly, thereby delivering on our promises given. Despite the relatively large share buyback this year, we still have a very strong and quite conservative capital structure and currently with net cash, which means negative net debt of around SEK 200 million. This also means that we have very strong liquidity. We are maintaining a strong balance sheet because it creates room to maneuver and to capture opportunities in the market. And in that sense, we can -- as we face commercial growth opportunities in the market, we can attack and allow working capital swings in temporary periods. So with this, I have finalized my financial review, and I'll now turn to the future and our financial outlook on Slide #16. As Hermann mentioned in the beginning, we are satisfied with our strong operational performance, and we are updating our guidance to reflect the performance year-to-date. although we are currently facing the largest and most important months and trading periods of the year. The new revenue guidance corresponds to 2% to 5% constant currency growth for the year, and we still expect full year headwind of around 2 percentage points from currency. With the new guidance, the required constant currency growth in the fourth quarter is 2% to 10%. This corresponds to 0% to 8% in net revenue growth. It's a relatively broad range, but it underlines the uncertainty that November and December inherently carries. In regards to profitability, we are increasing the adjusted EBIT margin guidance driven by the factors that Hermann described earlier on the call. Fundamentally, we continue to see scope for further margin improvements. And this upgrade is an illustration of it. In a year with muted growth, focus on inventory clearance and also sharper distinction of Boozt and Booztlet, and on top of this quite material headwind from currency, we are still able to drive the underlying margin forward. For the full year, we estimate that the margin will be negatively impacted by around 1 percentage points due to the strengthening of SEK versus primarily euro, but also Danish kroner. The rest of our guidance remains unchanged, free cash flow of more than SEK 500 million and CapEx between SEK 150 million and SEK 170 million. I'll have my final slide with a few comments about our relocation coming up shortly because as you are aware, we are investing in Boozt to become a unique and really preferred employer in Copenhagen, the capital of Denmark. And creating a strong organization and really a powerhouse under one roof is a way for us to sharpen the organizational capacity. This investment carries some nonrecurring costs, and there are some compliance matters related to the move that I'll describe briefly. The nonrecurring costs are relatively limited and amount to around SEK 550 million, and it's mainly double leasing of the old headquarters at Hyllie, but also other smaller locations that we have as well as the restoration of our old headquarter. The larger part of these costs will be recognized in Q4 2025 and the rest in Q1 2026. The cash impact, however, will be spread across the year of 2026. Another implication of the move is that there will be a so-called exit tax related to the activities and operation, which are moving to Denmark. Our core assets like the Angelholm warehouse and our listing, et cetera, will be maintained in Sweden. So this will not be subject to any new tax legislation. But the exit tax payment in Sweden will create -- and that's important. It will create a deferred tax asset in Denmark based on the fundamental principle of the double tax treaty agreement between the 2 countries. So in layman terms, this means that the payment in Sweden can be deducted in Danish tax payments likely over a period of 5 years. And as a result, we expect no cash impact over the period from 2026 to 2030. But in 2026 alone, we expect excess cash tax payment of SEK 140 million. This concludes the prepared part of my presentation, and I'll now hand the word back to Hermann for some final remarks. Hermann Haraldsson: Thank you, Michael. And before moving on to the Q&A, I would like to share a few words on our strategic outlook. Our focus remains clear. We want to get back to sizable growth. Our operations are like a well-oiled machine. We are very efficient, and we want to increase our revenue growth to exploit our unique and scalable business model. We have strengthened our competitive position in the last couple of years, and I believe that the Boozt organization is now stronger than ever. With the move to Copenhagen, we will be a clear preferred employer and be able to attract key competencies and talent. On top of that, we are quite confident that consumer sentiment and thus the market return for the better and that Boozt will be positioned as one of the strongest players in the region to capture more than our fair share of that growth. So this concludes the presentation. And operator, will you please open up for questions. Operator: [Operator Instructions] The next question comes from Niklas Ekman from DNB Carnegie. Niklas Ekman: Yes. Can I start asking about the sales guidance, the updated sales guidance, given that your sales in the first 9 months are essentially flat and your guidance now of 0% to 3% growth. That seems to indicate then expectations of an improvement in Q4. And given your comments here, I mean, on the one hand, September sales being weak, you seem to be a little bit more confident here on October, but there's a lot of uncertainties about November and December. So what gives you confidence that your sales will essentially accelerate in the fourth quarter? Hermann Haraldsson: Well, kind of the quarter so far supports the guidance and comps are slightly easier for the fourth quarter. And so we think it's kind of -- as far as we see, there's nothing that indicates that things would become worse. And so -- but still, it's -- we think it's a cautious guidance, but still we are seeing some optimism, especially also because the women have returned again, growing again in the women's. So I think there's reason to believe that we are back to at least a moderate growth. Niklas Ekman: Very good. And I'm also curious, when you're talking about the reduced campaign activity at Boozt.com and kind of shifting that towards Booztlet, how much of this is kind of a voluntary move? How much of this is a result of pushback from suppliers? And are you now where you want to be? Or do you think that there will be a further move towards reducing that level of discounting at the core Boozt.com site? Hermann Haraldsson: Yes, a good question. I think as you know, we basically have been slightly overstocked for the last 2 years, meaning that we have had to reduce inventory and use our channels. And you also have to look after our brand partners, and it's entirely voluntary, but we want to kind of elevate the brands and keep the high brand profile. So kind of -- it's our initiative because we want to, again, create a more clear distinction between Boozt.com and Booztlet. I think that the overlap between the 2 shops and the offers were getting a bit too similar. So it's kind of a decision to create kind of 2 very distinct different shops. I think that we're actually on a good track. We are of course, we have to act with the market, and we are price takers, and we cannot sell more expensive than the rest, but we're definitely not price leaders. And we're moving into a more kind of inspirational and discovery like. And fortunately, our technology, AI helps a lot in doing that. So I think that we're in a good spot. And the inventory is right, so we don't need to clear, so we can actually also start to buy some campaign [ goods ]. So I think that we're in a quite strong position to capture growth when it returns. Niklas Ekman: Very good. But do you think that it's a challenge for you to drive growth if you hold back a lot of campaigns? Because I think in the past, the campaign activity at Boozt.com has also clearly been a growth driver. So moving away from that, is that a challenge for you right now? Is that a reason why we're seeing lower growth rates this year compared to the previous year? Hermann Haraldsson: I think it'd be a bit too -- I think it's a bit too far to say that is the main reason. I think that we've been hit by consumer sentiment and consumers holding back. But obviously, in the previous years, [ campaign buyers ] have been a big driver of us being able to offer strong campaigns. And as we have had too much inventory, we haven't bought too much campaign goods. Now with the inventory size, we can get back to doing campaign buys and promoting the campaign [ buyers ]. And this is kind of all in alignment with the brand's interest. I think that kind of we are moving in a position, where we can get a bit back to kind of being a retailer with strong brands and relevant and good offers. So I think that kind of we have put ourselves with our inventory position and with the kind of our brand and the distinction between 2 shops to be able to kind of again offer relevant campaigns without destroying margin or any brand relations. Niklas Ekman: And when you're talking about increase in campaign buys or campaign goods, are you talking already Q4? Or is this more an issue for 2026 and onwards? Hermann Haraldsson: We're starting in Q4 and -- but also in '26 onwards. So we see more campaign buys opportunities, both in the market and for ourselves than we've seen for quite some time. Operator: The next question comes from Benjamin Wahlstedt from ABGSC. Benjamin Wahlstedt: I was wondering if you could give a bit more flavor on the quarter's growth by month, please. What was your growth in September, for example, when warehouse clearances were done? Hermann Haraldsson: Yes, the growth was -- as we said at the end of -- at the Q2 call, we came into the quarter with growth. And in July and August, September was actually kind of flattish because weather was -- it was very warm. So it was quite uneven growth for the quarter actually. So that's why you should always be careful because especially when you -- the transition from summer to autumn to winter is like very dependent on temperatures and weather, et cetera, et cetera. So -- but it was quite uneven with September being more or less, less flat. Benjamin Wahlstedt: Right. Another possible interpretation of this report, I think, is that you spent too little on marketing in the quarter, reporting the lowest marketing ratio since mid-2019. And I was wondering if you could give us a bit more flavor or commentary regarding that. Hermann Haraldsson: Yes, we can do that. I don't think we spent too low and little because as we've been discussing before, it's all about kind of the marginal spend. And if the consumer is not there, you can just totally overspend on your marketing. And that's why we still have the ratio of how much do you want to pay for a new customer and what is the payback. So we're cautious. We've been holding a bit back on our offline campaigns. as also we said in the Q2 call, that's because we haven't been really ready. But I think that kind of -- I said the ambition is to get marketing down and -- and even though our cost structure allows us to spend more on marketing, we don't want to throw any money. And just by increasing performance marketing, it's a bad investment. So that's why you'd rather hold back and save that money for a full year. Benjamin Wahlstedt: Perfect. And this is sort of a follow-up on Niklas' previous question. Would you say that your strategy from, say, October onwards is a new strategy with less discounts than previously or less targeted discounts than previously? Or should we understand it as a return to the pre-inventory clearance strategy essentially? Hermann Haraldsson: I think you should interpret as a return to the pre-inventory reduction strategy. We -- over the last 2 years, we've been expecting higher growth and [ bought ] for that growth, and it has materialized, which has meant that we have had to kind of clear because we are religious about not having too much inventory and not doing any write-downs. So we've basically been forced to do that. Now with inventory being at a very good size, we are getting back to -- yes, as I said before, the phase, where we can -- we have the right inventory from the beginning of the season and can do opportunistic campaign buys to add some flavor and margin to -- and also add some basically attractiveness to the offer. So I think that we're kind of going back to, as you said, the pre-inventory write-down strategy, it's a long word. Benjamin Wahlstedt: All right. And finally, from my end, I was wondering if you could say anything else about the consumer environment as you see it currently in addition perhaps to the stronger October demand for the women's category. Should we understand that comment as being of like stronger growth for the whole business in October? Or is it more specific -- specifically related to the women's category? Hermann Haraldsson: Yes, sorry. Again, if you look at consumer sentiment, it's -- I think it's still below 0 in all the 4 Nordic countries, the 4 Scandinavian countries. So even though we're going up and Sweden seems to be the most positive country and probably even more positive next year, the Danes are still quite depressed. The Norwegians are getting closer to neutral and the Finns are also seem to be depressed. What we notice, of course, is that the women are coming back. So we have a growth in women buying on Boozt in October. But -- and there's a but, the average item price they're buying for is lower than last year. So they are still kind of holding back and being cautious. So I'm not sure if we're out of the woods yet. But with the stimuli that is coming in Sweden, also in Denmark, I think there's time to become a bit more optimistic about the future. So at least kind of we don't see any negative numbers anymore. So now it's just kind of the degree of positiveness. But again, it's very early because in 1 month's time, I might be really happy or depressed depending on how this black month and Black Friday and Cyber Monday goes. So it's kind of -- it's too early to conclude because it's the next 1.5 months that is going to decide everything. Benjamin Wahlstedt: Yes, of course. You 're -- well, if history tells us anything, you're usually pretty good black month, but let's… Hermann Haraldsson: [indiscernible]. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: A couple of questions from me. Hermann, you talked about when we sort of heard from you the last time in Q2 that you basically missed maybe on womenswear when it came to dresses and so on in your purchasing heading into the spring season. Is there sort of anything that you've done entering the autumn/winter season that is sort of increasing the likelihood that you won't make that mistake again in terms of predicting the trends and so on? Hermann Haraldsson: Yes. That -- it's a good question, actually. Yes, there is because we became too cautious in the first half. We bought what we thought would be the sure thing. So we bought more depth than breadth. We kind of internally refer to it like we looked a bit more down, so looking too much to the numbers instead of looking up. So we set the buyers a bit more free and saying, okay, try to buy more inspiration, more breadth and try to see kind of there to take more risk again because our inventory position is so good. And then, of course, we bought less dresses going into the quarter. So that was kind of -- so it's kind of -- when you're in a position when you have too much stock, you tend to be -- become a bit more too cautious. And I think that we became a bit too cautious. So I think that we are going to be more -- liberate our buyers a bit more than we've done before because we know that we are very good at eliminating stock risk. So I think that you -- and I think that already now that the women can see that there's basically more and better choice in the shop. Daniel Schmidt: So that's basically a reflection of what you're seeing in October, you think? Hermann Haraldsson: Yes. I think that's a good bet that women are able to find more exciting stuff. They still buy the sure thing, but they also want to be inspired, right? And we're getting better at that. Daniel Schmidt: Just coming back to a detailed question on the marketing spend. And again, that was on the low side in Q3, and you already touched upon that, but it was also on the high side in Q2. And I think you wrote something about a timing effect, and you also mentioned that in Q2, they went a little bit overboard maybe or maybe it was also timing between the quarters. Is that correct? Or shed some more light on that? Hermann Haraldsson: Yes, that's correct. We had quite a big offline marketing campaign in May. which was a really bad month and the quarter [ get ] results. So we went slightly kind of -- I wouldn't say we went overboard, but the timing was unfortunately compared to the market, and our execution was maybe not spot on. So that's why kind of we are regrouping and redefining kind of what and how we want to communicate, especially offline. I think in our performance marketing, we're on a good track. We are using marketing technology to an even greater extent, and it shows promising results. But again, we've been discussing this for like -- like now 8 years, Daniel, that we are very, very careful not to overspend on performance marketing because the marginal cost of the margin customer is just too high. So we'd rather not spend and then accept low growth because often doesn't make sense. So that's why we're trying to guide it. And then again, the long term, our target is to get the margin cost ratio down to maybe 6%, 7%. So I think it's a path towards that goal. Daniel Schmidt: And then also maybe coming back to the inventory and the size of the inventory, and I clearly hear you that you've been overstocked for quite some time, and you've done quite a lot of excessive clearance of inventory in the past couple of quarters, and you seem very happy entering the fall and winter season. Is there any risk that the inventory is too low to get up to the upper end of the implicit top line guidance that you have for Q4? Or is the sort of the capability to add on campaign buys or additional inventory in the season better now to support if top line would sort of surprise positively or demand would surprise positively? Hermann Haraldsson: You're right. Yes. You're right that there is a risk if demand is higher than projected that we don't have enough inventory with what we have now. This is also why we've started already to do some strong campaign buys and are increasing our campaign buys budget because you're right that of course, if consumers become more happy and start to buy again, then we don't have enough inventory. But we are actually working on that. And I'm quite confident that if there is more growth than we guide, we would probably be able to kind of deliver on that growth. So -- but you're right that we are now going back to doing quite decent campaign buys. Daniel Schmidt: And does that go hand in hand a little bit when it comes to other revenues? How do you see that into Q4 and '26? Hermann Haraldsson: Yes, it does. It has [ other ] revenues, especially the retail media revenue is not 100% linked, but it's quite linked to the buy as it always has been. So with us, if we are turning the buy down, then other revenue is affected and it's difficult to compensate for that by offering additional campaigns also because if consumers are holding back, the brands feel it themselves. So they're also less inclined to spend more in marketing. So it kind of goes hand in hand, but it's not a 100% correlation. So we have been able to compensate slightly for that by offering better and more targeted campaign. Our BMP is actually getting better and better at both targeting and documenting the return on the marketing investments than before. But of course, it's linked to the buy. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Hermann Haraldsson: Okay. Thank you for listening in and the questions. And yes, we are just waiting for a very interesting 1.5 months. And hopefully, we'll meet happy again after Black Friday and over the next coming weeks. Thank you very much, and bye-bye.
Naoki Akaishi: Thank you very much for joining us in spite of your busy schedule. We would like to begin NTT Holdings briefing session for the 6 months ended September 30, 2025. I am Akaishi from IR. I will be serving as the facilitator. First, let me introduce the speakers. Mr. Shimada, Representative Member of the Board, President and CEO; Mr. Hiroi, Representative Member of the Board, Senior Executive Vice President and CFO; Mr. Nakamura, Senior Vice President, Head of Finance and Accounting; and Mr. Hattori, Senior Vice President, Head of Corporate Strategy Planning. The announcement will be broadcasted live, and the video will be available on demand later. Also today, we will skip the earnings presentation and start with a Q&A session. Please refer to our IR website presentation materials for the documents regarding this presentation. We will take questions from those who are attending in person and then those who are preregistered attending via the web conference system. [Operator Instructions]. Now we will start the Q&A session. Naoki Akaishi: First, we will take questions from the floor. [Operator Instructions]. In the front row, on the right-hand side from my side. Satoru Kikuchi: My name is Kikuchi from SMBC Nikko Securities. Your company plan, you have not revised the plans. But looking at the contents of it or the breakdown of it, there are quite a change. The data center transfer gain is about JPY 20 billion less than the fiscal year start plan and SBI Sumishin due to the TOB of that, there's an overlap there, too. And NTT DATA, TOB has been completed, and noncontrolled interest is going down. So the profit is going to be boosted upwards. And also at the press conference, Mr. Shimada, you were saying that DOCOMO in the second half is going to accelerate its reinforcement of the customer base. At the start of the fiscal year, you were saying that the second half, the expenses will be controlled a bit more. It was the explanation. So I feel that there is a difference from there. And even though DOCOMO underperforms, the other areas, there's a buffer about around several -- [ JPY 10 billion ]. And I believe in the first half, there wasn't much that was used over there. So there are various changing factors that have occurred, but the content of the plan has not been revised at this point. You're saying, "It's okay. We're going to completely achieve it. Don't be worried about it." If that is the case, that's fine. But it seems that, that is actually not the case. So can you explain thoroughly one by one, that will be greatly appreciated. That's my first question. Akira Shimada: Kikuchi-san, thank you very much for your question. First of all, what we don't have a clear visibility yet is DOCOMO's competitive environment. From the second half of last year, in practice, the MNP as well as the quality issues were the focus point of Mr. Maeda and has been implementing initiatives to respond to that. So no more thinking. You think that last year in the second half, a lot of money has already been injected, therefore, compared to the first half of this fiscal year, you may think that the second half will not have an increase in cost, especially on a year-on-year basis. Normally, that will be the situation. However, if you look at the current most recent competitive arena, the competitors are seriously responding to the competition. And also for us, this fiscal year, we have in mind that we cannot lose this race. Therefore, if they're going to further strengthen their competitive -- competition measures, then we have to respond to that. But this is the area that we don't have a complete visibility. But on the other hand, how are we going to absorb that cost? This as well, just simply revising the forecast and allocate expenses to this. That's not the case, but utilizing the unutilized assets or reduce the cost where competition is not the issue. We need to look at the situation in a comprehensive manner. But having said that, on the other hand, selling assets, that is going to require a certain amount of time. Therefore, suddenly, if we try to do it in the fourth quarter, that will be difficult to do. Therefore, in this third quarter period, what kind of competitive environment is going to face us is what we need to see. And depending on that, things will be changing. So for now, we are responding to various things, and we would like to achieve the targets. But depending on the environment, we don't know what the environment of the competition is going to become. We don't know various things. So we would like to keep a very close eye on the third quarter competitive arena and respond to that. And for the data center, you said one by one. So regarding the data center is JPY 26 billion less than what we have originally assumed. However, as Sasaki-san from NTT DATA was explaining, actually, the order situation is quite strong. And net sales for the second half -- second quarter, the domestic unprofitable projects came about, and there was negative factors, both domestically and internationally. However, for domestic and overseas, the order situation is strong. So whether all that is going to cover this negativity, we don't have a clear picture, but they're also reinforcing the sales activities as well. So I'm hoping that they will be able to absorb this. And also, wholly owning NTT DATA, whether that will -- regarding boosting the bottom line because of that, currently, the financial expense is slightly increasing. So of course, this is one factor. However, we have not revised it because of this. And regarding the Sumishin SBI or SBI Sumishin, moving forward, how much of the services can be brought about that will bring synergy to us is the key. And so within DOCOMO, it is thoroughly being reviewed -- well, not just DOCOMO, but SBI Sumishin Net Bank as well. They want to grow. So together with them, this part is being considered and reviewed. And of course, I would like them to come out with a certain outcome. Well, the key is the mobile business is a consumer side competitive environment. That is going to be the key. Satoru Kikuchi: So that means that looking at various situations, you will consider selling assets. Well, you have done quite a bit of that 2 years ago. And there are assets that will generate profit? Are there any left, because you've done it 2 years ago? Unkown Executive: What we did 2 years ago is the [ sale of ] asset of NTT EAST and WEST. So DOCOMO business also has various assets on hand. So within DOCOMO Group, I want them to think of what can be done. Satoru Kikuchi: My second question is about the finance part. Regarding the business, I want to take a deep dive later for each company. But the finance part, then you have issued foreign bonds the other day. And I thought that you will provide us with explanation after everything is done, like the NTT DATA's TOB expenses and SBI Sumishin Net Bank's TOB that will be covered with DOCOMO's asset sales and the data center investment. So from next fiscal year onwards, the necessary capital -- what we are concerned about is the shareholders' return, which is the dividend and share buybacks. 6 months ago, you were saying that the direction and policy is not going to change and will be continued. And is that really possible? And also, when you wholly owned DOCOMO through TOB, the cash flow at the holdings company, you had about JPY 900 billion, and you were going to pay back your debt and shareholders' return investment. With that amount, you were able to make it through somehow. But currently, with NTT nonconsolidated, how much of cash flow are you expecting? And that cash flow, do you have to repay your debt? I think that's a discussion point. I think you don't have to repay and lower the leverage. But what kind of allocation of cash are you thinking of to maintain shareholder returns or maintain investment? I would like you to share your views. Takashi Hiroi: So Hiroi is speaking. I would like to answer your question. Well, this fiscal year, NTT DATA has been wholly owned, and SBI Sumishin Net Bank, we have acquired them. So cash-wise, it is quite tight. And also looking at NTT DOCOMO's performance with the cash flow that is recorded, they are using the surplus of the cash flow for the -- responding to the competition. So I think we will be at the bottom and a tight situation in terms of cash flow this fiscal year, making investments for growth and increasing cash is what we're aiming for. EBITDA is JPY 4 trillion, is the target we have. And we are progressing towards that. So once we see the effect of the investment in the medium term, this gap is going to be fulfilled, and the financial position is going to improve. But in terms of the soundness of the financial situation and balancing that with the shareholder return, basically, what we are doing right now is, the share buyback and the dividend level, basically, we are continuing to increase the dividend. We believe we will be able to solidly maintain that. And this fiscal year and next fiscal year for a little bit, we will have a tight cash flow situation. And of course, we can think of utilizing debt. But basically, the current credit rating of A-, we would like to maintain that rating and to do things so that we don't cause trouble for the bondholders or bond investors as well. That is how we would like to manage the financial position. That is all. Naoki Akaishi: We will take the next question in the front row, left-hand side, please. Daisaku Masuno: I'm Masuno from Nomura. I have a question for each segment. Starting with the Global Solutions overseas data center. Earlier, NTT DATA President made a press announcement. I believe that we can accelerate investment. I believe that more risk should be taken to accelerate investment. I felt that the President was a bit cautious. Do you have any thoughts about accelerating investment for DATA? Akira Shimada: Well, we want to accelerate. To be honest, we do want to accelerate our investment. But there's the construction capacity that needs to be factored in. So construction speed and also, are we going to do this with our own equity? That is another question. If we're going to tap into the funds from third party, then that will give us more power. And that is something that we are studying. We studied that possibility earlier, but the environment did not work out. Now the current environment is more favorable to involving third-party investment. So we will consider that in more earnest. And in terms of the construction speed, it does depend on the location, but we would like to accelerate investment globally in a way that is well balanced. And of course, we have to enhance projects with higher profit. For example, in India, the return is quite high. And so we would like to focus in areas where the return is higher. In terms of the construction capacity, that is a physical impediment. In terms of funding, from equity investors, lowering the equity ratio or involving third party is not that favorable, rather increasing debt through project finance rather than lowering the equity ratio. That would be our hope. We have no idea about -- we don't think about increasing equity or decreasing the equity ratio. We're just talking about using third-party funds for investment. So it's not like a third-party joint venture. No, that is not the case. Daisaku Masuno: My second question is regarding DOCOMO. One year ago, at the IR Day, when the medium-term plan was presented, DOCOMO's consumer business operating profit was to rise. And the premises for that was that the sales promotion will be made more efficient for the year ended March '27. But looking at the current situation, the promotion efficiency is actually declining. And so if the competitive landscape doesn't change, I believe that the current sales promotion efficiency will continue into the next fiscal year. So if your competitors don't reduce the sales promotion, what's going to happen in the next fiscal year? So the final year of the medium-term plan? Akira Shimada: Well, this may be similar to my answer to Kikuchi-san earlier. You are right that the scenario has changed somewhat from what we had imagined it to be 1 year ago. So our sales promotion cost is about the same as our competitors. In the past, DOCOMO was able to keep the sales promotion cost lower than our competitors. So what happened as a result of that was that our market share was going down. So now we are expanding about the same level of marketing cost as our peers. Now with the current status continue, if that is the case, then, of course, we will need to revisit the scenario. So reducing the marketing cost just by ourselves would mean that we reduce market share, the customer base itself. So we need to think about the balance. But the overall market is also seeing cost increase across different items, and how we absorb that cost increase is a struggle for not just us, but for all our competitors. So what kind of the competitive landscape you will see going forward is -- needs to be watched. And by closely observing that, I'm sure that I'll be able to better answer your question. Then accounting-wise, even if DOCOMO sells some of its assets, then, for example, we exclude that. And the data center sales, that is also excluded as well. So going up or down, that will not have a bearing on how it is valued. I think we need to show that DOCOMO recovers on its normalized basis. Daisaku Masuno: Lastly, for the regional communication business, can we say that the recovery is on track? I'm sure that the quarterly result is not sufficient, but the second quarter results didn't seem that satisfactory. Do you think that the structural reform is on track? Akira Shimada: In terms of NTT EAST and WEST, basically, the situation is on track. NTT WEST had some profit decline factors, which we had communicated to you before. There are assets that needed to be reduced from the books, which have become unnecessary. And these were already in the plan. So for making efficiency, introduction of AI at the call centers and using more AI in the support teams, all of that is on track. So for the NTT EAST and WEST, I'm not worried about the projections. Naoki Akaishi: [Operator Instructions] The person in the second row, please. Kazuki Tokunaga: Tokunaga from Daiwa Securities. I have two questions. The first is regarding the new Takaichi administration. Looking at the media report and looking at the Minister of MIC's press conference, they are going to work on the amendment of NTT law. However, having said that, up to now, quite a bit has been considered. And it seems that it has settled down once. So moving forward, what else can be considered is something that I cannot imagine. Therefore, at this point, for your company regarding NTT law, what you are seeking for? Or do you have any expectations for the new government is my first question. Akira Shimada: How the NTT law should be, as you have mentioned, Tokunaga-san, with the amendment that was done in the last 2 years, we believe that it has been moved forward quite a bit, is how we look at it. The major issue that remains, if I may say, is the total volume regulation, meaning that only have that imposed on NTT and is NTT the only one that should abide that due to securities manner -- securities reasons. And as Masuno-san mentioned, to improve the efficiency of NTT EAST and WEST, how they should do their work or how the organization should be, how they should conduct their work this time, there was quite of a deregulation done. So regarding the organization, changes are still remaining for improving efficiency. But within the law, it's stipulated that the discussions will resume 3 years from now. So there is no necessity at this point to rush on things at this point. However, at this point, what we would like the government to consider is regarding universal service provision. Well, the rule itself has been amended. But regarding the detailed how the system should be designed is not completed. So more than the amendment of the NTT law itself, but what has been amended this year -- up to this year, the content of that, we need to accelerate working on the details of that. Kazuki Tokunaga: The second question is kind of a follow-up question to Masuno-san. So there's -- in two parts. Regarding NTT DOCOMO, there may be a possibility of a scenario change and NTT EAST and WEST are in line as the plan. But I'm actually looking at a different direction. NTT DOCOMO, maybe July and September was tough. But in October, the MNP is turning positive. So in terms of the customer acquisitions, I believe that for the mobile communications, it's going to come back. But compared to the IR Day that was done -- IR Day, maybe the profit recovery level is quicker than that. So the first point is that the changes of scenario for DOCOMO, which KPIs is it? The revenues? The profit? And the second question is, including the rate change of NTT EAST and WEST, maybe we should not expect a large increase in profitability. Akira Shimada: So first of all, regarding NTT DOCOMO and NTT EAST and WEST, Tokunaga-san, regarding DOCOMO, you are a bit optimistic. But as Shimada mentioned before, that's different from how we look at it because the market competitive environment is quite intense. In October, the MNP has recovered, as you have mentioned. But at DOCOMO side, the marketing activities have been reinforced, and that's been increasing. And as a result of that, they're gaining the numbers. And we believe that this situation is going to continue, or we have to look at it that this is going to continue. So regarding NTT DOCOMO, in terms of the revenues and profits, we cannot be optimistic about it. But regarding NTT EAST and WEST, it is true that regarding the rate increase, we are implementing initiatives so that we'll be able to do so. But as we have assumed at the beginning of the fiscal year, the revenue and also the cost efficiency initiatives are progressing as planned. So I don't think there is a major change. And this fiscal year, GIGA School -- as we see in GIGA School and others, there's a large-scale investment, and that is done by the regional areas' sales rep for NTT EAST and WEST. And actually, that is bearing fruits, and that is contributing to the operating profit. That is the current situation. Thank you very much. Naoki Akaishi: We will now ask the members. [Operator Instructions] Okumura-san from Okasan Securities. Yusuke Okumura: I'm Okumura from Okasan. Can you hear me? Unkown Executive: Yes. Yusuke Okumura: I have two questions. First, regarding the data center business. This may be a question that I should pose to NTT DATA, but about JPY 90 billion book value asset was sold at about 2x the price. But the total IRR of these assets -- what was the total IRR? And also, the data center book value is around JPY 2 trillion now. So what is the unrealized value -- unrealized profit from this? Should we assume that it's about JPY 1 trillion? And also regarding the data center portfolio, what is the utilization rate? Or what is the contract period? Can you provide some KPIs for investors? Takashi Hiroi: So this Hiroi speaking. In terms of the data center REIT, IRR, we are not able to provide concrete numbers, but we are aiming for pricing that is aligned to the investors' perspective. So we believe that a fair valuation is being realized. And in terms of our entire data center business, what is the total value? What is something that we can provide better color on? Well, we are promoting more disclosure on the data center business. Data center valuation, there is a market for that. So EBITDA and profit-based multiple. So some kind of a total value can be assumed for our assets. And perhaps you can reference that in order to value the data center business as a whole. Yusuke Okumura: Now in terms of my second question, in terms of the creation of synergy with NTT DATA, I'd like to ask about the revisions to your medium-term plan. What kind of discussions are ongoing? So the synergy of having NTT DATA as a 100% subsidiary, will you just be updating EBITDA or the leverage ratio? Or will you be introducing new KPIs, like EPS? Or will you be considering balance sheet restructuring or changing the medium-term targets? Are you having those wide-ranging discussions? Can you share with us what is being discussed? Akira Shimada: This is Shimada. We are still in the process of discussing the synergy. And I actually mentioned this in the press conference. We need to first review NTT DATA's medium-term plan. And President Sasaki of NTT DATA also mentioned in terms of the global synergy that can be harnessed as a group. That is one very important factor. So NTT DATA's medium-term plan will be announced in spring next year. And the consolidated business plan will also be revisited at that time. So at this time, numerical targets or contents, how much we will review the medium-term plan, it is too premature to say because we need to have more concrete items to be able to provide more color on this. Yusuke Okumura: I apologize for asking a premature question. Naoki Akaishi: I would like to take a question from Morgan Stanley MUFJ Securities, Mr. Tsusaka. Tetsuro Tsusaka: This is Tsusaka from Morgan Stanley. Can you hear my voice? Unkown Executive: Yes. Tetsuro Tsusaka: I have one question regarding the mobile business and also a question related to the NTT DATA. Regarding the mobile business, before, you were not spending money than your competitors, but you are spending now at the same level as competitors, and you're still losing. And I think this is quite of a serious situation. And the other point is listening to Mr. Maeda's presentation for NTT DOCOMO, it seems that various things are being in place or prepared. However, didn't feel something that will stand out as becoming the core for them. So as a holding company, the strategy of NTT DOCOMO, are you making a decision that is really going well? Or if there is a question -- if your question towards the NTT DOCOMO's strategies, towards NTT DOCOMO directly, are you in a position that you can instruct them directly as a holding company? Or are you taking such an action to them is what I'd like to know? And the second question is related to NTT DATA. And at the NTT DATA, the President of NTT, Sasaki-san, was saying that it's global. And Shimada-san, you mentioned that it's global as well. And for global center business, you hold the #3 position globally. So you have quite of a solid presence there. But for the other businesses, I don't think they -- you can say that they have succeeded overseas, well, numerically -- from the new number perspective. So the reason why you are focusing on global -- the data center being a global business is fine. I understand that very well. But for the other businesses, that being global, I feel that there's no track record that has been achieved, is how we can see it. So how should we think about that? Akira Shimada: First of all, Mr. Tsusaka, thank you very much. Regarding the mobile business, whether a discussion is done or not, we are having a discussion with them. Because we are having the discussion, that is why the direction has been changed since last fiscal year, basically. They need to solidly and surely protect their customer base. And as I mentioned before, without spending cost or money and just damage their existing customer base, there's no future for the business. Therefore, we wanted them to thoroughly respond to the situation. For the second quarter, actually, the [ Elmos 0.5 giga ] was stopped as a plan, and there's an impact of that. And in fact, we slightly lost against the competitors. But as of October, MNP is net positive now. And the second quarter situation, I think, is a temporary situation, is how I look at it. But what's more important than that is regarding quality. We need to improve the quality, especially because everybody now is watching a lot of video. So the challenge is in the metropolitan areas, around the railway routes. We need to work on that, and we need to increase the number of base stations. However, today, it was said that in the second half that they're going to increase the construction process by threefold, but that needs to continue into next fiscal year. And also the 5G base station that has become old needs to be new, and we are replacing that to a new one. And that needs to be completed through this fiscal year and next fiscal year. So those are the two key points. And we are aligned with DOCOMO on this. And they are thinking of various cost reductions, but these are the necessary costs that needs to be spent. So for this year and next fiscal year as well, in terms of implementing new equipment and facilities is something that is necessary. Therefore, how are we going to overcome this situation and have a bright prospect for FY '27. Of course, I don't know the numbers for FY '27 yet. However, these type of factors will come about, and we are aware of that, and we are continuing our discussions on it. And regarding NTT DATA, at the global discussion, recently, the demand for AI is coming about quite strongly. And the tech services customers, conventional tech service customers is where the AI demand is coming from, especially South Europe, like Spain, Italy, in that region, the needs is heightening. In Germany, unfortunately, the automobile industry is not doing well. So there's an impact from that. And the U.K., performance is coming back slightly. And in the United States -- well, the U.S.A. is about the same situation like Southern part or Southern Europe. So we do have expectations to a certain extent in those regions. So the product itself is transforming and having the customer base is quite valuable. So in the areas other than data center business, to turn it around into a positive business, I want the business to be managed in that way. Thank you very much. Naoki Akaishi: Thank you very much. So we have exceeded the allocated time. We would like to take one more question either from the floor or remotely. Since there seems to be no further questions, we would like to conclude NTT Holdings presentation. Next will be from NTT DOCOMO. So please stay in your seats. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Christina Glenn: Good morning, and welcome to the presentation of Aker's Third Quarter Results for 2025. My name is Christina Schartum, and I'm the Head of Communications at Aker. I am joined in the studio today by our President and CEO, Oyvind Eriksen, who will walk you through the key highlights and recent developments across the portfolio. Our CFO, Svein Oskar Stoknes, will then take you through the financial results in more detail. After the presentation, we'll open up for questions. You're welcome to submit your questions at any time using the chat function. And with that, I'll hand it over to Oyvind. Øyvind Eriksen: Thank you, Christina, and good morning, everyone. Since launching a more focused Aker at the start of 2024, we have taken clear steps to simplify the portfolio, concentrate on fewer larger companies and invest in new growth areas. This quarter shows that the strategy is bearing fruit. Net asset value increased to NOK 67.5 billion, NOK 909 per share, and our share price rose nearly 20%, clearly outperforming both the Oslo Stock Exchange Benchmark Index and the oil price. We are seeing strong contributions from both our core energy business and our newer platforms: AI infrastructure, industrial software and real estate. The portfolio is becoming more balanced and less tied to commodity cycles. That's an important shift. Year-to-date, total shareholder return is nearly 50%, including dividends. We have increased the number of companies paying upstream dividends and received NOK 5 billion so far this year. In line with our dividend policy, the Board has approved a second dividend of NOK 26.5 per share, bringing the total to NOK 53 per share or NOK 4 billion in total. The strong performance is due to a number of value-accretive developments in our portfolio like the launch of Aker Nscale 50-50 joint venture for AI factory developments in the Nordics; our subscription of a 9.3% stake in Nscale with earn-out that can bring our shareholding up to 12.2%; the expansion of our real estate platform by acquiring 7.48% of the shares in Sveafastigheter; Aker BP delivering another solid quarter, raising its full year production guidance and making the Omega Alpha Discovery, one of Norway's largest in a decade; Cognite continuing its strong commercial development with Q3 SaaS bookings growing 425% year-over-year across multiple industries and geographies; and lastly, the Philly Shipyard delisting being completed. In short, our strategy is working. We are building more focused, more resilient Aker and creating long-term value for shareholders. Let me add a bit more context on how we're putting our strategy into action. We have made steady progress in simplifying the portfolio and building new platforms for growth in shareholder value and cash dividends. We have crystallized value through several transactions and exited noncore holdings. This allows us to focus our time and capital on a smaller number of companies with strong potential for returns. At the same time, we have invested in areas where we see long-term demand and attractive cash flows, particularly AI infrastructure and real estate. I will return to both of these shortly. This summer, we established Aker Nscale, a 50-50 joint venture between Aker and Nscale dedicated to developing large-scale AI data centers in the Nordics, starting with Northern Norway. This marks a new chapter for Aker. After previous attempts to build green industries proved unviable for realizing Narvik's potential. Momentum has accelerated. We announced two landmark customer agreements. OpenAI for the Stargate Norway project and Microsoft with a USD 6.2 billion 5-year contract. Construction is underway at the first site in Kvandal Narvik, with 230 megawatts of grid capacity secured and installed. Aker Nscale is now in the queue for an additional 290 megawatts. Thus, at full build-out, Kvandal is expected to reach up to 500 megawatts in total. The JV has a total of 10 plots in the portfolio. The company is actively working to secure grid access and regulatory approvals for several of these, a process that is essential for future development. At the same time, Aker Nscale is undergoing an intensive ramp-up with organizational development and active hiring underway to support project delivery and growth. Beyond infrastructure, the ambition is to build future digital industry in Norway, not just as a host for global tech but as an active developer and partner. We are working closely with Norwegian universities and technology communities to ensure knowledge transfer, competence development and local value creation. The data centers will run on 100% renewable energy. Its approach emphasizes data sovereignty and responsible AI development, which is of utmost importance to protect security interest in the future, which will be even more digitally integrated despite higher geopolitical tension and uncertainties. To support this, the JV is delivering sovereign cloud infrastructure, enabling AI workloads to be processed securely and in full compliance with European data regulations. Aker Nscale is creating new jobs supporting local suppliers and positioning Norway as a main hub in the European AI infrastructure market. This is a strategic move that diversifies our portfolio and delivers on our commitment to build new pillars for growth. Let me walk you through the core economics of how the business model for Aker Nscale is structured and why we see this as a significant value creation opportunity. The business model is designed for scalability, high profitability and predictable cash flows. The target is an unlevered return above 12% for a 3- to 5-year contract across GPU and data center investments, exceeding Aker's required rate of return. The model is based on GPU as a Service where we enter into long-term take-or-pay contracts running for 3 to 5 years with solid counterparts. This ensures full utilization over the contract period and gives a strong visibility on cash flow. These contracts typically include significant prepayments, which supports CapEx funding and reduce risk. The GPUs are installed in stages with prepayments for each phase. This approach allows us to manage CapEx efficiently and align investments with demand. The industry benchmark for EBITDA margins is above 70%, and our project is designed to deliver at or above this level. Importantly, the GPUs are fully amortized over the contract period, limiting residual risk. Consequently, there is a significant upside in terms of residual value potential after the contract period as the hardware is fully amortized and can be repurposed or sold. The cost structure is straightforward. GPUs account for about 80% of CapEx and OpEx is low. We hedged most of the power price for the entire contract period, minimizing exposure. And most of our contracts are with investment-grade counterparties and hence, financing is also robust. The scale is impressive. Significant customer agreements so far, including the USD 6.2 contract with Microsoft, more than 62,000 NVIDIA GPUs committed, 5-year contract periods with full utilization and residual value upside. First, development are targeted for August 2026 onwards, positioning Aker's Nscale in Narvik as one of the largest and most advanced AI data center projects in Europe. In short, this investment offers an attractive combination of scale, profitability and predictability underpinned by strong counterparties and robust risk management, all key qualities to become a key driver of value for Aker moving forward. Moving on to our direct ownership in Nscale, which is another cornerstone of our strategy in AI infrastructure. Earlier this quarter, Aker subscribed for a 9.3% stake in Nscale through Europe's largest ever Series B fundraising for AI infrastructure. This which was made alongside partners like NVIDIA, Nokia and Dell is not just a financial investment, it's a strategic position in one of the fastest-growing AI hyperscalers globally. Our agreement includes an earn-out mechanism, giving us the opportunity to increase our ownership to 12.2%. On top of that, our joint venture stake can be converted into additional shares in Nscale no later than at the future IPO positioning us for further upside as the company scales. Nscale itself is a remarkable story. Founded in 2023, the company has already secured multibillion-U.S. dollar contracts with the world's largest tech companies, and is delivering some of the largest GPU developments in the world. Nscale's vertically integrated model from data centers to software orchestration and its focus on renewable energy, have made it a partner of choice for leading technology companies. The pace of growth is extraordinary, with operations expanding across Europe, North America and the Middle East. This direct ownership gives Aker a seat at the table in a rapidly expanding market, with exposure to global growth, innovation and long-term value creation. It complements our operational partnership and strengthens our ability to shape the future of AI infrastructure in Europe. So in short, our stake in Nscale is a strategic lever for growth, innovation and shareholder value. AI infrastructure is only one part of the equation. The real value comes from transforming raw industrial data into actionable intelligence, and that's where Cognite stands out. Cognite's platform built around Cognite Data Fusion and Atlas AI is purpose-built for complex industrial environments, which is a huge market with high barriers to entry. The Cognite technologies unifies and contextualize data from operational sources, IT and engineering systems breaking down silos and creating a one single source of truth. This enables customers to deploy AI at scale, automate workflows and unlock new levels of efficiency, safety and sustainability. Q3 was Cognite's strongest quarter-to-date, with SaaS bookings growing record high 425% year-over-year and Q3 annual recurring revenue, up over 34%. While this performance was exceptional, we expect growth rates to normalize again next quarter, whatever that means in a boiling hot AI market. However, Cognite's momentum is more than just numbers. What sets it apart is its ability to deliver real impact in production. The Atlas AI platform allows customers to build and deploy industrial AI agents quickly using low code tools and preconfigured templates. These agents automate complex tasks from root cause analysis to predictive maintenance and generate significant business value. Cognite's reach now spans in energy, manufacturing, utilities and renewables with strong traction across Europe, North America, Middle East and Asia. Strategic partnerships with NVIDIA, Databricks and Snowflake reinforce Cognite's position as the go-to platform for industrial AI, enabling seamless integration and real-time AI-ready data sharing. More than commercial traction, this is a strategic validation. Cognite is becoming the trusted choice for companies seeking operational excellence through AI powered by structured data and domain expertise. In sum, Cognite is scaling with discipline, executing on its strategy and building a business positioned for long-term value creation. As we build new pillars for growth, real estate is playing a more central part in Aker's strategy as an active platform for long-term value creation. We have moved from passive ownership to operational excellence with scale across three listed platforms. Starting with SBB, the Nordic's leading real estate company in social infrastructure with SEK 93.7 billion in total property value. Despite recent challenges with a complex legal and financial structure, the fundamentals remain attractive. Our ownership gives us access to a substantial asset base and long-term potential. We are focused on strengthening governance, capital structure and operational discipline to support a more resilient platform. Next, Public Property Invest or PPI. Norway's leading player in social infrastructure, managing more than NOK 16 billion in property value. PPI continues to deliver predictable returns supported by strong tenants and disciplined dividend strategy. And finally, Sveafastigheter, Sweden's largest listed company in the regulated residential market with SEK 30 billion in property value. Sveafastigheter is our latest addition further expanding our footprint and operational reach. In addition, Aker Property Group manages NOK 5 billion in unlisted assets. focused on offices, logistics and industrial properties. Across these platforms, we are managing more than NOK 100 billion in property values combined. Our role is to support, strengthen and unlock the long-term potential, building a resilient real estate platform that complements our ambitions in AI and technology. So to sum up, Aker is executing on a strategy built for resilience and long-term value creation. We are delivering with sharper focus, simplifying our portfolio, investing in new pillars like AI infrastructure, industrial software and real estate, while also maintaining our industrial backbone. Our portfolio is now more diversified, less exposed to commodity cycles and positioned to benefit from long-term growth trends. Looking ahead, we remain committed to active ownership, disciplined execution and building trust with all stakeholders. The steps we have taken this year lay a solid foundation for continued value creation, financial flexibility and strategic progress. It's worth noting that our unlisted companies and liquidity reserve, together representing substantial value are still priced at virtually 0 by the market, highlighting a disconnect we see as a long-term opportunity. Aker is well positioned to capture opportunities in a changing market, and we will continue to build on our strengths as we move forward. That concludes my part of the presentation. I will now hand it over to our CFO, Svein Oskar Stoknes. Svein Stoknes: Thank you, Oyvind, and good morning. To begin, I will provide a brief overview of the key numbers for our listed and unlisted equity investments along with cash and other assets, followed by a more detailed discussion of our financial results. At the end of the third quarter, Aker's listed equity investments were valued at NOK 55 billion. This represented 72% of the company's total assets equivalent to NOK 743 per share. This was marginally down compared to the previous quarter and primarily due to negative value adjustments of NOK 1 billion related to Aker Solutions and NOK 0.6 billion related to Aker BP. And this was offset by a NOK 2.2 billion value increase of Aker BioMarine during the quarter. The net asset value of Aker Property Group's listed real estate investments in PPI and SBB is now also included under listed equity investments and included net of single-purpose debt. The investment in Sveafastigheter came after quarter end. Total dividends received from listed investments in the third quarter amounted to NOK 1.1 billion, with Aker BP accounting for NOK 856 million, Solstad Maritime for NOK 186 million and Akastor for NOK 35 million. Then over to Aker's unlisted equity investments, which represented 17% of Aker's total assets at the end of the quarter. These assets were valued at NOK 13 billion or NOK 179 per share. This represents an increase of NOK 0.7 billion from the previous quarter. The inclusion of Aker Holdco following the completion of the merger of Aker Horizons into Aker Holdco was the main driver of this increase. And this was partly offset by a negative value adjustment related to our investment in Gaia Salmon. Finally, cash and other assets, which represented 11% of Aker's total assets at the end of the quarter, equivalent to NOK 112 per share. Cash inflows totaled NOK 1.8 billion composed of cash dividends received from Aker BP, Solstad Maritime, Akastor and SalMar of and totaled NOK 1.1 billion in the quarter. In addition, we received a part down payment of the Aker Holdco shareholder loan of NOK 750 million. Cash outflows amounted to NOK 1.3 billion, including debt repayment of NOK 800 million and net investments and loans to portfolio companies of NOK 184 million, of which NOK 69 million to Aker Property Group. And cash outflows related to operating expenses and net interest totaled NOK 247 million for the quarter. This gave a cash balance at the end of the quarter of NOK 1.2 billion. The main components of fixed and interest-free assets are accumulated interest on receivables and NOK 0.5 billion of fixed assets. Then let's move to the third quarter financials for Aker ASA and holding companies, starting with the balance sheet. In accordance with our accounting principles, investments are recognized at the lower of historical cost and market value. At the end of the quarter, the book value of Aker's investments was NOK 28.6 billion, which represents a decrease of NOK 57 million compared to the previous quarter. This change primarily reflects negative value adjustments of our investments in Gaia Salmon and ICP of in total NOK 390 million. This decrease was partly offset by an increased book value of the investment in Aker Holdco of net NOK 233 million, in addition to a value increase of the shares in SalMar of NOK 96 million. The book value of equity at quarter end was NOK 27.6 billion, up NOK 445 million, mainly due to the profit before tax in the period. On a fair value adjusted basis, Aker's gross asset value was NOK 76.8 billion. After subtracting for liabilities, the net asset value amounted to NOK 67.5 billion or NOK 909 per share and the value-adjusted equity ratio was 88%. Of the total liabilities of NOK 9.3 billion, NOK 8.2 billion is related to bond debt and bank loans. And the noninterest-bearing liabilities includes NOK 545 million negative value on the AMSC TRS agreements. After quarter end, the TRS agreements were all settled at the end of October in connection with the liquidation of the company. Aker's financial position remains robust with a total liquidity buffer of NOK 7.8 billion, including undrawn credit facilities and liquid funds. After quarter end, our revolving credit facilities have been upped in size by NOK 2 billion, bringing the total RCFs to NOK 12 billion. Net interest-bearing debt amounted to NOK 1.7 billion at the end of the quarter, down from NOK 2 billion in the previous quarter, reflecting capital allocations made during the period and an increased cash balance at the end of the quarter. The loan-to-value ratio stood at 10%, reflecting our conservative approach to capital structure and Aker's weighted average debt maturity was 3 years. Including available options for credit and loan extensions, the overall effective loan maturity is approximately 4.1 years. Finally, moving to the income statement. Operating expenses in the third quarter were NOK 103 million. Dividend income was NOK 1.1 billion, mainly from Aker BP, Solstad Maritime and Akastor. The net value change was negative NOK 415 million, primarily due to a couple of negative value adjustments already mentioned, partially offset by gains in SalMar. Net other financial items totaled negative NOK 92 million. And finally, our profit before tax was NOK 460 million for the quarter. Thank you. That concludes today's presentation, and we will now proceed to Q&A. Christina Glenn: Thank you. We'll now continue with the Q&A. We have received several questions, starting with the data center initiative. Oyvind, can you elaborate on the risk profile for the Aker Nscale joint venture? And maybe also say a little bit more about whether you expect Aker needing to contribute more equity capital in addition to the USD 125 million already contributed? Øyvind Eriksen: Sure. The USD 125 million already committed and communicated relates to the Stargate Norway project. But generally speaking, it's likely that Aker will allocate more capital to AI infrastructure in the future provided that the investments will meet our investment criteria. As far as the risk profile or I would turn it around, the attractive business model is concerned. We signed a long-term take-or-pay contracts 3 to 5 years, with some of the most robust investment-grade companies in the world like Microsoft. And the contracts will typically contain significant upfront payments in order to help the financing of the CapEx-intensive developments. . Then the target is to amortize the GPUs, which accounts for 80% of the total investment during the course of the initial 5-year contract period, and to amortize 50% of the investment in the data center, the building and the infrastructure during the same initial 5-year contract period. And then it's obviously a huge opportunity to sell the GPUs and beyond the initial contract period. So that's the super profit for data center investments, which we believe will materialize but which is not a part of the initial investment decision and business case. Christina Glenn: What is the time line for revenue generation? Øyvind Eriksen: Well, the target is to commence operation for the Microsoft site in Narvik in August next year. And then revenues will start to stream. Christina Glenn: Great. There has been information on the Kvandal site in Narvik. There's also a little bit of information trickling out about other sites. Can you say a little bit more about how that's progressing? Has there been any investment committed on those sites and what the status is? Øyvind Eriksen: Well, we would like to grow the JV beyond the initial projects. And we have already dialogue with both existing customers and new customers about further data center developments, primarily in the Narvik region, but also in other parts of the Nordic region. So short term, it's about access to land and renewable power. Next step will be to negotiate customer contracts. And based on customer contracts, we will be able to make new investment decisions. Christina Glenn: Nordics going beyond Norway. Øyvind Eriksen: Of course, but the by far most attractive region in the world. to build data center is actually the Narvik area. Christina Glenn: Great. Then there's a question on the IPO of the Aker Nscale joint venture. Do you want to clarify anything on that? Øyvind Eriksen: The Aker Nscale joint venture. Christina Glenn: It says a possible IPO of the Aker Nscale joint venture. . Øyvind Eriksen: Yes. Well, we have no plan to IPO the JV as such. But the way the contract with Nscale is structured is that Nscale has a plan to IPO the company in a not-too-distant future, most likely in the United States. And prior to an Nscale listing, we have a right to roll up over 50% shareholding in the JV and exchange that shareholding in an additional Nscale shareholding. So the end game according to the current plan, is to end up as a significant shareholder in Nscale and with the JV consolidated 100%. Christina Glenn: So no IPO for the joint venture? Øyvind Eriksen: No IPO plan for the JV as such directly, but through Nscale. Christina Glenn: On the topic of IPOs. Can you say anything about timing for Cognite, which has seen an extraordinary quarter and year? Øyvind Eriksen: Well, I think I've been asked that question in most quarterly presentations since we established Cognite. And the answer is the same. We have no specific time line for a Cognite IPO yet. However, it's great to see that the inbound interest from investors continues to increase. So we have numerous financial and industrial players asking for shares in Cognite. So the optionality has always been high. And with the recent success, it continues to grow. Christina Glenn: Great. There's a question from an Aker Horizons shareholder wanting to know a little bit more about the path forward for Aker Horizons. Øyvind Eriksen: Well, you should read the announcement made by the Aker Horizons Board last week. We have no specific plans to develop and grow Horizon for the time being. The Board continues to explore different alternatives, including a liquidation of the company. Christina Glenn: And then the last question is, if you can give some more color on the process to solve SBB's financial situation. Is there a need to contribute more capital into that company and the real estate? Øyvind Eriksen: We are in a live dialogue with SBB both as a significant shareholder, but also as Board members. And the way Aker look upon SBB is that it is a company with great assets but a challenging balance sheet. So to fix the balance sheet of SBB is a matter of strategic importance in order to reposition the company for future growth. So I take for granted that the Board of SBB will announce the different steps to be taken when the Board has concluded the ongoing discussions. But the goal is clear, and that's to reposition SBB, strengthen the balance sheet and grow the company longer term. And we assume and expect that SBB like PPI and Sveafastigheter will be important assets in the Aker real estate portfolio going forward. Christina Glenn: Great. Thank you. That concludes today's presentation and Q&A. If you have other questions, please don't hesitate to reach out. Thank you for following.
Operator: Good day, everyone, and thank you for standing by. My name is RJ, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Xenon Pharmaceuticals, Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Colleen, Senior -- or Xenon Senior Vice President of Corporate Affairs. Please go ahead. Colleen Alabiso: Good afternoon. Thank you for joining us on our call and webcast to discuss Xenon's third quarter 2025 financial and operating results. Joining me today are Ian Mortimer, President and Chief Executive Officer; Dr. Chris Kenney, Chief Medical Officer; Darren Cline, Chief Commercial Officer; and Tucker Kelly, our Chief Financial Officer. After completing our prepared remarks today, we will open the call up for questions. Please be advised that during this call, we will make a number of statements that are forward-looking, including statements regarding the timing of and potential results from clinical trials, the potential efficacy, safety profile, future development plans and current and anticipated indications, addressable market, regulatory success and commercial potential of our and our partners' product candidates, the efficacy of our clinical trial designs, our ability to successfully develop and achieve milestones in our clinical development programs including the anticipated filing of INDs and NDAs, the timing and results of those filings and our interactions with regulators, our ability to successfully obtain regulatory approvals, anticipated timing of the top line data readout for our clinical trials of azetukalner, and our expectation that we will have sufficient cash to fund operations into 2027. Today's press release summarizing Xenon's third quarter financial results and the accompanying quarterly report on Form 10-Q will be made available under the Investors section of our website at xenon-pharma.com and filed with the SEC and on SEDAR. I will now turn the call over to Ian. Ian Mortimer: Great. Thank you, Colleen, and good afternoon, everyone. Thanks for joining us on our call today. We're excited to share the considerable progress we have made over the past quarter as we remain focused on our 3 critical priorities: first and foremost, completing our Phase III X-TOLE2 study of azetukalner for the treatment of focal onset seizures, the top line data readout in early 2026, followed by the filing of our first NDA for the approval of the azetukalner in the U.S.; second, broadening the therapeutic opportunities for azetukalner beyond epilepsy with potential neuropsychiatric indications where we have identified strong preclinical, clinical and genetic evidence supporting the development in major depressive disorder and bipolar depression; and third, expanding our pipeline through the advancement of our promising earlier-stage Nav1.7, Kv7 and Nav1.1 ion channel programs with recent progress of our novel Nav1.7 and Kv7 modulators moving into Phase I studies. I will focus most of my comments on our azetukalner, or AZK, Phase III epilepsy program, and Chris will provide additional details across our clinical stage portfolio. As a reminder, AZK remains the only Kv7 channel opener and the only ASM in development that is backed by long-term efficacy and safety data from clinical studies of patients living with epilepsy, having demonstrated a highly compelling placebo-adjusted efficacy in focal onset seizure patients in our Phase IIb X-TOLE trial and durable and sustained efficacy over time through our open-label extension study, with greater than 800 patient years of exposure and safety data. As we disclosed in today's press release, the final patients in our X-TOLE2 study have completed the baseline period. and all patients have now been randomized. The final number of patients randomized is 380, which is a significant milestone, and we remain on track for top line data readout in early 2026. As a reminder, X-TOLE2 was designed and powered to randomize approximately 360 patients. So we are very pleased to have randomized more than the target in the study design. This will result in good power across the critical endpoints in this study. From the outset, we have prioritized working with high-quality, experienced clinical sites to maximize study success while diligently monitoring key metrics throughout the study. These metrics are tracking as we expect and as we disclosed previously, patient baseline demographics and the open-label extension rollover rate are consistent with our successful Phase IIb X-TOLE2 study. Therefore, we remain confident in X-TOLE2 and share the epilepsy community's excitement as we progress towards top line data readout. Two topics that we often get questions on with respect to X-TOLE2 are the final steps between now and top line data as well as our expectations going into this important readout, so I'm happy to address both of these topics. As I mentioned, the final patients in X-TOLE2 have recently been randomized. That means all patients have completed their 8-week baseline period and the randomization visit. These final patients are now in the 12-week double-blind portion of the study. For those patients who complete the double-blind portion, they have an opportunity to enter the open-label extension. The OLE rollover rate has been high in X-TOLE2, consistent with X-TOLE, where we saw greater than 95% of patients roll over to open label. For those patients who don't enroll in the OLE, there is an 8-week safety follow-up visit. Therefore, the final timing of the top line data will be determined based on the last few patients and whether they enter OLE. After the final patients have completed the double-blind period, we will finalize data cleaning and lock the database, complete the statistical analysis and medical review and be ready for top line data release. We will be in a position to narrow guidance about the specific timing for top line data in the coming months. We are optimistic for a positive outcome, and we believe that X-TOLE2, together with the strong results from X-TOLE, will serve as the basis for a new drug application for AZK in focal onset seizures. As we prepare for the X-TOLE2 readout, we have completed a detailed review of prior FOS studies, and we find that there is high reproducibility of results from Phase II to Phase III. ASMs that have strong efficacy results in earlier studies demonstrated the similar positive results in subsequent Phase III studies, although there is some reduction in effect size, which is not unusual when moving from Phase II to Phase III. Over the last 20 years, anti-seizure medicines that have been approved in adult FOS in the U.S. have shown a placebo-adjusted seizure reduction percentage ranging from the teens into the low 30s. Interestingly, some of the more successful ASMs, including Vimpat, are on the lower end of this range and often, the drugs on the higher end of the range had other challenges, either around tolerability or an onerous titration or DDI profile. This reinforces what we consistently hear from physicians. Although efficacy is an important component, the overall profile of the ASM drives prescribing decisions to address a broad range of unmet needs for their patients. And it is this overall profile where we believe azetukalner is differentiated and has a compelling set of attributes. At launch, we believe AZK will be an only-in-class Kv7 mechanism of action with strong short- and long-term efficacy, QD dosing with no required titration, no adjustments for DDIs, the potential for mood benefit and an overall favorable safety and tolerability profile. It is this profile that we believe will drive adoption and commercial success. So again, we have high confidence, and we expect that a positive X-TOLE2 readout, combined with the impressive efficacy from our X-TOLE study, will form compelling profile supportive of our NDA submission. We remain excited as we look forward to the potential of bringing an important new medicine to the epilepsy community. So I'll now turn the call over to Chris, who will share more details on our clinical development programs across epilepsy, depression and pain. Chris, over to you. Christopher Kenney: Okay. Thanks a lot, Ian. I'll begin with an update on our epilepsy program. As Ian already said, we're really pleased to have completed randomization in our Phase III X-TOLE2 clinical study of azetukalner with a total of 380 patients, which exceeded our original goal of 360. Our team's focus is now on completing the study to deliver top line data in early 2026, with the shared goal of the positive impact we could have by providing a new treatment option for these patients. We're also placing a great deal of effort into the other 2 studies of azetukalner in epilepsy including our Phase III X-TOLE3 study in focal-onset seizures and our X-ACKT study in primary generalized tonic-clonic seizures. While we advance our various studies in epilepsy, we are also focused on scientific exchange and education around the profile of azetukalner with health care providers. This fall, we had a strong showing at the International Epilepsy Congress, or IEC, in Lisbon, where we had an opportunity to present 4 posters while meeting with various health care providers as we highlighted the 36-month data from the ongoing X-TOLE open-label extension study of azetukalner in patients with focal-onset seizures, which demonstrates sustained monthly reduction in seizure frequency, impressive seizure freedom rates and a consistent adverse event profile suggesting long-term efficacy and tolerability of azetukalner. We also presented data from our X-TOLE study showing the efficacy of the azetukalner in certain focal-onset seizure subtypes as well as presenting a targeted literature review outlining the comorbidity burden in focal-onset seizures. In addition to these clinical presentations, we presented findings from our early-stage Nav1.1 program with data from preclinical models specific to Dravet syndrome. The energy at the meeting was high and excitement continues to build around the long-term data and continued scientific evidence generation. Looking ahead, we continue to generate data from our azetukalner open-label extension study and will present new 4-year long-term data at the upcoming annual meeting of the American Epilepsy Society, or AES, in Atlanta early December. AES is a critical meeting for us to engage with the epilepsy community, and Xenon is currently an emerging leader in the field. We look forward to significant scientific engagement. With 7 abstracts accepted for presentation, we're looking forward to showcasing a number of presentations, including updated long-term data from the ongoing azetukalner open-label extension in focal-onset seizures, study centered around depression and the impact on epilepsy patients as well as preclinical data from our Nav1.1 program. In addition, we look forward to interactions at our various booths, one-on-one meetings with physicians facilitation of ongoing scientific exchange through a dedicated scientific exhibition and symposium. So in summary, considerable momentum is building in our azetukalner epilepsy program with important milestones in the near term with the presentation of the 48-week open-label extension data at the American Epilepsy Society followed by our X-TOLE2 Phase III readout in early 2026. Now turning to Xenon's efforts to expand azetukalner's use into neuropsychiatry, an area where we believe the differentiated profile of azetukalner could really benefit patients. We hear from physicians that they are interested in new therapeutics with novel mechanisms of action, potential benefits on anhedonia, rapidity of onset along with a potentially differentiated tolerability profile. Our clinical development teams have made great progress with X-NOVA2 and X-NOVA3, 2 of our 3 planned Phase III clinical trials evaluating azetukalner in patients with major depressive disorder, which are underway and enrolling patients. In addition, X-CEED, the first of 2 planned Phase III clinical studies evaluating azetukalner in patients with BPD I and BPD II depression is also underway. Effective treatments for depression in bipolar disorder are limited, and many patients are non-adherent due to side effects and other factors. There remains a significant unmet medical need for safe and effective therapies to treat patients with bipolar depression, and the physicians that we have spoken with are keenly interested in azetukalner's differentiated profile. Beyond supportive physician feedback, a number of key factors informed our decision to expand our clinical development of azetukalner into bipolar depression, including an in-depth review of the existing literature outlining genetic links between BPD and Kv7, evidence of Kv7 down regulation in BPD as well as clinical studies that explore the use of Kv7 potentiators in depression, including results from our own proof-of-concept study in MDD. We've also generated preclinical data showing an antidepressive effect of azetukalner. Considering the current treatment landscape, azetukalner's novel selective Kv7 mechanism of action, potential benefits on anhedonia, rapid onset of effect and differentiated safety profile are particularly attractive in BPD. As a reminder, our X-CEED trial, is a multicenter, randomized, double-blind, placebo-controlled clinical trial to evaluate the clinical efficacy, safety and tolerability of 20 milligrams of azetukalner administered orally with food over the 6-week double-blind period, as monotherapy treatment in approximately 400 patients with bipolar I or II depression, with an opportunity to increase the sample size to 470 patients based on an interim analysis. The primary efficacy end point is the change from baseline in the MADRS score at week 6 in patients who received azetukalner compared to placebo. Upon completion of the double-blind period, eligible patients may enter an open-label extension study for up to 12 months. We're incredibly excited by the potential of azetukalner and its Kv7 mechanism in neuropsychiatric indication such as MDD and BPD. And I look forward to providing updates as we leverage azetukalner's pipeline and a mechanism potential across multiple streams of late-stage clinical development. Looking at our early-stage programs. As Ian mentioned, both of the lead molecules in our Nav1.1 and Kv7 programs, XEN1701 and XEN1120, respectively, are now in Phase I first-in-human studies in healthy volunteers. In October, we hosted an investor webinar focused on Nav1.1 and Kv7, which has garnered much interest. We received insightful questions about our approaches, including our focus on leveraging mechanistic insight, especially around ion channel function to target pain at its source and develop precision therapies that can address both the complexity and chronicity of pain. When we engage directly with clinicians, we hear a strong desire for opioid-sparing therapies that can meet the everyday realities of pain management without compounding the problem. Physicians recognize the limited efficacy of current options and remain concerned about the substantial risk of abuse and dependency tied to opioids. Even when opioids are used appropriately, their long-term safety profile is far from ideal. Chronic NSAID usage can also be problematic for different safety and tolerability issues that may arise. So these physicians are looking for alternatives that are both effective and well tolerated over the long haul, and importantly, they're interested in ion channel blockers as a potential transformative class of therapies. We know that analgesics can act along multiple different points of the pain pathway and interrupt the pain signal on its way to the brain. This is why we are excited about the potential for Nav1.1 inhibitors and Kv7 potentiators as these channels play important roles at multiple points in the pain signaling pathway, including through the initial transduction of pain stimuli into pain signals, the transmission of those pain signals along nociceptive neurons and the relay from peripheral sensory neuron to spinal cord neurons within the central nervous system. Starting with Nav1.7, we believe it is the best genetically validated pain target with striking genetic data in patients with loss of function mutations who have no ability to feel pain. Gain of function mutations have also identified -- have been identified that drive pain disorders, further underscoring the critical role now Nav1.7 plays in pain signaling. Our lead Nav1.7 inhibitors are CNS penetrant to enable global inhibition of Nav1.7 to better mimic the human genetics. They also demonstrate good free fraction and tissue distribution to achieve high levels of target engagement. And lastly, we have identified molecules that have excellent potency and selectivity to safely achieve target therapeutic levels of Nav1.7 inhibition. We believe we have solved for some of the critical limitations of prior Nav1.7 compounds and continue to build a strong pipeline of optimized Nav1.7 inhibitors for development in pain. With our long history with Nav1.7 and our deep ion channel drug discovery expertise, we are well positioned to deliver a novel and differentiated Nav1.7 compound profile into the clinic, one that has never been tested before. Kv7 is also a compelling pain target to modulate neuronal hyperexcitability at multiple points along the pain pathway, and we believe Kv7 potentiators have the potential to decrease neural hyperexcitability for the treatment of a range of pain conditions. This is supported by high levels of Kv7 expression throughout the pain pathway, and our data shows that Kv7 is enriched in the C and A delta pain subtypes of sensory neurons. In addition, Kv7 openers can block action potential firing in both DRG and spinal cord neurons, thereby significantly inhibiting pain signals from reaching the brain. Additionally, evidence supports that dysfunction of down regulation of Kv7 activity has been observed in altered pain states. And lastly, a clinical compound previously approved for the treatment of pain, flupirtine, has a mechanism of action that involves potassium channel opening, providing further validation of this approach. So in summary, we're excited to have both XEN1701 and XEN1120 now in Phase I first-in-human studies in healthy volunteers. And our goal is to initiate Phase II proof-of-concept studies next year, and we'll provide more details as we get closer to those important milestones. I'll now turn the call back to Ian, so he can cover our Nav1.1 program. Ian? Ian Mortimer: Great. Thanks, Chris, and thanks for sharing the significant momentum across our pipeline. We are proud of our extensive knowledge and development expertise in potassium and sodium channel therapeutics as well as the focus and investment in pain, neuropsychiatry and epilepsy. Rounding out updates with our Nav1.1 program, which continues to progress as we generate preclinical data that suggests targeting Nav1.1 could potentially address the underlying cause and symptoms of Dravet syndrome. Data shows that dosing with an orally available small molecule CNS penetrant and highly selective Nav1.1 potentiator suppressed induced seizures and improved motor performance supporting the potential for improvements in Dravet patient motor function. Further, in these animal models, chronic dosing suppressed spontaneous seizures protected against sudden unexpected death in epilepsy, or SUDEP, and increased long-term potentiation, a potential cellular correlate of learning and memory. We anticipate presenting preclinical data from this program at AES and expect that a lead Nav1.1 candidate can enter IND-enabling studies later this year. Finally, also coming out of our lab, a promising selective dual inhibitor of Nav1.2 and Nav1.6 sodium channels is now in a Phase I study as part of our collaboration with Neurocrine Biosciences. Neurocrine has guided that this first-in-human study will evaluate safety, tolerability, pharmacokinetics and pharmacodynamics of the investigational compound, NBI-921355 in healthy adult participants to support its development for the potential treatment of certain types of epilepsy. As our diverse pipeline of early-stage drug candidates continues to mature, I'm incredibly proud of the considerable progress we are making across multiple programs targeting ion channels. Before offering some concluding remarks, I do want to take a moment to introduce Dr. Kelly as our 1new Chief Financial Officer. Tucker recently served as the Executive Vice President and CFO at Deciphera Pharmaceuticals, where he oversaw the growth of the company as it advanced from discovery to direct commercialization in the U.S. and abroad. He built and strengthened the company's investor base and led strategic financial planning related to corporate strategy and pipeline, and this culminated in its $2.4 billion acquisition by ONO in 2024. Before joining Deciphera, Tucker also served as CFO of various public and private life science companies and also spent time as a life science investment banker. His experience will be incredibly valuable to our team here at Xenon, where Tucker will be instrumental in our strategic approach to building out the necessary functions, strategies, systems and infrastructure critical to our future commercial success as we await top line data from X-TOLE2 and prepare for our first anticipated drug approval. I believe he has already made a positive impact and look forward to continuing to collaborate with Tucker as Xenon evolves into a commercial stage company. So with that, I'll turn it over to you, Tucker, to say a few words, and then I can -- and conclude with our financials. Thomas Kelly: Thanks, Ian. I really appreciate the warm welcome. I'm thrilled to join Xenon at such a pivotal time as the company progresses X-TOLE2 with the goal of delivering positive top line results early next year and planning for the anticipated launch for azetukalner in epilepsy and beyond. I'm excited to apply my experience and expertise driving corporate and financial strategy for U.S. and international life sciences companies to Xenon and working with the team here as we build for commercialization and the impact we could have as a fully integrated biopharma company with the aspiration of delivering life-changing therapeutics to patients. With a healthy balance sheet and solid foundation, the future looks bright for us as we plan for a successful commercialization of azetukalner and our long-term growth. I have already been out on the road to begin connecting with our investors to share our vision for Xenon to become a leading company in neuroscience and in pain. Briefly turning to our financial results. Cash, cash equivalents and marketable securities totaled $555.3 million as of September 30, 2025, compared to $754.4 million as of December 31, 2024. Based on our current operating plans, including the completion of the azetukalner Phase III epilepsy study and supporting late-stage clinical development in MDD and BPD, we anticipate having sufficient cash to fund operations into 2027. Given our strong balance sheet and fiscal management, we are well positioned to support multiple registrational programs for azetukalner and the continued maturation of our early-stage pipeline. I'd refer you to our press release and the 10-Q filed today for further details on our financial results. And with that, I'll turn the call back over to Ian for closing remarks. Ian Mortimer: Great. Thank you, Tucker. I hope today's call reflected the excitement and relentless drive that permeates the whole team of Xenon. As we continue to progress our Phase III X-TOLE2 study of azetukalner with the anticipated top line data readout in epilepsy planned for early 2026, we are focused on the preparation of our NDA with the intent to file with positive top line X-TOLE2 data and advance azetukalner towards commercialization, bringing us one step closer to delivering a new antiseizure medication for patients still struggling with seizures. As I mentioned earlier on the call, once the last patient has completed the double-blind portion of the study, we will have visibility to the final time lines, and we will be able to narrow guidance at that time. To round out our azetukalner programs, we see the immense promise of applying azetukalner in other neuropsychiatric conditions and serving other patient populations in need and are proud of the progress with the X-NOVA and X-CEED programs. And while earlier stage, the excitement around our discovery pipeline is tangible. As we apply our ion channel expertise across multiple targets and therapeutic areas and grow these programs, we are taking important steps towards becoming a fully integrated neuroscience-focused biopharma company. So with that, I'll pause and operator, we can now open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Paul Matteis of Stifel. Paul Matteis: Appreciate it. I was wondering if you could just kind of set the stage for the top line data release. How much should we expect to be disclosed on efficacy and safety? And once you have those data in hand, if possible -- if positive, what would be rate limiting to filing? Ian Mortimer: Thanks, Paul. I can start, and then, Chris, please add your perspective as well. So your first question, just on top line data. Yes, there's always this balance, as you can appreciate, between a Phase III clinical trial, where we generate huge amounts of data and what we can actually just realistically get done in a reasonable period of time to get out of a top line press release and then what would come out of subsequent medical congresses. So if you look back at our X-TOLE data, I think that's a pretty good proxy for what you'll see in X-TOLE2, so obviously, the key efficacy end points as well as our overall comments on safety and tolerability. So I think in our previous top line press releases, we've tried to have a fair bit of information in there and good balance between both efficacy as well as safety and tolerability. And I don't think anything would be different for X-TOLE2. In terms of prepping for the NDA, I can start and then Chris, please add your perspective. So it's really the efficacy results from X-TOLE2 that are on the critical path. As we all know, there's a huge amount of work that goes into filing a new drug application. A lot of that work is ongoing and continues to be -- we even have sections that are written and completed today, and we'll continue to do that over the coming months. And the rest of the package and dossier will come together over the course of 2026, including, obviously, the data from X-TOLE2. But Chris, do you want to provide any more granular comments? Christopher Kenney: Well, just as you can imagine, I mean, we don't wait to start writing the NDA until the top line X-TOLE2 data comes. So a lot of work is ongoing and I know a lot has already been completed. So the critical path was your question. It's basically defined by what Ian just said, so incorporating X-TOLE2 into the story that's already being told from a clinical perspective from X-TOLE to create the integrated summary of safety and integrated summary of efficacy. So that's it, and we're well on our way already, Paul. Operator: Your next question comes from the line of Tess Romero of JPMorgan. Tessa Romero: Welcome to the team again, Tucker. Are you able to disclose where your screen failure rate ultimately landed for X-TOLE2? And generally, when screen-outs occurred, were they for reasons as expected from prior experience? And then my second question is just how far behind do you think the results of X-NOVA2 will be from X-TOLE2? Think it makes it into 2026? Ian Mortimer: Thanks, Tess. Again, I'm happy to start, and then Chris can add his perspective. So when we talk about -- just want to be clear on some definitions upfront. So we will, at the appropriate time, give the screen and baseline failure rate. We have that as a combined number. So those are patients that may have dropped out during the screening period as well as the baseline period prior to randomization. So again, we're -- with an ongoing study, we don't go into very specific details across a number of different parts of the study, including this. But I would say that it's kind of trended and tracked as we would have expected in the Phase III program. And Chris can go through probably some of the reasons that you lose patients due to either baseline seizure burden or BMI or compliance with diarrhea or a variety of things that people drop out during the screen and baseline period before randomization. So Chris, do you want to do that? And then I'm happy to address the second question, which is just the timing of X-NOVA2. Christopher Kenney: I'm happy to do that, but I think you kind of covered it, Ian. I mean, the screen failure rates, largely, it's a reflection of insufficient seizures. And then we have a number of other inclusion-exclusion criteria. And so there can be kind of a smattering of other reasons that follow behind that. But it's been consistent with what we would expect from Phase II, Tess. Ian Mortimer: Thanks, Chris. And then your question on the MDD program and specifically as it relates to X-NOVA2, so this will be the first Phase III readout from the psychiatry program. We haven't yet given guidance on it. That study, that Phase III study started right at the end of last year, kind of really got up and running in the first quarter of this year as we got most of the sites up and running. We haven't given guidance, and I think we've generally said that, in our experience, if we look at our Phase II X-NOVA study, and we extrapolate forward, these studies often take kind of 2, 2.5 years. So as we progress over the next few quarters, we'll be in a position to provide guidance to top line data. Operator: Your next question comes from the line of Brian Abrahams of RBC Capital Markets. Johoon Kim: This is Joe on for Brian. On the commercial side, you talked about overall clinical profile being important. Just wondering how much of that -- of the efficacy docs are willing to trade off for other positive benefits like tolerability, ease of use and some of the other benefits there? And what are some of the learnings from how cenobamate launched and has been performing commercially as of late? Ian Mortimer: Yes. I'm happy. Thanks, Joe, for the questions. I'm happy to start. And Darren is here as well and can provide his perspective. Darren's now been here a number of months and had the opportunity to attend one of the big medical congresses in Europe as well as interact with a number of key physicians in the space. So yes, as we talked about in the prepared remarks on a placebo-adjusted basis, we've seen efficacy kind of range from the teens into the low 30s. And so there is quite a range. And it doesn't seem to be predictive of where you are in that range to commercial success. And I think that's, to your point, Joe, that there are a number of these other attributes. You specifically referenced cenobamate. Cenobamate is on the higher end of that range from an efficacy point of view, but we do know that cenobamate in terms of the titration, over 12 to 16 weeks. And as you push that dose higher, there are a number of adjustments that need to be made because of DDIs and tolerability. And so it can be a bit of a more challenging medicine for prescribers and their patients. So again, I think that really reemphasizes the point that we see in the data that efficacy is part of the picture but not the complete picture. And I think Darren's perspective on this would be really helpful. Darren Cline: Yes. Thanks, Ian. It's -- yes, I think it's the -- each focal-onset seizure patient is a different one and will respond to different types of therapies. I think with AZK and the attributes we provide that we've outlined on the call today, provide another option for patients. And if you think about physicians and particularly the general neurologists who treat the majority of these epilepsy patients, these attributes translate into a simpler, safer and really more reliable care decision. And on the patient side, AZK has a potential to really meaningfully reduce seizures burden without the trade-off of titration, as we've mentioned, or the cognitive or mood side effects that often limit some of these current therapies. So in my 5 months here at Xenon and having the ability, as Ian said, to interact with physicians, AZK, which will be the first -- the next branded drug in almost 8, 9 years since the launch of XCOPRI, there's a lot of excitement around the attributes that AZK is going to bring to patients, their families and caregivers. Operator: Your next question comes from the line of Brian Skorney of Baird. Charles Moore: This is Charlie on for Brian. Ian Mortimer: Are you there, Charlie? We can't hear you come through. Operator: Brian. I think you're on mute. Are you still there? Ian Mortimer: I think he's back. So Charlie, we -- yes, we -- you cut out, so maybe you can start your question from the beginning. Charles Moore: Okay. Apologies for that. Yes. So it was on the X-CEED trial. Can you hear me? Ian Mortimer: Yes. Charles Moore: Okay. So on the X-CEED trial, just thinking about the differences between the 2 types of the -- of bipolar disorder, given the higher predominance of depression in type II as well as why you decided to go with the MADRS scale versus HAM-D like you did in the MDD trials. Ian Mortimer: Chris, do you want to address both of those, just the BP I, II and then also using MADRS versus HAM-D17? Christopher Kenney: Sorry, the first one was -- what was the question about BP I? I apologize. Ian Mortimer: It was just a question around -- I think, Charlie, it was just around the differences between bipolar I and bipolar II and including both of those patients, I think, patient populations in the X-CEED trial. Christopher Kenney: Yes. I mean, so the bipolar... Charles Moore: And difference in depressive dominance in bipolar II. Christopher Kenney: The difference in depressive symptoms between BPD I and II? Charles Moore: Yes. Christopher Kenney: Yes. I mean, the largest difference that we're going to see is just the propensity towards a true manic state versus hypomanic state. And because of the potential for differential treatment response, we don't know that for sure. We've decided to stratify BPD I and BPD II. To the extent that there could be a different response in depressive symptoms, I guess, we'll have to kind of see what the study shows. The decision on MADRS was largely driven just by the -- Ian, was that about depression? That was the MDD or the BPD? Ian Mortimer: Just changing the -- we have the HAM-D17 end point in MDD, Chris, and moving to the MADRS end point in bipolar depression. Christopher Kenney: Thank you. Yes. I mean this is largely driven by the fact -- so let me just kind of explain what happened in MDD just to set the stage. So what happened in MDD was there was an ezogabine proof-of-concept study that showed improvements in depressive symptoms they could use MADRS. And that was the precursor to our X-NOVA study. And so we did the same. We used MADRS as the primary end point. Fortunately, we also looked at the data, the depressive symptoms with the HAM-D score. And ultimately, when we looked at that study, even though there was essentially a 3 point improvement in both scales, there was much less variability within the HAM-D, and so it was significant. And so FDA guidance allows you to use either, and so we decided to switch from MADRS to HAM-D with FDA support. So bipolar -- the reason why I say all that is because bipolar is a different situation where basically there is largely a precedent of focusing on MADRS for the primary end point, and this is the first study that we've done. And so we don't have data that would suggest one or the other, and so we leaned heavily upon the precedents for how things have been done in most bipolar studies up till now. So that's the main logic. Operator: Your next question comes from the line of Jason Gerberry, Bank of America. Dina Ramadane: Congrats on the quarter. This is -- sorry, this is Dina on for Jason. Congrats on the quarter, and thank you so much for taking our questions. First one is just more of a clarification question on X-TOLE2 enrollment. Just wondering what the reason was for enrolling 380 patients instead of at initially planned 360. And do the additional 20 patients randomized like impact your powering assumptions at all? And then just wanted to touch upon the earlier stage pipeline. Can you provide just any color on data disclosures from the Phase I XEN1120 and XEN1701 SAD, MAD studies, maybe what like an initial update might look like and when we can expect it? And if you could also maybe frame what you kind of define as success from those programs. Ian Mortimer: Great. Chris, do you want to take the first one on X-TOLE2 enrollment and powering? And then I'm happy to do data disclosure around 1701 and 1120. Christopher Kenney: Yes, sounds good, Ian. Thank you. Yes. So thanks for the question. You have to keep in mind that when you're shutting down a study, you have several factors that are occurring. The -- sometimes there's an increase in recruitment. Sometimes it stays the same. Sometimes, it can even like unusually go down a bit. And then you have a screen failure rate, which you have been seeing for a while, which may remain the same or may go up or may go down. And so there are a certain amount of variables. And so when you decide when to kind of shut down screening, it's an imperfect science. And so when we chose the date on the back end to stop screening, there was a significant bolus of patients on the back end that brought us from 360 to 380, largely driven by the interest in azetukalner and its differentiated profile, which we've already gone through. So you could have ended up being 360. It ended up being 380 because of that increase at the end. And then as far as the power goes and just as a reminder for everybody, the powering for 25 milligrams versus placebo in the Phase III study in X-TOLE2 is quite high, like 99%. And so the study is also powered over 90% for the 15-milligram group versus placebo. And so if you go up in the number of patients, you get an even higher bump in power, I wouldn't really say that I think there's an appreciable impact on power going from 360 to 380, but whatever it is, it's certainly a little bit higher than it would have been at 360. So we're feeling confident as confident as we can, particularly because of the translatability of Phase II data in [ epilepsy ] Phase III at least historically. Ian Mortimer: Thanks, Chris. And then, Dina, your second question just on data disclosure, yes, just as a reminder, we have these 2 programs in Phase I now, XEN1701. This is the selective Nav1.7 inhibitor; XEN1120, which is our Kv7 modulator that we're also developing, both of them for pain. So they're both in traditional Phase I studies. So these are healthy volunteer, what you would expect dose escalating through single ascending dose and MAD cohorts. So those are ongoing. We believe those will wrap up probably in the first part of next year at some point, and then we would be in a position, depending on the data, to support moving into a Phase II proof-of-concept studies for both molecules. So in terms of the Phase I data, what we're looking for and what success would look like is that we'll get through the dose escalation, and we can -- based on our preclinical modeling for 1120 and also based on the genetics for 1701 or Nav1.7 is that we want to make sure that we have high enough exposure, that we believe we're going to see an analgesic effect in a human proof-of-concept study. So that's based on our preclinical modeling or we're trying to, with Nav1.7, really mimic the human genetics, so we can look at things like a modeling of receptor occupancy. Obviously, we want to look at overall safety and tolerability. And so it will be that profile in totality in Phase I that would give us confidence to move into Phase II. We haven't yet decided how that information will be disclosed publicly. But I think needless to say, I think once we have that information in hand, and we're ready to move to Phase II, we'd be happy to give information supporting our decision for future development. Operator: Your next question comes from the line of Cory Kasimov of Evercore ISI. Unknown Analyst: This is [ Adi ] on for Cory. In the recent few months, there have been early Phase II readouts from competitors. If these readouts hold in larger studies, how would that change how you see azetukalner being used? And just another question on how should we think about the operating cost into 2026 given you have to plan for a launch and other Phase IIIs are also planned for next year. Ian Mortimer: Thanks, [ Adi ]. I'm happy to take the first one and then pass it to Tucker for the second one. So yes, there's been -- I think, overall, seeing more innovation in epilepsy is great. That's good for the epilepsy community. It's good for patients. I would actually -- Darren mentioned earlier on one of the questions that there hasn't been a branded launch in quite some time, I would argue there hasn't been a lot of innovation in quite some time. So to see more innovation into focal-onset seizures, I think, we're a bit of a drive for that, and that's good for the epilepsy community. Specifically, always challenging to compare across trials with different programs. I'll also say that the other programs that have released data this year, we haven't seen any placebo-controlled data definitely kind of as we see in the X-TOLE program, either in the X-TOLE or what we're doing in X-TOLE2. So one, I think we set an incredibly high bar with the attributes of azetukalner; and two, we have -- these other programs are significantly behind with no -- none of the other programs having run a double-blind, placebo-controlled study as of yet. And we're in this position that we're going to share at the American Epilepsy Society meeting next month, where we now have patients have more than 5 years of dosing. We'll show our 48-week data on efficacy and open-label extension. So we have a huge amount of information on azetukalner and the attributes and feel really comfortable with our position. And I think we set an incredibly high bar as others are coming behind us. OpEx, Tucker? Thomas Kelly: Yes. So on the commercial side, so I think we've made some targeted investments already, which we think have been really important for Darren and his team to get prepped for either the readout and ultimately commercialization. So we've made those investments so far. And obviously, on the back of data early next year, we'll continue to prep for launch and the OpEx will reflect that. But when we look at really a 2027 launch time frame based on the estimated readout and obviously time to NDA submission, the bulk of the cost in terms of bringing on the sales force and the like will likely fall outside of '26. But yes, we will certainly have an increase on the SG&A side in '26 in the back of positive data to get prepped for '27. Operator: Your next question comes from the line of Marc Goodman from Leerink Partners. Unknown Analyst: This is [ Fatima ] on for Marc. For the first question, could you please remind us again whether you're planning to assess HAM-A or MADRS in X-TOLE2 in patients who have comorbid depression? And do we have any idea what's roughly going to be the proportion of patients? Have you looked at the blinded data of how many patients have comorbid depression? Second question we have, could you provide more color on the selectivity of Nav1.7 compared to other channels, the selectivity to 1.7 subunit versus other channels. You only disclosed information about receptor occupancy versus off-target effect. Are you going to have any more information about the selectivity? That's it for us. Ian Mortimer: Great. Thanks for the questions. Chris, do you want to -- I think it would be helpful maybe just to walk through the exploratory end points in X-TOLE2 as it relates to the psychiatric comorbidity, maybe the end points and obviously that it's an exploratory end point. Why don't you start there? And then I can add any other comments, and then I'll -- I can address the Nav1.7 selectivity question as well. Christopher Kenney: Okay. Sounds good, Ian. Thanks. And thanks for the question. So in -- not only in X-TOLE2 but in all the Phase III epilepsy studies, we are following a patient-reported outcome both for depression and anxiety for all patients and all visits in the study. And so yes, so it's being done in X-TOLE2, but actually, there's a really large body of data that we're gathering on this topic throughout the program. That's the first comment. The second is that the scale that we're using are patient-reported outcomes. Specifically for depression, it's the Beck Depression Index. And then for anxiety, it's the GAD-7. You had asked a question about the percent. I mean so we haven't shared baseline characteristics, and so these are sorts of things that you keep an eye on, but we haven't been sharing them. Just suffice it to say that not the entire population is expected to have depression and/or anxiety because we're not enriching for that. We're enriching for a certain degree of seizures. That said, there are such common comorbidities. We do think that there will be sufficient numbers that we'll be able to look at data and see if there's a readout. Ian? Ian Mortimer: Yes. Maybe I'll just add to those comments. These are exploratory end points, so obviously, not powered. And as Chris said, not sure exactly how impaired the population's going to be. And we're also not stratifying. So this is an epilepsy study. And so we may get some imbalances across the treatment arms in the psychiatric comorbidities as well. So I just want to provide the appropriate caveats there. On Nav1.7, I think you're right. We haven't provided all of our preclinical profile there. I think we can provide more over time. Some of that, we do want to keep for competitive reasons. But needless to say, I think you probably heard this in the pain webinar, that we feel that these molecules are very selective from Nav1.7 over the other sodium channel isoforms. So we feel very comfortable with the profile that we're -- that we have moved for 1701 into clinical development, and we have a number of molecules that are coming behind it as well. So these are highly selective for 1.7. As we said, we think also from a free fraction point of view and a distribution point of view that a profile of a molecule like 1701 has never been tested clinically before. So we're really excited that that's now in a Phase I study and hopefully next year moving into a proof-of-concept study. Operator: Your next question comes from the line of Joseph Thome of TD Cowen. Joseph Thome: Maybe on the Phase III epilepsy study, can you talk a little bit about your expectation for the change in cenobamate use in the Phase III versus the Phase II given that that's been on the market, obviously, a little bit longer now? And maybe how should we think about that when we see response rates in the placebo and the active arms or the discontinuation rates due to AEs? Is that going to be a consideration? And then maybe just one on MDD. Can you talk a little bit about why you don't have an interim analysis in the MDD studies? And is this a consideration with the third Phase III that would start given that you did incorporate 1 in the bipolar study. Ian Mortimer: Thanks, Joe. Chris, why don't I start on the cenobamate question and I can share maybe some of our thoughts on preclinical data there as well that may be relevant? And then you can add your perspective as well as answer the question on the interim analysis on MDD. So Joe, yes, we expect that cenobamate usage -- so we saw some cenobamate usage in X-TOLE in the Phase II study, but remember around that time, cenobamate was just going through kind of getting approvals and then being available commercially. So we do expect cenobamate usage to be higher in the Phase III study than we saw in Phase II, and we're just going to have to kind of see what those data tell us when we unwind. Obviously, in our Phase II program, because patients are on 1, 2 or 3 background antiseizure medicines and there's lots of these drugs available, there's actually a huge number of permutations of different kind of combinations of background medications that it becomes quite difficult to tease all that apart. But I think that as we get deeper into the Phase III analysis, I think you've raised an interesting question that we've been thinking about as well. I mean I can share with you some preclinical data that maybe gets to your question a little bit of a different way, which is we've looked at azetukalner in our preclinical epilepsy models in combination with all of the commonly used mechanisms and medications, including cenobamate. And whether we combine azetukalner with cenobamate or levetiracetam or lacosamide or lamotrigine, sodium valproate, like we've looked at a whole bunch. We've looked at a panel. And we don't see, when you add the 2 drugs together, you get a benefit of efficacy, and we don't see changes necessarily from the tolerability perspective. So I think we feel we've -- at least based on our Phase II data, is azetukalner, based on the novel mechanism and the profile, we think plays really well with others. And I'm not sure that's going to change in Phase III, but we'll know better when we unblind the data. Chris, I don't know if you have anything to add on the cenobamate side and then maybe you can address the MDD question. Christopher Kenney: I would say you covered cenobamate really well, so we'll just have to see what the data shows. We're not expecting a difference, but we'll have to take a look and find out. On depression -- on the MDD question, so why not have an interim analysis, I sort of already, I think, laid the groundwork for the answer from a previous question. The bipolar program really is different than MDD in a few different ways. But in particular, we don't have a precursor study to base the data on. So with depression data, we had the ezogabine proof of concept. We had our own proof-of-concept X-NOVA study. And so we really went into the Phase III study with a pretty good idea of how we thought the drug would behave in a larger study. We don't have that data in BPD. And so we've made some assumptions based upon what happened in MDD and what's happened with other drugs that have been tried in both indications. But ultimately, there's a little bit more ambiguity in the BPD program than there is in the MDD. And we decided to compensate for that by conducting an interim analysis to allow for the study to be increased in size should we need it. And so yes, we don't see any need to do an interim analysis on the MDD program. Operator: Next question comes from the line of Andrew Tsai of Jefferies. Brian Balchin: It's Brian on for Andrew. Maybe just a follow-up on the interim for the Phase III BPD. What could be in the various scenarios for that interim? And then if you could just share the kind of placebo-adjusted deltas that you'd like to see associated with those scenarios. And then maybe just one more on X-TOLE3 timing. In a very unlikely worst-case scenario that X-TOLE2 doesn't succeed, how much further behind is X-TOLE3 at this point in time? Do you think you'll still be able to file for an NDA in '26? Ian Mortimer: Thanks, Brian. I think we got them all. Chris, I can do the X-TOLE3 question, if you want to do the bipolar depression interim analysis and options there. So yes, we -- as we've spoken about previously, we have prioritized X-TOLE2, both in terms of that. It was the first Phase III study that we initiated. We did bias more of the X-TOLE clinical sites into X-TOLE2 and biased more of our U.S. clinical sites into X-TOLE2. So there is some delay between X-TOLE2 and X-TOLE3. I mean I think I share what you said in your question, which is I think it's unlikely, given the confidence we have going into X-TOLE2, that we're going to need it. But yes, if for whatever reason, then we would do everything to accelerate the time line as best we could to get to X-TOLE3 data. Chris, do you want to address the bipolar depression interim scenarios? Christopher Kenney: Sure. So I mean, first of all, the -- how did we come up with a study with 400 patients? That's largely based upon the data that we do have in MDD. So more specifically, we're powering at greater than 80% to detect a 2 point difference in the MADRS for 20 milligrams versus placebo using information that we got on data variability, specifically the standard deviation from X-NOVA. The scenario -- the way the interim analysis is going to be done is very binary. You do -- you firewall off the data. You take a look at the powering of that study and if you need more power to have a favorable outcome, then the number of patients has increased from 400 up to 470. So there are so many different possible ways. There are a lot of different ways it could go, but ultimately, it's broken down to a binary question, which is do you need more power for a successful study, and if so, then there's an increase from 400 to a number north of that between 400 and 470. I hope that's helpful. Operator: So that ends our Q&A session, and we appreciate your participation. I will now turn the call back over to Ian for the closing remarks. Ian, please go ahead. Ian Mortimer: Great. Thank you, operator, and thanks, everyone, for joining us today. If we did not manage to get to your question during the allotted time, we apologize. We did run out of time, and we will reach out directly to you to connect. We look forward to continuing to provide updates as we continue to advance our late and early stage programs as we deliver on critical milestones over the coming months and quarters. So thanks, everyone. Thank you for joining the call. Operator, we can now end the call. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: As it is time to start, we will now begin the Conference Call for the Presentation of the Financial Results for the Fiscal Year 2025 Second Quarter. Thank you very much for your participation. Today, Mr. Sasaki, Representative Director and Senior Managing Executive Officer, will give a briefing on the financial results for fiscal year 2025 second quarter. Later, he will be joined by Mr. Yamauchi, Executive Officer and General Manager of Accounting Department to take questions. We will conclude the call at 4:50. Mr. Sasaki, over to you. Keigo Sasaki: Thank you. I'm Sasaki from Sumitomo Chemical. Thank you very much for attending our conference call today despite your busy schedule. I'd like to thank the investors and analysts for your daily understanding and support to our management. Thank you very much for that. Now let me start with the presentation of the financial results for fiscal year 2025 second quarter. Please turn to Page 4. This is a summary page. Core operating income and net income attributable to owners of parent significantly improved compared to the same period of the previous year. Core operating income of Essential & Green Materials increased significantly year-over-year. There are also profits at Sumitomo Pharma with strong sales results, leading to recording of a sales milestone of ORGOVYX and partial divestiture of the Asian business. Compared to the forecast announced in August, in addition to strong sales at Sumitomo Pharma, there was improvement in foreign exchange gain or loss from a yen weaker than anticipated, as well as a reduction in the deferred tax liability, resulting in a reduction in the corporate income tax expenses, leading to increase in both core operating income and net profit. Please turn to Page 5. Consolidated financial results of the second quarter. Sales revenue was JPY 1,954 billion, down JPY 146 billion year-on-year. Core operating income was JPY 108.7 billion, up JPY 79.2 billion year-on-year. Nonrecurring items not included in core operating income was a loss in total of JPY 5 billion. In the same period of the previous year, there was an impact of recognizing our interest in Petro Rabigh' debt forgiveness gain of JPY 86.5 billion as a nonrecurring factor, leading to a profit of JPY 91.8 billion. So compared to the same period of the previous year, this has worsened by JPY 96.8 billion. As a result, operating income was a profit of JPY 103.7 billion, down JPY 17.6 billion year-over-year. Finance income was a loss of JPY 15.8 billion. Improvement of JPY 136 billion compared to previous year when a loss on debt waiver Petro Rabigh was recognized. Gain or loss on foreign currency transactions, including finance income expenses was a loss of JPY 6.5 billion, improvement of JPY 28.4 billion year-on-year. Income tax expenses was a gain of JPY 3 billion, increase of tax burden of JPY 7.2 billion year-over-year. Net income or loss attributable to noncontrolling interests was a loss of JPY 51.2 billion, worsening by JPY 65 billion year-on-year with the improvement of Sumitomo Pharma's income. As a result, net income attributable to owners of the parent for the second quarter was a profit of JPY 39.7 billion, up JPY 46.2 billion year-over-year. Exchange rate and naphtha price, which impact our performance, average rate during the term was JPY 146.02 to $1 and naphtha price was JPY 64,900 per kiloliter. Yen appreciated and feedstock price declined compared to the same period of the previous year. Next, Page 6. Total sales revenue was down JPY 146 billion year-on-year. By segment, sales revenue decreased in all segments, except Sumitomo Pharma. As for year-on-year changes of sales revenue by factor, sales price decreased by JPY 25 billion. Volume variance decreased by JPY 88.1 billion, and foreign exchange transaction variance of foreign subsidiaries sales revenue decreased by JPY 32.9 billion. Next, Page 7. Total core operating income increased by JPY 79.2 billion year-over-year. Analyzing by factor, price was plus JPY 6.5 billion, cost, plus JPY 6.5 billion. Volume variance, including changes in equity in earnings of affiliates was plus JPY 66.2 billion, all were positive factors. Next is performance by segment. First, Agro & Life Solutions. Core operating income was a profit of JPY 11.2 billion, down JPY 2.9 billion year-over-year. Price variance. Profit margin improved for overseas crop protection products. Volume variance, in addition to decrease in shipments of overseas crop protection products, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen. Next is ICT & Mobility Solutions segment. Core operating income was a profit of JPY 33.1 billion, down JPY 10.5 billion year-over-year. Price variance, selling prices of display-related materials declined. Volume variance, though there was a gain on the sale of a large LCD polarizing film business, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen and decrease in shipments of display-related materials. Advanced Medical Solutions segment. Core operating income was a loss of JPY 1.4 billion, down JPY 1.7 billion year-over-year. Shipments decreased because of difference in the timing of shipments compared to the same quarter previous year for some pharmaceutical ingredients and intermediates. Essential & Green Materials segment. Core operating income was a loss of JPY 18.6 billion, improvement of JPY 16.1 billion year-over-year. Price variance with a drop in naphtha price, which is a feedstock, profit margins improved in synthetic resins and aluminum. Volume and other variances, there was improvement in profitability in investments accounted for using the equity method at Petro Rabigh due to factors such as improved refining margins. For Sumitomo Pharma segment, core operating income was a profit of JPY 97.3 billion, up JPY 94.3 billion year-over-year. Price variance, selling prices declined in Japan with NHI drug price revisions. Cost variance. There was a decrease in selling expenses and general and administrative expenses due to progress in rationalization. Volume and other variances in addition to expanded sales of ORGOVYX, a therapeutic agent for advanced prostate cancer and GEMTESA treatment for overactive bladder, gain posted on a partial divestiture of Asian business and ORGOVYX sales milestone are included. This is all for the results per segment. Next is consolidated statement of financial position. As of the end of September 2025, the total asset stood at JPY 3,364.5 billion year-on-year, this is dropped by JPY 75.3 billion. This is mostly due to a drop in related company's shares by sales of businesses as well as a decrease in cash and equivalents by repayment of interest-bearing liabilities. Interest-bearing liabilities stood at JPY 1,191.7 billion, which has dropped by JPY 94.5 billion compared to the end of the previous term. Equity stood at JPY 1,179.6 billion, which is up by JPY 105.2 billion compared to the end of the previous term. And now let me explain the consolidated cash flow. The operating cash flow is plus JPY 57.5 billion. However, year-on-year, this is a drop by JPY 5.9 billion. The profit level improved. We saw a deterioration of working capital due to revenue increase at Sumitomo Pharma as well as corporate tax increase. And investing cash flow was minus JPY 16.7 billion year-on-year, this is a drop by JPY 91.1 billion. This term, we had a partial sales of Asian business at Sumitomo Pharma. But in the same period last year, we had a significant income by sales of [ low bound of ] shares by Sumitomo Pharma as well as the sales of Sumitomo Bakelite shares. As a result, free cash flow stood at JPY 41 billion compared to JPY 138 billion the same period of previous year. This is a deterioration by JPY 97 billion. Cash flow from financing activity was minus JPY 114.8 billion due to repayment of borrowing compared to the same period of last year. This is an increase in outflow of JPY 39.4 billion. And now I'd like to explain the outlook for fiscal year 2025 on a full year basis. First, let me explain the business environment surrounding our company. Regarding the economic situation, the global economy continues to show signs of a slowdown. Amid heightened uncertainty, the outlook remains unclear. Below, our assessment of the business environment for our key sector is indicated using weather symbols as usual. For agrochemicals at the top, crop protection, price competition is expected to persist with regional variations in slow-moving inventories in distribution. Methionine market bottomed out at the end of last fiscal year and recovered in the first half of this year, but is expected to decline in the second half. In displays, mobile-related components remained robust. For semiconductors, although there is a variation by sector, but the demand is anticipated to show a gradual recovery trend. Regarding petrochemicals and raw materials, low margins are expected to persist. And now on Page 17, you can see the summary of our financial forecast for fiscal year 2025. We have revised the previous forecast in May to incorporate the recent performance trends and the impact of the partial sales of Petro Rabigh shares. The core operating profit forecast for fiscal year 2025 is JPY 185 billion, which is an increase of approximately JPY 45 billion year-on-year and an increase of JPY 35 billion compared to the previous forecast. On the left-hand side, the actual gain on sales of business shown in gray was projected to be approximately JPY 50 billion in the May forecast. But by incorporating partial sales of shares in Petro Rabigh, it is revised to approximately JPY 80 billion. The profit from the business activities shown in blue, representing the underlying profit and loss is projected to show a significant year-on-year increase due to sales expansion at Sumitomo Pharma and reduced stake in Petro Rabigh, we revised it upward from the May forecast, targeting over JPY 100 billion. By segment, growth areas are -- these 2 segments, Agro & Life Solutions and ICT, Mobility, we expect achieving JPY 100 billion in profit from the business activities. Regarding the profit and loss associated with the partial sales of Petro Rabigh shares, the combined impact of the valuation loss associated with subscription to new class shares and the increase in loss accounted for by the equity method is expected to be minimal on the final P&L because they are offset with each other. And now the business performance forecast. We forecast the revenue of JPY 2.29 trillion, a decrease of JPY 50 billion from the previous projection. Core operating profit of JPY 185 billion. Net profit attributable to the owners of the parent of JPY 45 billion. Assumption on the FX and naphtha prices are as stated. Regarding sales revenue, Sumitomo Pharma expects a strong sales in North America, mainly for ORGOVYX. But Essential & Green Materials except the decrease in revenue due to a decline in shipments resulting from the sales suspension of Petro Rabigh products, which is our subsidiary company. Core operating profit by segment will be explained on the following slide. Net income attributable to the owners of the parent is expected to increase by JPY 5 billion from the previous forecast. And related to Petro Rabigh company's shares. Cash contribution methodology associated with Petro Rabigh was not clearly identified and the series of profit and loss impact was accounted for and the nonrecurring items. That is how it was incorporated in the forecast. But this year, this time, the methodology for cash contribution and the accounting treatment was finalized. As a result, for 6 months, the sales timing was delayed by 6 months. As a result, the losses we bear under the equity method will increase. As a result, the gains on sales of equity will increase. As a result, core profit significantly increases. And next, we incur valuation losses of the Class B shares we newly acquired. As a result, there are additions and deductions among accounting items, but the impact on net income is limited as they had been already incorporated in the previous projections. And therefore, impact is not big. Next, regarding the full year performance or the sales revenue and core operating income by reporting segment. On to Agro & Life Solutions, though shipments shifted from the first to the second half, performance has largely progressed as previously announced with the previous forecast kept unchanged. For ICT and Mobility, EV market recovery is slow and the semiconductor market recovery is slightly moderate compared to our projection with some unevenness. As a result, we have adopted a little bit conservative outlook compared to the previous announcement. Essential & Green Materials, as I explained earlier, is expected to see a significant increase in core operating profit. At Sumitomo Pharma, mainly due to strong sales in North America, therefore, is expected to see a significant increase in profit compared to the previous forecast. The other segment sees its profit drop compared to the previous forecast. This is due to the fact that at the time of the previous forecast, a certain degree of performance improvement measures were factored in. So they were incorporated into the other categories. However, in this announcement, based on the assumption that they are likely to materialize in each segment, Essential and Sumitomo Pharma numbers are calculated. And therefore, those factors are not incorporated into others. This concludes our explanation on the financial results and earnings forecast. And now we would like to entertain your questions. Thank you. Operator: [Operator Instructions] Now the first question from Morgan Stanley MUFG Securities, Mr. Watabe. Takato Watabe: In your new forecast, Petro Rabigh's sales impact, I'd like to hear more about it. In Essential, JPY 50 billion is included this time, but the increase in profit is JPY 23 billion. What is the reason for that? Not related to Petro Rabigh, there is minus JPY 40 billion for others. You explained because there were recoveries in other segments, but it seems to be too large. And nonrecurring items, it was minus JPY 45 billion, but with the gains for sale of Rabigh that was assumed, but that is negative. So what is the reduction of JPY 25 billion in nonrecurring items? With the sales related to Petro Rabigh, maybe your forecast was too bearish. Could you explain the reason? Keigo Sasaki: Yes. Thank you for your question. For Petro Rabigh, we announced the influence recently. But for the sales, it's JPY 50 billion of sales proceeds was announced. And as you know, here, there was a time gap of 6 months, and that impact is included. So 22.5% means that the equity method is continued to be applied. So there is an increase in the burden in terms of losses based on the equity method. And that is one factor. And JPY 50 billion, because there were losses from equity method, the sales cost dropped. So in net, it is lower than that. So that included -- the increase in profit was only about JPY 23 billion. Besides, there is included under finance losses for the B shares newly acquired, there is a valuation loss included. So sales of equities, when you calculate the total loss, actually, the impact is not that large. Takato Watabe: Yes, I understand. Petro Rabigh, there is a negative in terms of sales proceeds because of equity method. Keigo Sasaki: So let me add to that explanation. How was that included in the original forecast? I think that is your question. In the original forecast, core operating income -- essentially in Green and EGM, it was not included at all. That is one point. So that makes the difference. And for nonrecurring items, we were including some impact. And by adding some items, for example, valuation loss, it is very difficult to express. So the losses were included in the nonrecurring items. But that is not a nonrecurring item. That is a financial loss. So improvement of a nonrecurring item compared to the forecast is because of this background. So we are not considering the sales gains. Well, when it's not that we are not taking into consideration at all, as I will explain. And your question, you asked about other corporate expenses compared to the forecast, this has worsened about JPY 24 billion, JPY 25 billion. And that part, in the initial forecast, we included some forecast of improved performance in EGM and Sumitomo Pharma. For both, we had conservative figures and Petro Rabigh equity sales, we were not -- we couldn't talk about it. So without including those figures, these were all added together and included under other corporate expenses, but that is now being distributed into other segments. It is now included in the figures of the relevant segments. So it looks as if the total corporate figures has worsened, but that is the reason. Takato Watabe: Is it possible to have such a big negative figure for corporate, about JPY 40 billion? Is that what you mean? Keigo Sasaki: Yes. The reason why it was good so far. Sumitomo Bakelite and other items of profit and loss are included and sales proceeds that happened last year are included. And besides Sumitomo Chemical Engineering and Nihon Medi-Physics, those losses are included under others. But these 2 are already sold. So this fiscal year, there are not so many positive factors. And under others and adjustments, expenses are high. That is how you should interpret it. Medi-Physics, I think that was Life Science, but I understand. So it's not that you are assuming a larger buffer. If you ask me if you are -- we are conservative, basically, yes, our forecast is intended to be conservative, but we are not including a large buffer. Takato Watabe: So you are conservative. I understand. Operator: Now we would like to go on to the next question. Mizuho Securities, Yamada-san, please. Mikiya Yamada: I am Yamada from Mizuho Securities. I would like to double check about the core profit. Agro & Life Solutions in the first half, there was some shortfall. From the first to the second quarter, there was a seasonality. So you said that there is some visibility, but you had some shortfalls from the first half to the second half, there was a timing difference of the shipments. Was it the reason? On a full year basis, there was no change in the forecast. Therefore, my understanding must be correct, but I'd like to double check. And ICT Mobility Solutions, downward revision, the operating profit and the revenue were revised downward. EV and the semiconductor recovery or delayed that is the reason. Marginal profit margin -- marginal profit ratio against the revenue dropped by JPY 30 billion, operating profit drop was limited to JPY 3 billion. Therefore, the balance seems to be optimistic between the 2. So could you please explain this situation? Keigo Sasaki: First of all, AGL, from the first half to the second half, there was some shift. At this point, in Latin America, business is struggling. From the second to the third quarter, there is some shift that is our awareness. As much as possible, we would like to make a recovery within the third quarter. On the other hand, in North America or in India, in these regions, so because they are Northern Hemisphere there, we expect more to come. We do not have any unfavorable factors. Well, the slow-moving inventories start to recover. And based on that, so comprehensively, when it comes to AGL, we are likely to achieve the initial projection. Furthermore, JPY 145, that is the ForEx assumption for this projection. Currently, yen is a little bit weaker than that. So I believe that this will also make a further contribution. And then on to ICT, the major factors are, as correctly pointed out by you, EV and the semiconductor. Although there is some recovery, but not much recovery than we anticipated. So that is some negative impact. They are incorporated. And the profit margin is off, that is what you pointed out. Well, the revenue in itself may be we put the numbers quite roughly and sometimes we round the numbers. So it is not precise. It is better not pay too much attention to the profit. It does not mean that you made a significant change to ForEx assumption. That is why I thought something is off. However, you more precisely calculate core operating profit. That is why you ended up this result. Am I correct? Mikiya Yamada: Yes. And Agro & Life Solutions, regarding the sales status of new products, is there any delay? Or are there any new products that are sold earlier than schedule? Keigo Sasaki: Well, there is no major delay. That is our current understanding. Operator: The next question is from SMBC Nikko Securities, Mr. Miyamoto. Go Miyamoto: I'm Miyamoto from SMBC Nikko Securities. I also have a question about Agro & Life Solutions. As a business environment, you have a cloud mark. So what's the current situation? What is the situation of the inventory? There are differences from product to product. So could you explain a little more about it? And in addition, price competition continues. And in terms of price variance, there were improvements of profit margin of foreign crop protection chemicals. So it seems that -- could you explain the price trend and by rationale in different sales situation, could you talk a little more about it? Keigo Sasaki: Yes. Thank you for your question. For AGL, in the first half, in Latin America, situation was a little worse than what we had assumed. For our distribution inventory compared to the previous year, there are improvements, but still the level is high. And generic products, competition is still expected. For Rapidicil, Argentine, still, we will continue to emphasize expansion of sales. And [ differing ] in Brazil, it is the second season. So this -- we will also continue to expand sales of this large-scale insecticide. So we want to recover from the first half towards the second half. And the other regions, in the United States, it is improving quite a lot, I believe. And of course, competition with generic products exist. But as North America in general, there's improvement in the desire of our customers to accept our product. North America is a place that is just starting. So we will keep watching. And in India, India as well, there is a question of the distribution inventory, but there are improvements seen. Not only North America, but also in India, I think we can look forward to the situation in India by watching with care, we hope we will achieve our target at the beginning of the fiscal year. Go Miyamoto: About the price variance in Latin America, there's still a drop in price and is it getting higher in other regions? Keigo Sasaki: That is a general image. Go Miyamoto: And how about the situation, the places which price is getting higher? Keigo Sasaki: Price itself, rather than higher prices in the price variance, that is a tug of war with cost. So including the cost, the improvements in some places. That is the meaning here. Go Miyamoto: I understand. And on Page 29, in Latin America, there was sales and some carried forward in Japan, but the impact in North America is bigger. Keigo Sasaki: Yes, in Japan, currently, including the price of rice, prices are getting higher in Japan. The customers, the farmers have quite a strong desire to purchase their advanced sales. In Central South America, the market is larger. So still the impact remains. Operator: Now we'd like to go on to the next question. Daiwa Securities, Umebayashi-san. Hidemitsu Umebayashi: I am Umebayashi from Daiwa Securities. I would like to ask you some questions on ICT and Mobility Solutions. From the first quarter to the second quarter, the revenue is approximately JPY 8 billion. So therefore, it is a significant increase, but the profit, JPY 4 billion drop. So there was a gain on sales of the business in the first quarter. I understand that. But excluding that, so the revenue increase is significant. However, the profit was almost flat. So what is the reason for that? And especially in the industry, smartphone in North America is strong. And in the second half, you mentioned that you might be a little bit conservative. Why is it that the situation is deteriorating to this extent? Could you elaborate on that? Keigo Sasaki: Well, let me see. ICTM, in comparison with previous year, currently, yen is stronger. That is our assumption. So this is the segment most affected by the ForEx fluctuation. Another factor is the impact of tariff. So at the beginning of the year, we told you that in total, JPY 10 billion of impact will be felt from tariff. And we start to feel that impact now. Throughout the year, this is likely to be within the scope of our projection at the beginning of the year. So the reason for drop this time is, as I explained earlier, EV as well as mobility. These are the major reasons, partially compared to our initial expectation, there are some change from the semiconductor situation. Therefore, they are separately incorporated. Separator of EV feel the impact. So please understand in that way. Hidemitsu Umebayashi: Between the first quarter and the second quarter, revenue increased. However, the profit dropped. Well, the profit dropped because in the first quarter, there was gains on sales, but it did not occur in the second quarter. However, between the first quarter and the second quarter, what was the major change in the mobile business? Keigo Sasaki: What was the major change for the polarizing film between the first quarter and the second quarter? Well, there is an impact of the gains on sales, which did occur in the first quarter. So that may have an impact on profit. The display was performing quite well last year. So there was some rebound from the previous year. So there are some irregular elements incorporated here. So please do understand in that manner. Operator: The next question is from Nomura Securities, Mr. Okazaki. Shigeki Okazaki: I'm Okazaki from Nomura Securities. For core operating income, a question for confirmation. Essential Green Materials, you made upward revision. But in terms of fundamentals, compared to 6 months ago, is it right to say that there are no major changes? What is your view about Rabigh and Singapore and other places, as was included in previous question, from the first half to second half, losses -- core operating loss tends to increase. What is the item for that? This year, I understand there's not so much difference between first half and second half in terms of sales of business. Could you explain that? Keigo Sasaki: Yes. Thank you. First, for Essential, in terms of wafer mark, I explained, basically, from the beginning of the year until now, there are no changes. So Singapore, for example, for PCS, we are studying the possibilities of optimization in TPC, MMA. In particular for MMA, restructurings and also rationalizations took place. And on top of that, high profitability items, high value-added items are areas that we plan to shift to maintain the profit. So that is a policy. As for the environment, we have not changed our view. And for other areas comparing first and the second half, in the second half, for example, this is a matter of how we spend our expenses. For R&D expenses tends to be concentrated in the second half. That is a trend that we see. So that is also included. Operator: Now we are getting closer to the ending time. So now we would like to take the final question. BofA Securities, Enomoto-san, please. Takashi Enomoto: BofA Securities, I am Enomoto. I have a question on net income. Looking at the plan for the second half, there is a significant gap from the operating profit to net income. Various items are included in the operating profit. Why is it that the net income is so compressed in the second half of the year? Keigo Sasaki: Thank you very much for your question. Throughout the year, nonrecurring items, at which timing they will be recorded that also have an impact. JPY 5 billion was the only one that was generated in the first half. However, there are several structural reform-related expenditures that will be occurring, which will be around JPY 25 billion throughout the year. So the remaining portion will incur in the second half. And regarding the financial profit, it will be skewed towards the second half of the year. That is our view. This is due to ForEx. So this is the current view. It is currently at JPY 150. But based on the assumption of the yen is stronger to JPY 155, then the ForEx loss may occur. And talking about the tax, as I mentioned earlier, Sumitomo Pharma deferred tax liability reversal gain was observed in the first half. This is extraordinary items in the first half. So this will not appear in the second half. So there are several factors. And therefore, the loss will incur in the second half of the year. So that is my explanation. Takashi Enomoto: The ForEx loss, what is your projection of that for the second half? Keigo Sasaki: Not so much. But our assumption is that, the ForEx is JPY 145. Operator: This concludes the Q&A session. Lastly, Mr. Sasaki will give the final greetings. Keigo Sasaki: Thank you very much for attending today. This fiscal year is the first year of our medium-term plan. And within the medium-term plan, we have set targets. So to achieve the target, we will do our best. So we hope we can continue to have your support. Thank you very much for your participation today. Operator: This concludes today's conference call. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good afternoon. My name is Dilem, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Inspire Medical Systems Third Quarter 2025 Conference Call. [Operator Instructions] I'll now hand the call over to your first speaker, Ezgi Yagci, the Vice President of Investor Relations at Inspire. You may begin the conference. Ezgi Yagci: Thank you, Dilem, and thank you all for participating in today's call. Joining me are Tim Herbert, Chairman and Chief Executive Officer; and Rick Buchholz, Chief Financial Officer. Earlier today, we released financial results for the 3 and 9 months ended September 30, 2025. A copy of the press release is available on our website. On this call, management will make forward-looking statements within the meaning of the federal securities laws. All forward-looking statements, including, without limitation, those relating to our operations, financial results and financial condition, investments in our business, full year 2025 financial and operational outlook and changes in market access are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. Please see our filings with the Securities and Exchange Commission, including our Form 10-Q, which we filed with the SEC earlier this afternoon for a description of these risks and uncertainties. Inspire disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, November 3, 2025. With that, it is my pleasure to turn the call over to Tim Herbert. Tim? Timothy Herbert: Thank you, Ezgi, and thanks, everyone, for joining our business update call for the third quarter of 2025. I'll start by highlighting some key takeaways of our third quarter results. I'll then discuss our updated 2025 guidance, and Rick will provide a financial review. We will then open the call up for questions. As always, I want to start by reiterating our commitment to put the patient first and deliver strong patient outcomes. We continue to invest in innovation and clinical evidence as we lead the way in hypoglossal nerve stimulation, and this was on display at the recent ENT Society meetings where Inspire V performance data were presented. The results of our Singapore clinical study of 44 patients demonstrated significant performance improvement as well as a 20% reduction in surgical times and early experience from our U.S. Limited-Market-Release of over 100 patients demonstrated clinically relevant reduction in disease severity with patients averaging over 6 hours of nightly device use. Furthermore, we presented data showing Inspire's -- Inspire V 87% inspiratory overlap with the patient's breathing. As many of you already know, this is the foundation of our closed-loop stimulation system as the airway collapses during the inspiratory phase of respiration, synchronizing stimulation with inspiration is essential to optimize therapy. We are excited and energized by the strong performance of the Inspire V system and the clinical feedback on the simplified procedure and comfort settings has been tremendously positive. In addition, Inspire-related publications led the discussions at the ENT meetings, and we were excited to see 2 academic centers independently found that Inspire is an effective treatment for both supine and non-spine dependent OSA and that Inspire provides clinical benefit regardless of sleep position. Multiple papers demonstrated Inspire's ability to improve long-term cardiovascular comorbidities, including a study from University of Texas Health that assessed over 4,500 patients over a 10-year period in the TriNetX database. This is a large multi-institutional electronic health record network. The study showed that Inspire offered advantages in reducing long-term cardiovascular morbidity and mortality in patients of OSA compared to CPAP treatment. In another paper out of Thomas Jefferson University using the same database, Inspire was compared to CPAP and to no treatment. The study demonstrated that Inspire was associated with broadly improved non-apneic outcomes compared to CPAP and to no treatment. Specifically, they showed that Inspire therapy resulted in lower risk for myocardial infarction, cardiac arrest, ischemic stroke and depression, amongst others. Together, these studies are the first evidence that Inspire can reduce cardiovascular morbidity and mortality in the most vulnerable patients, namely those who are unable to tolerate CPAP. These outcomes are a testament to the importance of diagnosing and treating OSA and validate the continued investments we are making in innovation, clinical evidence, medical education and patient marketing. With respect to the Inspire V U.S. launch, the team made significant progress in the third quarter, and we are excited to report that physician training is over 98% complete. Contracting is over 90% complete for our centers and SleepSync onboarding is complete for over 75%, bringing the total to over 75% implanting Inspire V today. Given this progress and our strong momentum we are seeing, we are reiterating our full year revenue guidance of $900 million to $910 million, representing 12% to 13% growth compared to full year 2024. Switching to our quarterly results. We are very pleased with the strong revenue performance and cost discipline we demonstrated in the quarter. Third quarter revenue totaled $224.5 million or a 10% increase compared to the prior year period. Including the increased investment we are making in patient marketing, we were able to deliver operating income of $9.6 million and earnings per share of $0.34. This strong performance gives us confidence to increase our earnings per share guidance to $0.90 to $1, up from $0.40 to $0.50 previously. On patient marketing, we've started rolling out a new ad campaign, highlighting the fact that with Inspire, many patients report that they can dream again, complete with a holiday-themed ad featuring none other than Ebenezer Scrooge treating the sleep apnea. You may also have seen our new ad featuring a celebrity influencer partnership with Chock Chappele, the winner of last season's Golden Bachelorette, our real Inspire user since 2021, and we are encouraged by the early indications from these initiatives. Regarding reimbursement, CMS recently finalized the 2026 physician fee schedule at approximately $660 or an 11% increase for CPT code 64568. As you know, for Inspire V, centers bill CPT code 64568, which has been accepted for plans covering over 90% of our 300 million covered lives, including Medicare. This change will take effect January 1, 2026. We are still awaiting the final OPPS rules to be issued by CMS. As you are know -- as you are aware, in July, CMS proposed to increase the national average Medicare hospital reimbursement for CPT code 64568 to $32,000, up approximately $1,300 or 4% from 2025 and the ASC reimbursement to $28,000, up $1,300 or 5% compared to 2025. These positive reimbursement changes will take effect January 1, 2026, once approved. Following our last earnings call, we conducted our own survey of over 200 sleep physicians to better understand their treatment paradigm for OSA since the introduction of GLP-1s. What we confirmed is that the GLP-1s are driving increasing interest in sleep health and bringing more patients into the clinic, if only to get their GLP-1s covered by insurance with an OSA diagnosis. Inspire welcomes this trend as it opens the door to alternatives beyond CPAP. Based on the survey results, about half the sleep physicians now prescribe and manage GLP-1s themselves, while the rest refer patients back to family practice due to the burden of managing these patients, whether it's insurance hurdles, challenging side effects or because weight management just is not their area of focus. The survey also identified that sleep physicians are not comfortable prescribing GLP-1s alone, but prescribe concurrently with other treatment options initially CPAP. Patient monitoring, coupled with the insurance requirements to obtain refill prescriptions provide visibility into the patient's weight loss, adherence to CPAP and overall sleep health. These same physicians then understand the patient profile that may be recommended for Inspire therapy. Overall, the survey confirmed that patients will try GLP-1 prior to surgery, but also the patient pool has been increasing with the availability of GLP-1s to treat OSA. This reinforces our confidence that GLP-1s make it possible for higher BMI patients to lose weight and become eligible for Inspire therapy and Inspire is excited to help even more patients access effective lasting care. In summary, we remain focused on the patient to continue the growth and adoption of Inspire therapy. We will execute our growth strategy of driving high-quality patient flow and increasing the capacity of our provider partners to effectively treat and manage more patients. Our key strategies include training advanced practice providers, certifying additional surgeons qualified to implant Inspire therapy and driving adoption of SleepSync and our digital tools, all of which are embedded strategies in our commercial team's objective to increase provider capacity. Looking ahead, we are confident about our future and that we have the appropriate strategy in place to drive long-term stakeholder value. We have our arms around the headwinds that I have described and actions are already underway to accelerate adoption of Inspire V for the remainder of the year. And looking beyond 2025, we continue to take actions to position the company for strong profitable growth. With that, I'd like to turn the call over to Rick for his review of our financials. Richard Buchholz: Thank you, Tim, and good afternoon, everyone. Total revenue for the quarter was $224.5 million, a 10% increase from the $203.2 million generated in the third quarter of 2024. U.S. revenue in the quarter was $214.4 million, an increase of 9% from the $195.8 million in the prior year period. Revenue outside the U.S. was $10.1 million, which was a 37% increase year-over-year. Gross margin in the quarter was 85.8% compared to 84.1% in the prior year period. The year-over-year increase was primarily due to increased sales volume and increased sales mix of Inspire V, which is more cost effective to manufacture. Total operating expenses for the quarter were $183.1 million, an increase of 17% as compared to $156.5 million in the third quarter of 2024. This increase was primarily due to increased patient marketing expense and general corporate costs, partially offset by a reduction in R&D year-over-year. Operating expenses included $1.3 million in legal fees related to a civil investigative demand from the Department of Justice and patent infringement lawsuits with a competitor. These legal fees do not reflect costs associated with our ongoing operations. Please refer to our earnings press release for a reconciliation of these items. Interest and dividend income totaled $4 million in the quarter compared to $5.9 million in the prior year period. Operating income for the quarter totaled $9.6 million compared to an operating income of $14.3 million in the prior year period. Net income for the quarter was $9.9 million compared to net income of $18.5 million in the prior year period. This represented diluted net income per share of $0.34 for the quarter compared to $0.60 in the third quarter of 2024. Adjusted EBITDA for the quarter totaled $44 million compared to $44.5 million in the prior year period. The adjusted EBITDA margin in the third quarter was 20% compared to 22% in the third quarter of 2024. Adjusted net income per share totaled $0.38 compared to $0.60 in the prior year period. The weighted average number of diluted shares outstanding for the quarter was 29.6 million. Operating cash flow totaled $68.5 million for the third quarter, bringing the year-to-date total to $64.5 million. We completed $50 million of share repurchase in the third quarter, bringing the year-to-date total to $125 million, and we ended the quarter with $411 million in cash and investments. Our strong cash position allows us to remain focused on executing our growth strategies. Moving on to 2025 guidance. As Tim mentioned, we are reaffirming our revenue guidance range of $900 million to $910 million, representing an increase of 12% to 13% compared to full year 2024 revenue. We continue to expect full year gross margin to be in the range of 84% to 86%. We now expect diluted net income for the full year 2025 will be $0.90 to $1 per share, an increase from our previous range of $0.40 to $0.50 per share. We ended the quarter with 336 U.S. territories and 268 U.S. field clinical representatives. We are being more strategic in our approach to territory management and optimizing our model through targeted territory consolidation and increased field clinical reps. We hired 9 field clinical reps in the quarter, consistent with our strategy to get the ratio closer to 1:1 territory manager to field clinical rep. We now expect our reported tax rate in 2025 to be 25% as state minimum taxes are higher than expected. Furthermore, in the fourth quarter, we will likely eliminate a large portion of the valuation allowance on our deferred tax assets. This will create a large onetime tax benefit that we will call out when we report our fourth quarter results. We expect the full year diluted shares outstanding to be approximately 30 million. With that, our prepared remarks are concluded. Dilem, you may now open the line for questions. Operator: [Operator Instructions] And I show our first question comes from the line of Travis Steed from Bank of America Securities. Travis Steed: Congrats on the progress with Inspire V. Just curious how you're thinking about some of the puts and takes on 2026 at this stage. And anything to call out in terms of cadence, first half, second half and '26? Timothy Herbert: Travis, yes. Great question. I know this is top of mind for everyone. Travis, right now, we're focused on finishing the fourth quarter strong. Now it's still early in our '26 planning process. So I will not -- while we're not providing specific guidance at this time, I want to reiterate the underlying trends we're currently seeing. The Inspire V launch, positive clinical feedback and strong patient flow driven by our increased DTC investment give us confidence in the durability of our growth heading into next year. We'll provide formal 2026 revenue guidance in January once we've completed our year-end results and planning. Taking all into account and while not providing formal guidance, we can see accelerated growth from our third quarter and wish to provide an early indication of 10% to 11% growth for next year. In the meantime, our business fundamentals remain strong. We've seen and continue to see excellent momentum with Inspire V, both in physician adoption and patient outcomes. Our outreach campaign is generating record engagement. and our field organization is operating with greater focus and alignment than ever before, which is translating into more consistent execution. We're also realizing operational benefits from tighter integration across marketing and therapy development, which will continue to support long-term profitability. As always, we're mindful of near-term factors such as the Inspire IV inventory transition, GLP-1 trialing and ongoing competitive activity. Overall, we're executing with discipline and have reaffirmed our 2025 guidance. With Inspire V scaling and continued operational focus, we expect continued revenue growth and improvements in operating leverage. And as far as cadence, at this point, we expect to return to our historic norms prior to 2025 and the Inspire V launch. Operator: And I show our next question comes from the line of Adam Maeder from Piper Sandler. Adam Maeder: I'll echo the congrats on the progress. Maybe to start, just kind of a little bit of a follow-up there, very helpful response, Tim, to Travis' question. But I wanted to just try and better understand some of the trends that we're seeing in the business for the month of October as well as kind of the visibility that you have going forward, November, December. I think you typically schedule cases several weeks out. So it would just kind of be helpful to understand some of the dynamics and what you're seeing as we try and reconcile the implied Q4 guidance? And then I had a follow-up. Timothy Herbert: Sure. I think the key to it is really the trends we see with Inspire V. And as we talked throughout the last earnings call with everything from Medicare to available product to the transition with SleepSync, really the field getting their arms around all that and working with individual centers and really seeing that transition really transpire mostly in the third quarter. And we have some additional work. But we know the majority of the inventory in the field today is Inspire V. So we're already working through that inventory transition from IV to V. So we do see implants going forward. We know we always have our highest seasonality later in the year because of the high deductible insurance plans, and we're seeing those same trends now. And again, just to highlight, the marketing team is doing a great job with our new awareness campaign, and we are seeing the benefits of that as well. Adam Maeder: That's helpful, Tim. I appreciate the color there. And just for the follow-up, I guess you're a little bit over 75% of accounts that are implanting the Gen V device today. How do we think about kind of bridging that figure to 100% of your accounts? Just want to better understand kind of the remaining gating items there. It sounds like SleepSync is maybe the biggest one, but wanted to confirm that. And just one kind of clarification. the accounts that are adopting Gen V, are they only implanting Gen V going forward? Are they still kind of carrying a mix of Gen IV and Gen V Hopefully, that made sense. Timothy Herbert: No, Adam, that's a good clarification that we want to make. I think the -- we focus on the centers that are the highest implanters, the top 100, top 200 centers, of course, and make sure we get the majority of those centers across the line and taking care of patients with V. But even those centers, to your last point, we'll continue to do Inspire IV at a limited amount. I also will highlight there are centers due to economics and where they are in the United States and the Medicare reimbursement that they will continue to implant Inspire IV units, and we will continue to make Inspire IV available into the future. So I think we'll continue to bridge most centers over to Inspire V. But again, there will still be some additional centers carrying over and staying with Inspire IV. But I think the great majority will be complete with their transition by year-end. Operator: And our next question comes from the line of Robert Marcus from JPMorgan. Robert Marcus: I wanted to ask more on expenses and R&D and OpEx came in a good clip below where we and the Street were thinking. Great expense control led to really good earnings power. How should we think about, I guess, a, what exactly you're pulling back on; and b, how sustainable that is? Timothy Herbert: Well, you also got to remember, not necessarily pulling back, but you also remember we're kind of in a launch period with Inspire V. And a lot of our focus is working on stabilizing the manufacturing line and getting a second line up and running and focusing on the digital side, specifically with SleepSync. So we're going to continue to invest in R&D. And I think we want to be more consistent with R&D as we move forward to focus on our opportunities with Inspire VI with our digital tools and keep pushing those elements to it. But I do think it will be more in line with what you're seeing right now. Robert Marcus: Great. Maybe just a quick follow-up. Tim, if you could update us where you are in sort of the inventory conversion from IV to V. Was there any destocking or restocking in 3Q? What we should expect that's baked into the guide in 4Q? And is it all done exiting the year? Or is there still some more in '26? Appreciate... Timothy Herbert: As you recall, at the beginning of the third quarter was pretty much all Inspire IV inventory in the field. And now the majority of the inventory is already Inspire V, and that continues to change on a weekly basis. And we think that those centers transitioning over to Inspire V will work through their Inspire IV inventory predominantly by the end of the year. Again, Robbie, remember, there's a few centers that are going to stay with Inspire IV. So we'll continue to make that product available. But again, the reports and the success that people are having with Inspire V is really strong. And once people transition over, they want to continue to focus on that and increase the number of patients that they can treat. Operator: And I show our next question comes from the line of Danielle Antalffy from UBS. Danielle Antalffy: Congrats on the good progress in the quarter. I'll echo everyone else there. Just a question on thinking about ramping centers that are sort of lower to mid-volume. And -- and what you guys are doing around that? Because I do think ENT sort of mind share, I guess, I would say your capacity is still an important driver here, appreciating the benefits Inspire V brings. So just curious about what you guys are doing out in the field with these lower volume centers to get them higher and using on a more regular basis. Timothy Herbert: Thank you. A big initiative that we have ongoing there. We have formed a new team that is really focused on that group about reenergizing the ENT. And we're kind of using Inspire V as the catalyst to do that. Because remember, the difference between Inspire IV and V is you don't have to place the pressure sensing lead between the intercostal muscles, and that's always been a little bit of the uncomfortable part of the Inspire procedure for an ear, nose and throat surgeon. So Inspire V lets us come back to those ENT surgeons and to new surgeons and to reengage with them, reenergize them around the benefits of Inspire V, the easier implantability of the device, if you will, and really focusing on that. So we have a long history and list of those centers that have started but not reached their potential, and we're going back and revisiting them with this team, but also going to centers and starting to recruit additional ENTs who now find this procedure more acceptable that they don't have to mess with the chest wall and the pressure sensing lead. Danielle Antalffy: Are you -- and just a quick follow-up. Are you starting to see that? Or is this something -- it sounds like this is a relatively new initiative. So is this really something that is probably more contributing factor in '26 and beyond? Or is this already contributing? Timothy Herbert: Thank you, Danielle. I do think, yes, it's a contributing factor in '26 and beyond. But I do think we're going to see some activity with that in '25. And the key is getting surgeons to come in, let's try V. Let's get this transition to your center. Let's have you go in and do a couple of Vs. And we've already seen some evidence that, yes, this does work. And we can reenergize them and partner them up with a good sleep [ physician ] to build a strong system or a strong practice. And we've already seen early indications that we can excite the ENTs. So yes, we're going to continue this and work hand-in-hand with AAO, the American Academy of Otolaryngology, to make sure that we're running initiatives with the society as well. Operator: And I show our next question comes from the line of David Rescott from Baird. David Rescott: I wanted to follow up on some of the comments on the growth in the business and looking into 2026. The 2 big pieces, of course, that we all tend to track is utilization and these new center adds. I know last quarter, you talked about some of the pullback in spend impacting the opening of new centers. I think prior to 2025, you had a couple of centers that were deactivated each quarter. So just trying to get a sense for maybe where that center base or the trained center base stands today, whether or not we should assume that, that continues to be a factor behind growth next year or more so if utilization with Inspire V is going to be a bigger driver than growth -- than utilization has been growing. Timothy Herbert: Yes. Thanks, David. I think we got to combine those 2 comments, and the answer is yes. I think what we really like is the Inspire V is really the tool and the feature set there with, of course, the easier implantation of the device, the shorter implant times, but not only that, but the features that optimize outcomes and really increase the expectations for outcomes is really important. And so we don't see a lot of transition of centers away from Inspire over the last couple of quarters. In fact, we significantly increased the number of centers. And we think going back to the last question with Danielle, that being able to excite additional ENTs to do the procedure now that it doesn't have the pressure sensing lead kind of gives us a little bit more impetus to increase the number of centers. So we're going to continue on the pathway of not only growing utilization at existing centers with reduced surgical time, but also with the improved performance of the device and the implantability of the device to be able to continue to train new surgeons at existing centers as well as open new centers. David Rescott: Okay. That's helpful. And then maybe a follow-up to some of the comments on OpEx. I know you called out that there's going to be this higher tax benefit in Q4. I'm assuming or curious if that is implied in the $0.90 to $1 of EPS for the full year or if that gets backed out. Just trying to back into maybe what your exit rate on an OpEx basis and whether or not we should think about that as a jumping off point for 2026. Richard Buchholz: Yes, David, that potential tax benefit is not factored into our guidance. And so part of our improvement on the bottom line and operating margin, which I wanted to call out earlier was that we did have a 180 basis point improvement on gross margin. So that really helped drive our leverage in the third quarter, and that's because of the higher mix of Inspire V which drove higher gross margins. Operator: And I show our next question comes from the line of John Block from Stifel. Jonathan Block: Tim, the rough 10% to 11% revenue growth next year seems like a refined thought from the acceleration off of the 12% to 13% that you conveyed last quarter. And the quarter was good, and you talked about some of the facilities working down inventory. So maybe if you could just give some color what led to a little bit of a change in thought from 3 months ago to today? Is it just being a little bit more prudent? Or what do you see out in the field that led to the refined number? Timothy Herbert: No, I think that's it. We just have a little bit more experience, and it's early in our planning, too. And so I know it was top of mind for everybody, as we said on Travis' question that we needed to address that right upfront. But we did -- we weighed in on the progress making the Inspire IV inventory, as you discussed. We did talk about the GLP-1s a little bit as well as the -- any competitive effect that could be there. So we wanted to come out and just give an early indication. As we work through the fourth quarter and the rest of our planning, we'll come back with formal guidance in the January time frame. Jonathan Block: Okay. That's helpful. And then maybe just a quick follow-up. Can you guys just talk to the inventory on your balance sheet? I think it was $142 million at the end of the quarter with about $111 million in finished goods, it's up a good clip really throughout the year, throughout '25. Like what's in there? Are those IVs? Are those Vs, if they're all Vs, does it sort of clean up for a lot of next year? Maybe you could provide some color there. Timothy Herbert: Yes. It's both. I think the key is we are winding down the manufacturing of Inspire IV. That being said, we are going to still have Inspire IV available in the United States, as we talked about, but we also have a long regulatory process in Europe and in Asia for Inspire V. So we need to make sure that we have sufficient supplies of Inspire IV to carry us through until we can do the full international transition of Inspire V. So there is a big element of Inspire IVs in there that will burn down over time. That being said, we also are increasing our inventory of Inspire V. Now that we're getting stability with our manufacturing site. We're still operating with a single manufacturing site. And then also remember some of the piece parts that are shared between Inspire IV and Inspire V. So once we wind down IV, we'll be able to leverage some of that inventory into building additional units for Inspire V in the future. Operator: And I show our next question comes from the line of Larry Biegelsen from Wells Fargo. Larry Biegelsen: I guess, Tim, I was curious on the 10% to 11%, how are you thinking about the market growth with the new competitor coming into the market and what you're seeing from that new competitor so far? And I had one follow-up. Timothy Herbert: Sure. It's very early days right now. We -- they're just getting started. They got to work through all the reimbursement. So not a significant presence right now, but I think that we'll watch for that a little bit and continue to monitor that and come back and discuss that with greater detail when we give full guidance in January. Larry Biegelsen: Okay. And then maybe for Rick, on the seasonality in 2026, I just want to make sure I heard correctly with Tim's comments similar to -- prior to 2025, '23 and '24 were pretty similar. But -- and I'm sure you've done the math, Rick, if hopefully, I'm doing it right, it would imply like $205 in Q1 or low single-digit growth increasing through the year. Is that directionally right? And why would Q1 be so low? And I apologize if I did the math on the fly wrong. Richard Buchholz: The last couple of years, Larry, our seasonality was 15% sequential down in beginning of '24 and down 16% in '25. So that's kind of the recent historical trend. So we would expect, as Tim mentioned, that our cadence throughout the year will be comparable to kind of prior to 2025 and earlier. Operator: And I show our next question comes from the line of Anthony Petrone from Mizuho Americas. Anthony Petrone: Congrats on the progress in the quarter with the V. Maybe on the 10% to 11%, I appreciate, Tim, the comments on the survey work on GLP-1, but still this dynamic of how much is coming in from the high BMI dropping into the sweet spots for Inspire and how much is sitting on the sidelines as folks trial GLP-1. So in the 10% to 11%, how much was GLP-1 factored would be the first question. And a quick follow-up to that would be, if you do see indications that GLP-1 is resulting in combo therapy out of the gate, specifically with CPAP, that CPAP rate -- dropout rate is still quite high. So over time, do you think the new starts on CPAP can actually transition to a higher rate of new starts on hypoglossal nerve stimulation over time? Timothy Herbert: Absolutely. You laid that out nicely. I think the survey that we had, we learned quite a bit from that. And I think the -- it's just a significant number of patients coming into the sleep labs because they are getting increased phone calls to do a diagnosis for obstructive sleep apnea because they need that indication to be able to help with insurance coverage. Well, sleep physicians are reluctant to just do that. Sleep physicians are responsible and they're going to do the proper diagnosis and make sure that, that patient has proper care. And if they have moderate to severe sleep apnea, they're not going to just wait a year to see if the GLP-1 works. They are going to put them on concomitant therapy as you talk about. They're going to start them on CPAP. They're going to start them on a GLP-1, but they're going to have to track those patients, too, because that's the requirement of the insurance companies. So now we have an increased number of patients in the facilities with the sleep physicians and when they become -- or if they become noncompliant to CPAP, yes, they're going to be looking for alternative surgery or alternative therapy. And if they are of the right BMI, the sleep physicians know what patients do best with Inspire. And we would expect those to correctly be referred over to receive Inspire therapy and the sleep physicians will continue to manage those patients long term. So that is exactly the hypothesis of where we stand. We do believe that the GLP-1s can work in concert with Inspire can help people lose weight, reduce the lateral wall collapse and allow Inspire to treat those patients that have tongue-based collapse. So it's really 2 mechanisms of action that can work together. Operator: And I show our next question in the queue comes from the line of Shagun Singh from RBC. Shagun Singh Chadha: Tim, I wanted to go back to the 10% to 11% growth next year because consensus is currently at 14%. So that's a pretty big gap. And you called out Inspire V, you called out the inventory dynamics, GLP-1s competitive effect and you said competition is not a big headwind. I think GLP-1s, you are positive longer term. There could be some trialing. I guess I wanted to ask, are there other factors that need to be contemplated as we think about 2026? What gets you closer to consensus at 14%? Have you factored in anything on increased reimbursement? Or is that a headwind as you think about Inspire V adoption and utilization? And just even looking at Q4, I'm looking at a step down in growth on a [ stack 2-year ] basis and 6% exit rate. Can you just give us some commentary there on why that is? And you are talking about accelerating growth, but Q4 seems to be lower. Timothy Herbert: Yes, absolutely. You kind of laid out all those headwinds right there that we use to calculate, but there's also a lot of positives in there. And I think Inspire V performance and Inspire V acceptability is really strong. So once we complete the transition with V, that gives us great opportunity to kind of lean in and kind of reassess where we are with our guide. Now I know it's an early indication. It's not formal guidance, but we wanted to make sure that we put that out there. We know what we need to do to review that, and we're going to monitor that with Inspire with Q4 performance as well as when we come with full guide in January. But yes, we've kind of laid out the headwinds that we see that are going to challenge us, but we also want to leverage the opportunities that are there for us. Even the OPPS rule that just came out showing an increase in physician reimbursement for Inspire V as an opportunity because it really closes the gap between the reimbursement with 64568 versus the old code, 64582. And so there's a lot of positives mixed in there. So yes, we have a lot of work to do to be able to kind of work through the details for when we come with full guide in January. Ezgi Yagci: Shagun, I would just add, it's still very, very early. We're very happy to be able to give an early preview of 2026. But as Tim alluded to, there are quite a few puts and takes, and we're just trying to be prudent at this time. Operator: Our next question comes from the line of Vijay Kumar from Evercore ISI. Daniel Markowitz: This is Daniel Markowitz. So I had 2 questions. First, you noted about 75% of centers are ready to transition to the Inspire V, but that some continue to do Inspire IV for economic reasons. Can you just expand a little bit on those economic considerations? Are you hearing pushback to the physician reimbursement rate as it stands today? And would you expect this to change given the finalized 2026 physician fee schedule with an 11% bump to physician reimbursement? Timothy Herbert: No, it's really more -- a good question. It's more related to site of service or hospital reimbursement. And with Inspire IV and Inspire V, we can make Inspire IV available with an economic benefit to some of those centers to help them get back to doing implants. So there is some discounting on Inspire IV that can help us out. Inspire V, that's not true. So that's why some of these centers just choose to do IV based on the economics with the coding today. But as you saw, that doesn't affect our overall ASP or gross margin. Daniel Markowitz: Got it. Okay. That's helpful. And then for the second one, as you look forward to 2026, do you have any initial thoughts on the trend in operating expenses, especially as it pertains to the new marketing campaign and DTC spend picking back up? I guess also, was DTC spend back at a normal run rate for 3Q? Or is that still being held down quite a bit? Timothy Herbert: No, I think it was pretty close. We wanted to do an increase there because we held back in the first half of the year on DTC spend. But as you kind of look at OpEx going forward, we're going to see maybe a slight increase in DTC, but again, more level with full year, but we don't expect that to grow with the same level of revenue. Michael Sarcone: And I show our next question comes from the line of Michael Sarcone from Jefferies. Timothy Herbert: I guess, I'll just ask both of mine upfront. You might have already answered kind of the second one, I'll ask Tim. But last quarter, you had mentioned that at the accounts that were converted to Inspire V, you were seeing about 20% same-store sales growth. Given the outlook for kind of 10% to 11%, at least early on right now for 2026, it seems like that's not carrying through. I just wanted to maybe get an update on how that 20% same-store sales has progressed as you've kind of opened up more accounts with Inspire V. And then is there any interplay there with the Inspire V reimbursement on the physician fee level being lower? Ezgi Yagci: Mike, thanks for the question. So there's still absolutely a correlation between centers that have transitioned to Inspire V and faster volume growth that we saw through the end of Q3, which we're very, very pleased with. As we highlighted on our last earnings call, though, you shouldn't anticipate that 20% to continue for all centers. But we're very pleased with the correlation that we're seeing with Inspire V adoption and accelerated case volume. And again, as we noted on 2026, it's really early. There's still a lot of puts and takes, which we highlighted, and we just want to be prudent. But we're very, very pleased with what we're seeing with the Inspire V launch and experience to date. Operator: And I show our next question comes from the line of Chris Pasquale from Nephron Research. Christopher Pasquale: I wanted to understand the territory realignment a little better. Was there a corresponding reduction in the number of centers you're working with? Or are you just increasing the number of accounts the remaining reps are responsible for? Timothy Herbert: No, we're actually building efficiencies into our territory management. So what we want is, well, because you've been around for a long time, you know how we're kind of ramping and we started to ramp the number of field clinical reps as well. And we want to get that ratio closer to 1:1. So as we're doing that transition, we're doing some promotions of field clinical reps and territory managers and then come back and hire additional field clinical reps behind that, and that's going to be a trend going forward. I think we're finding greater efficiencies with larger territories with territory managers as long as they have the support staff like the field clinical reps to be able to do the case coverage and the training. So I think you'll see more of that in the future. Ezgi Yagci: Chris, I would just add that we've always talked about having the average territory managers support on average 4 to 6 centers, and we're still very much in that range. We did add a healthy clip of new centers in Q3 after slowing that initiative down in the first half of the year. Christopher Pasquale: Okay. And then I wanted to follow up on the question about margins and OpEx. The implied guidance implies that OpEx is going to grow at roughly twice the pace of sales in 4Q. That was obviously true in 3Q. And you guys signaled that in the near term, you would have elevated spending. But you're also talking about driving operating leverage next year, which would really seem to imply that spending is going to moderate given the top line growth you're signaling. So help me understand just the cadence here. Is this just a very temporary bolus that then really sort of changes as the calendar flips? Or how do those 2 things line up? Richard Buchholz: Yes. Chris, so yes, you're right on all your assumptions. Year-over-year OpEx growth for 2025 is going to be in that 16%, outpaces full year revenue growth, but we are going to have an improvement in operating margin sequentially into Q4. Still pretty early to talk about 2026, but the new guidance also implies full year operating margins in that 2.5% to 3%. And on a longer-term basis, we expect to improve that over time. Operator: And I show our next question comes from the line of Richard Newitter from Truist Securities. Richard Newitter: I just want to continue on Chris' question. I mean -- congratulations, it's great to see the expense control there this quarter. I guess what I'm just trying to understand is what -- we were all much higher. We thought your profit was going to preserve much better even with the revenue call down last quarter. I guess, I'm just trying to understand what's changed from the outlook that's causing kind of the $0.50 upward revision here. And then I know you're not giving explicit guidance next year on operating expenses, but we're all just trying to understand what the right normalized spending rate is and significant cost controls here. But it's not clear whether that's in some way linked to some improved efficiency that's going to come as a result of the territory consolidation. I guess is the 10% to 11% growth rate just requires less investment than what it did when you were initially a 15% to 20% growth. Just help us think through kind of what's changed because the earnings is kind of whipsawing around quite a bit here. Ezgi Yagci: Yes, I can start maybe. First and foremost, our revenue did outperform where consensus was modeling. So first and foremost, the revenue beat in the quarter is what's helping with some of the EPS. Below the line, yes, we did increase our investments on DTC, but we were very disciplined across other areas, and we will continue to look for those types of savings as we move forward. Yes, there has been some consolidation of territories that's also driving some of that savings. But you're absolutely right. We're going to continue to support the business. We're going to continue to invest in R&D, in patient marketing and in medical education, but we're going to do it in a very methodical and disciplined way and make sure that we continue to show operating leverage going forward. Richard Buchholz: Okay. And then maybe just one second one. I'm curious, are you able to actually see more procedures per account in the accounts that have adopted or been fully trained in Inspire V? And can you quantify that? Ezgi Yagci: We are seeing that. The math is getting -- I mean, it's -- a significant portion of our centers now are implanting Inspire V. It's over 75%. And yes, there is a correlation between accelerated volume growth and the use of Inspire V. We are seeing that for sure. Operator: And I show our next question comes from the line of Brett Fishbin from KeyBanc. Brett Fishbin: A lot of questions already on next year. So I'll ask one a little bit more qualitative. I think during the quarter, you had the press release with some of the Limited-Market-Release information about Inspire V in the U.S. One thing that stood out to me was the anecdote on one of the KOLs performing 12 implants per day. I believe that compared to 9 with Inspire IV. So something like a 30% to 40% increase in efficiency, which was above the 20% reported from Singapore. So just curious kind of like what drove that kind of performance? And are there specific items that can maybe be applied to other centers that have struggled to see that type of efficiency either in the past or with Inspire V? Timothy Herbert: Brett, that was a key topic at the AAO meeting or the ISS meeting where the surgeon was actually on stage talking about that. And the key is how do they set up their center to be able to do that. Finding the number of patients, that's not the issue. We all know that the challenge is having capacity with surgeons to take care of the patients demanding therapy. But what this individual is able to do is have access to 2 operating rooms. And they kind of laid that out and talked through people of having the access to be able to -- it's competing the Inspire time versus the time it takes to clean a room to do multiple rooms in a day and the efficiencies that, that can bring. And think about the efficiencies, not just from the surgeon performing multiple procedures, but there's a revenue bonus or benefit for the hospital to do that many procedures in a day. Think about Inspire. Think about what we're talking about with our OpEx and building efficiencies and us being able to have our field clinical rep there for a full day rather than doing a case having to drive across town with windshield time. So it's a win-win for everybody. And it really takes an experienced, efficient surgeon to do this. And so that drives the high quality surgeons that have experience doing numerous cases. So that is something that we really want to emulate across the board as the way to do that to set up surgical days to stack cases. Operator: And I show our next question comes from the line of Michael Polark from Wolfe Research. Michael Polark: Question on 2025 revenue growth affirmed 12% to 13%. As you reflect on the year, do you think you'll be calling out kind of a net inventory headwind at customers? Is it similar to the question I asked last quarter? And maybe framed differently, in the 12% to 13% for your revenue growth, do you think Inspire procedures grew faster than that in 2025? Timothy Herbert: I'm going to come back and let me answer the first one and make you repeat the second one. I think the way we're planning it out, we are going to discontinue the manufacturing of Inspire IV, but we made sure that we did a forecast going forward. Remember, we have a 3-year shelf life on these products to look at what's going to be available to support Europe and Asia as well as centers in the United States who want to continue with IV. So we are budgeting our manufacturing to align with our forecast for IV going forward. So what was your second question, Mike? Michael Polark: I'm just -- do you think are Inspire procedure volumes growing with the revenue in '25? Like is the rate of volume growth, 12% to 13% consistent with revenue? Or were the procedures potentially faster and the net impact of customers destocking IV and stocking up on V as the transition was affected, that was a slight headwind. Timothy Herbert: Go ahead. Ezgi Yagci: I think that may have been a slight headwind at certain times over the course of the year. But for the most part, the implant to sales ratio has been pretty steady. I think we can take a closer look at that as we wrap up the year and figure out if it makes sense to disclose that on a onetime basis. But I would say, generally speaking, implant volumes have trended pretty closely to sales. So I don't know that, that would be necessary. And as Tim noted earlier, the vast majority of inventory in the field sitting on shelves today is already Inspire V. So that gives us confidence as we look ahead into Q4 and beyond. Operator: And I show our last question in the queue comes from the line of Mike Kratky from Leerink Partners. Michael Kratky: Congrats on a nice quarter. One clarifying question there. Really appreciate the color on the survey of sleep physicians and certainly encouraging. It seems like you're expanding the top of the funnel. But were there any cross currents that are worth calling out there? And did you get the sense among physicians surveyed to what extent they're seeing or expecting GLP-1s to have a positive or negative impact on their overall Inspire procedure volumes? Timothy Herbert: I think the sleep physicians are gearing up that GLP-1s are increasing their procedure volume. And again, I think family practice doctors are sending them to sleep to get a diagnosis, but the sleep physicians are being more responsible. They're not just going to do a study and send that patient back, they're going to want to make sure they do a proper diagnosis and make sure that they have the proper procedure or therapy, not just leave them on a GLP-1 or not just send them back. So I think the survey kind of really showed that they're expecting an increase in their volume, but we also wanted to tease out what patients they refer for Inspire, and we're able to pick up that information as well. So we -- the knowledge base is there. They know what patients that can be helped with GLP-1s, and they know that if patients can lose weight, they can qualify for Inspire. Operator: This concludes the Q&A session for the conference. I'd now like to turn the call back to Tim for closing remarks. Timothy Herbert: Thanks, Dilem. As always, I'm grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard work and continued motivation to achieve successful and consistent patient outcomes. The team's commitment to patients remains unmatched and is the most important element to our success. I wish to thank all of our employees as well as the health care teams for their continued efforts as we remain focused on further expanding our business in the U.S., Europe and Asia. For all of you on the call, we really appreciate your continued interest in and support of Inspire and look forward to providing you with further updates in the months ahead. Take care all. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Welcome to the Boozt Group Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Hermann Haraldsson; and CFO, Michael Bjergby. Please go ahead. Hermann Haraldsson: Thank you, and good morning, all, and welcome to our Q3 2025 webcast. Let's turn to the first slide, the agenda. We will have the usual agenda for the presentation. I will present the highlights of the quarter and the business update before handing over to Michael for the financials. So if we look at the next slide, our highlights. Overall, Q3 was a decent quarter with strong operational performance. We had good margin progression and a solid free cash flow, which is a testament to our strong business model. Our revenue growth is not where we wanted to be, but we have seen a gradual improvement, which is important heading into the most important part of the year for Boozt. This increase in the quarter was achieved despite a slightly difficult September, which was impacted by less favorable weather conditions for the autumn/winter collection. It was a bit warm. In the quarter, Boozt.com gradually gained revenue traction and particularly in September, where we made a very clear strategic shift to focus on premium in-season sale on Boozt.com. This change in September changed the composition of growth between Boozt and Booztlet and improved the gross margin significantly. I will come back to this shift later. Our profitability improved significantly in the quarter despite continued headwind from currency. The increase was driven by all OpEx ratios. Free cash flow was again strong. The underlying business is fundamentally very cash generative and with our disciplined management of inventory, it shows in the free cash flow. We have now generated almost SEK 500 million in the last 12 months and expect to generate more than SEK 500 million in cash in the year 2025. With this performance in Q3, we are pleased to be able to both upgrade our EBIT margin guidance and expand our share buyback program. The Board has now initiated the process to increase the current share buyback program from the current SEK 300 million to now SEK 415 million. With this increase, we will have delivered on our target to return SEK 800 million of capital back to our shareholders in 3 years as communicated at the Capital Market Day in 2023. On the outlook for the year, we now expect revenue growth of 0% to 3% or 2% to 5% in constant currency growth. Additionally, we increased our margin guidance. We now expect the adjusted EBIT margin for '25 to end between 5% and 6%. Now let's turn to Slide 5 for the business update. Driving multi-category purchases remains a key strategic goal of our department store model as it directly correlates with customer loyalty and improved financial performance. And crucially, in the current market environment, our diverse categories also helped mitigate the impact of a muted fashion demand. Over the last 12 months, we have successfully increased the purchase percentage of customers shopping from more than one category to 53% on Boozt.com. This is a step-up from 51% last quarter. This improvement occurred despite a strong inflow of new customers, around 170,000 joined this quarter, who typically start by shopping in a single category. Our total active customer base over the last 12 months was broadly unchanged and stands around 2.7 million. This is a number that we need to improve. It has, in 2025, been impacted by a slight decline in female shoppers, and this is now starting to improve. Please move to the next slide, please. I want to provide a few comments on the trend of our female shoppers. This is critical for us as we move forward on our growth journey. Revenue from the women's fashion category is gradually stabilizing after a longer period with some softness. This improvement is important because a stronger performance in women's fashion directly benefits our other categories as women are more often shopping from non-fashion categories, home, sport, beauty and kids. The improving trend is supported by the number of women shopping on our site. If we isolate the numbers for Q3, active customers shopping women's fashion on Boozt.com declined by 2%. We are taking several strategic steps to strengthen our women's category and continue the positive momentum we're seeing. First and foremost, we have expanded our teams within buying, merchandising and marketing to bring in new expertise and fresh perspectives. This enables us to create an even stronger and more relevant brand and product mix that meets the evolving needs of our female customers. The results are already showing. In October alone, we saw a good increase in women's shopping on Boozt.com compared to last year. At the same time, we are reinforcing Boozt.com as a premium destination by elevating the customer experience, making it more inspirational, personalized and fashion-driven. Through richer storytelling, curated campaigns and the use of advanced AI tools, we are creating a more seamless and engaging shopping journey. By the [ SS '26 ] season, our product listings and pages will feature more enriched and inspirational content to help customers find what they love even faster. Finally, we are diversifying our media mix to reach and inspire more women and men across platforms such as Meta and TikTok, while also experimenting with new opportunities on emerging AI-driven platforms. This improvement is supported by the clearer strategic distinction between Boozt.com and Booztlet.com. Please turn to the next slide. This slide summarizes the strategic clarification that is fundamental to performance going forward. We have since September and into Q4, deliberately made a clear distinction for the roles of our 2 platforms to maximize both brand value and operational efficiency. For Boozt.com, the strategy is firmly centered on its position as a premium destination. We are actively reducing the promotional activity to protect our brand equity as well as the value of our brands, strengthening long-term partner relationships. On top of that, our customers' multi-category shopping is the engine that drives loyalty and diversification as well as reducing our overall risk. We believe this has been an important step to get Boozt.com back to growth with 3% organic growth in Q3. Booztlet's prime focus, on the other hand, is on selling prior season stock with very limited access to current season products. Current season products could be accessed by Booztlet campaign buys, for example. Booztlet will continue to help reduce risk when purchasing and to maintain our current inventory. Overall, Booztlet's role as a clearing mechanism is working exactly as planned as we are managing inventory well even in a year like '25, where our growth is not what we had planned for. On top of this, Booztlet also gives us access to another customer group, which is looking for bargains when shopping. Active customers on Booztlet are now over 1 million, showing the relevance of the channel. Of these, 60% shopped only on Boozt.com and not Boozt.com in the last 12 months. The clear distinction between the sites is a fundamental part of our business model. It is long-term sustainable and ensures that we can optimize our premium market position by simultaneously safeguarding our balance sheet through effective inventory management. Next slide, before I hand over to Michael, I want to highlight the significant effect of our clearance sales on Booztlet. The clearance sale, which was started in September last year, is now fully concluded and our inventory is definitively rightsized and at the right quality. This crucial derisking would not have been possible without Booztlet as a dedicated clearing channel as deep discounts on our main site, Boozt.com would have tinted our brand equity. Inventory as a share of last 12 months revenue is now down to 38.2%, which we believe is a healthy level in our current state. This is a significant decrease of 5 percentage points compared to the same period last year, illustrating the importance of this exercise. It also supported our cash generation, driving our free cash flow to SEK 292 million in the quarter, a solid improvement compared to last year. We are now entering the most important trading season with a healthy and high-quality inventory position. This puts us in an optimal position to capture demand and to exploit market opportunities without excess risk. With that, I will now hand over to Michael and the financial review. Michael Bjergby: Yes. Thank you, Hermann, and good morning to all from me as well. I'll start on Slide 10 as we start off with a review of the revenue performance of the quarter. Now in Q3, it was important for us to get back to growth after Q2 and see an incremental improvement in the growth rate. With 3% organic or constant currency growth, we delivered this improvement and from a category perspective, driven by a recovery in women's fashion, as Hermann also described, our largest and most important -- strategically most important category. When reviewing the revenue across the 2 stores, Boozt and Booztlet, it appears like quite stable and uniform growth, but the quarter was, in fact, divided into 2 very different trading periods. Booztlet generated strong growth in the first months of the quarter during the clearance sales, and this reversed actually in September. For Boozt, it was opposite and the store generated very strong growth in September as the clearance sales was concluded. With our sharper distinction between the 2 sites and our focus on premium sales on Boozt.com, the relatively stronger growth in Booz compared to Booztlet continued into early Q4, and we believe that this is the right composition and the most healthy growth dynamics. Looking at the geographical revenue, the growth was relatively uniform across our key markets and all growing in the low single-digit area from a constant currency perspective. I'll move to the next slide and provide some comments on the profitability of the quarter because overall, we are satisfied with our profit development. It shows the strength of our business model, which can be quite scalable and something that we can continue to optimize across the value chain. It should not be a surprise that the gross margin is down in the quarter. It's quite natural when it is driven by the clearance sales in July and August. And it is quite natural that the gross margin is affected in a year, where revenue is lower than planned and expected. On top of this, we continue to see a negative impact in the gross margin from the FX development. But as Hermann mentioned also in September, when the clearance sales was finalized, the year-over-year development on the gross margin actually was positive and in local currency improving compared to last year. We improved the EBIT margin as we were able to more than offset the gross margin development through leverage on OpEx lines. We are continuously striving to optimize our efficiencies. We see that within the marketing spend. We see it within our fulfillment and distribution ratio. And as we continue to deliver -- to develop and also grow, we see long-term room for improvement on these lines continuously. We also saw a continued good development on the admin ratio driven by the previously communicated ceasing of Norwegian customs as well as the downsizing of field [indiscernible] FTEs in year. Depreciation was slightly up, driven by continued investment at our automated warehouse at Angelholm, but also investments in our best-in-class IT and [indiscernible]. Now please move to Slide 12, as I turn focus to our cash flow. The cash development was strong in Q3, and it's really a representation of our operating model and setup between Boozt and Booztlet, as we are managing our inventory and working capital. It's quite an achievement to manage inventory and even reduce inventory in a year, where sales is lower than planned. This is a key strength and risk mitigating accomplishment of the business model and the dynamics between the stores. Now generating free cash flow, which is 7x larger than EBIT as we did in this quarter is clearly not sustainable, but the quarter illustrates how working capital is the determining factor for our cash generation, and that is an important characteristic in a business like ours, where we trade massive volumes at relatively low margins, and I'll discuss these fundamentals of the cash flow over the cycle a bit more on the next slide. Because the more appropriate performance view of the cash generation is to review the last 12 months, i.e., over the full 4 quarters of the year. And in the last 12 months, our cash conversion has been close to 100%, and that's even with a slight outflow from working capital. We generated free cash flow of SEK 483 million out of a reported SEK 500 million EBIT. It shows how strong our underlying cash generation potential is. It is clear that when the business is growing very fast, it requires investments in working capital and in our warehouse capacity, but with more module growth, the cash conversion is fundamentally highly attractive like this year. As we are guiding free cash flow of more than SEK 500 million for the full year 2025, it can also be concluded and again, in Q4 '25, we expect to generate more cash than we did last year, reflecting continued operational improvements and continued strong management of working capital. Please move to the next slide for some comments on how the cash is used and generally our capital structure. As discussed, the business is highly cash generative in periods without the excessive growth. We are demonstrating this with our performance this quarter and with our outlook for the year. We do not want to sit on that cash. It has to work and it has to create return, and we strive to be disciplined in our return of excess cash to shareholders, currently mainly through share buybacks. As we are now extending our share buyback to purchase treasury shares worth more than SEK 400 million in the 1-year period since last AGM, we are actually returning quite a lot, and we're also achieving the target that we set out in our Capital Markets Day in 2023 and importantly, thereby delivering on our promises given. Despite the relatively large share buyback this year, we still have a very strong and quite conservative capital structure and currently with net cash, which means negative net debt of around SEK 200 million. This also means that we have very strong liquidity. We are maintaining a strong balance sheet because it creates room to maneuver and to capture opportunities in the market. And in that sense, we can -- as we face commercial growth opportunities in the market, we can attack and allow working capital swings in temporary periods. So with this, I have finalized my financial review, and I'll now turn to the future and our financial outlook on Slide #16. As Hermann mentioned in the beginning, we are satisfied with our strong operational performance, and we are updating our guidance to reflect the performance year-to-date. although we are currently facing the largest and most important months and trading periods of the year. The new revenue guidance corresponds to 2% to 5% constant currency growth for the year, and we still expect full year headwind of around 2 percentage points from currency. With the new guidance, the required constant currency growth in the fourth quarter is 2% to 10%. This corresponds to 0% to 8% in net revenue growth. It's a relatively broad range, but it underlines the uncertainty that November and December inherently carries. In regards to profitability, we are increasing the adjusted EBIT margin guidance driven by the factors that Hermann described earlier on the call. Fundamentally, we continue to see scope for further margin improvements. And this upgrade is an illustration of it. In a year with muted growth, focus on inventory clearance and also sharper distinction of Boozt and Booztlet, and on top of this quite material headwind from currency, we are still able to drive the underlying margin forward. For the full year, we estimate that the margin will be negatively impacted by around 1 percentage points due to the strengthening of SEK versus primarily euro, but also Danish kroner. The rest of our guidance remains unchanged, free cash flow of more than SEK 500 million and CapEx between SEK 150 million and SEK 170 million. I'll have my final slide with a few comments about our relocation coming up shortly because as you are aware, we are investing in Boozt to become a unique and really preferred employer in Copenhagen, the capital of Denmark. And creating a strong organization and really a powerhouse under one roof is a way for us to sharpen the organizational capacity. This investment carries some nonrecurring costs, and there are some compliance matters related to the move that I'll describe briefly. The nonrecurring costs are relatively limited and amount to around SEK 550 million, and it's mainly double leasing of the old headquarters at Hyllie, but also other smaller locations that we have as well as the restoration of our old headquarter. The larger part of these costs will be recognized in Q4 2025 and the rest in Q1 2026. The cash impact, however, will be spread across the year of 2026. Another implication of the move is that there will be a so-called exit tax related to the activities and operation, which are moving to Denmark. Our core assets like the Angelholm warehouse and our listing, et cetera, will be maintained in Sweden. So this will not be subject to any new tax legislation. But the exit tax payment in Sweden will create -- and that's important. It will create a deferred tax asset in Denmark based on the fundamental principle of the double tax treaty agreement between the 2 countries. So in layman terms, this means that the payment in Sweden can be deducted in Danish tax payments likely over a period of 5 years. And as a result, we expect no cash impact over the period from 2026 to 2030. But in 2026 alone, we expect excess cash tax payment of SEK 140 million. This concludes the prepared part of my presentation, and I'll now hand the word back to Hermann for some final remarks. Hermann Haraldsson: Thank you, Michael. And before moving on to the Q&A, I would like to share a few words on our strategic outlook. Our focus remains clear. We want to get back to sizable growth. Our operations are like a well-oiled machine. We are very efficient, and we want to increase our revenue growth to exploit our unique and scalable business model. We have strengthened our competitive position in the last couple of years, and I believe that the Boozt organization is now stronger than ever. With the move to Copenhagen, we will be a clear preferred employer and be able to attract key competencies and talent. On top of that, we are quite confident that consumer sentiment and thus the market return for the better and that Boozt will be positioned as one of the strongest players in the region to capture more than our fair share of that growth. So this concludes the presentation. And operator, will you please open up for questions. Operator: [Operator Instructions] The next question comes from Niklas Ekman from DNB Carnegie. Niklas Ekman: Yes. Can I start asking about the sales guidance, the updated sales guidance, given that your sales in the first 9 months are essentially flat and your guidance now of 0% to 3% growth. That seems to indicate then expectations of an improvement in Q4. And given your comments here, I mean, on the one hand, September sales being weak, you seem to be a little bit more confident here on October, but there's a lot of uncertainties about November and December. So what gives you confidence that your sales will essentially accelerate in the fourth quarter? Hermann Haraldsson: Well, kind of the quarter so far supports the guidance and comps are slightly easier for the fourth quarter. And so we think it's kind of -- as far as we see, there's nothing that indicates that things would become worse. And so -- but still, it's -- we think it's a cautious guidance, but still we are seeing some optimism, especially also because the women have returned again, growing again in the women's. So I think there's reason to believe that we are back to at least a moderate growth. Niklas Ekman: Very good. And I'm also curious, when you're talking about the reduced campaign activity at Boozt.com and kind of shifting that towards Booztlet, how much of this is kind of a voluntary move? How much of this is a result of pushback from suppliers? And are you now where you want to be? Or do you think that there will be a further move towards reducing that level of discounting at the core Boozt.com site? Hermann Haraldsson: Yes, a good question. I think as you know, we basically have been slightly overstocked for the last 2 years, meaning that we have had to reduce inventory and use our channels. And you also have to look after our brand partners, and it's entirely voluntary, but we want to kind of elevate the brands and keep the high brand profile. So kind of -- it's our initiative because we want to, again, create a more clear distinction between Boozt.com and Booztlet. I think that the overlap between the 2 shops and the offers were getting a bit too similar. So it's kind of a decision to create kind of 2 very distinct different shops. I think that we're actually on a good track. We are of course, we have to act with the market, and we are price takers, and we cannot sell more expensive than the rest, but we're definitely not price leaders. And we're moving into a more kind of inspirational and discovery like. And fortunately, our technology, AI helps a lot in doing that. So I think that we're in a good spot. And the inventory is right, so we don't need to clear, so we can actually also start to buy some campaign [ goods ]. So I think that we're in a quite strong position to capture growth when it returns. Niklas Ekman: Very good. But do you think that it's a challenge for you to drive growth if you hold back a lot of campaigns? Because I think in the past, the campaign activity at Boozt.com has also clearly been a growth driver. So moving away from that, is that a challenge for you right now? Is that a reason why we're seeing lower growth rates this year compared to the previous year? Hermann Haraldsson: I think it'd be a bit too -- I think it's a bit too far to say that is the main reason. I think that we've been hit by consumer sentiment and consumers holding back. But obviously, in the previous years, [ campaign buyers ] have been a big driver of us being able to offer strong campaigns. And as we have had too much inventory, we haven't bought too much campaign goods. Now with the inventory size, we can get back to doing campaign buys and promoting the campaign [ buyers ]. And this is kind of all in alignment with the brand's interest. I think that kind of we are moving in a position, where we can get a bit back to kind of being a retailer with strong brands and relevant and good offers. So I think that kind of we have put ourselves with our inventory position and with the kind of our brand and the distinction between 2 shops to be able to kind of again offer relevant campaigns without destroying margin or any brand relations. Niklas Ekman: And when you're talking about increase in campaign buys or campaign goods, are you talking already Q4? Or is this more an issue for 2026 and onwards? Hermann Haraldsson: We're starting in Q4 and -- but also in '26 onwards. So we see more campaign buys opportunities, both in the market and for ourselves than we've seen for quite some time. Operator: The next question comes from Benjamin Wahlstedt from ABGSC. Benjamin Wahlstedt: I was wondering if you could give a bit more flavor on the quarter's growth by month, please. What was your growth in September, for example, when warehouse clearances were done? Hermann Haraldsson: Yes, the growth was -- as we said at the end of -- at the Q2 call, we came into the quarter with growth. And in July and August, September was actually kind of flattish because weather was -- it was very warm. So it was quite uneven growth for the quarter actually. So that's why you should always be careful because especially when you -- the transition from summer to autumn to winter is like very dependent on temperatures and weather, et cetera, et cetera. So -- but it was quite uneven with September being more or less, less flat. Benjamin Wahlstedt: Right. Another possible interpretation of this report, I think, is that you spent too little on marketing in the quarter, reporting the lowest marketing ratio since mid-2019. And I was wondering if you could give us a bit more flavor or commentary regarding that. Hermann Haraldsson: Yes, we can do that. I don't think we spent too low and little because as we've been discussing before, it's all about kind of the marginal spend. And if the consumer is not there, you can just totally overspend on your marketing. And that's why we still have the ratio of how much do you want to pay for a new customer and what is the payback. So we're cautious. We've been holding a bit back on our offline campaigns. as also we said in the Q2 call, that's because we haven't been really ready. But I think that kind of -- I said the ambition is to get marketing down and -- and even though our cost structure allows us to spend more on marketing, we don't want to throw any money. And just by increasing performance marketing, it's a bad investment. So that's why you'd rather hold back and save that money for a full year. Benjamin Wahlstedt: Perfect. And this is sort of a follow-up on Niklas' previous question. Would you say that your strategy from, say, October onwards is a new strategy with less discounts than previously or less targeted discounts than previously? Or should we understand it as a return to the pre-inventory clearance strategy essentially? Hermann Haraldsson: I think you should interpret as a return to the pre-inventory reduction strategy. We -- over the last 2 years, we've been expecting higher growth and [ bought ] for that growth, and it has materialized, which has meant that we have had to kind of clear because we are religious about not having too much inventory and not doing any write-downs. So we've basically been forced to do that. Now with inventory being at a very good size, we are getting back to -- yes, as I said before, the phase, where we can -- we have the right inventory from the beginning of the season and can do opportunistic campaign buys to add some flavor and margin to -- and also add some basically attractiveness to the offer. So I think that we're kind of going back to, as you said, the pre-inventory write-down strategy, it's a long word. Benjamin Wahlstedt: All right. And finally, from my end, I was wondering if you could say anything else about the consumer environment as you see it currently in addition perhaps to the stronger October demand for the women's category. Should we understand that comment as being of like stronger growth for the whole business in October? Or is it more specific -- specifically related to the women's category? Hermann Haraldsson: Yes, sorry. Again, if you look at consumer sentiment, it's -- I think it's still below 0 in all the 4 Nordic countries, the 4 Scandinavian countries. So even though we're going up and Sweden seems to be the most positive country and probably even more positive next year, the Danes are still quite depressed. The Norwegians are getting closer to neutral and the Finns are also seem to be depressed. What we notice, of course, is that the women are coming back. So we have a growth in women buying on Boozt in October. But -- and there's a but, the average item price they're buying for is lower than last year. So they are still kind of holding back and being cautious. So I'm not sure if we're out of the woods yet. But with the stimuli that is coming in Sweden, also in Denmark, I think there's time to become a bit more optimistic about the future. So at least kind of we don't see any negative numbers anymore. So now it's just kind of the degree of positiveness. But again, it's very early because in 1 month's time, I might be really happy or depressed depending on how this black month and Black Friday and Cyber Monday goes. So it's kind of -- it's too early to conclude because it's the next 1.5 months that is going to decide everything. Benjamin Wahlstedt: Yes, of course. You 're -- well, if history tells us anything, you're usually pretty good black month, but let's… Hermann Haraldsson: [indiscernible]. Operator: The next question comes from Daniel Schmidt from Danske Bank. Daniel Schmidt: A couple of questions from me. Hermann, you talked about when we sort of heard from you the last time in Q2 that you basically missed maybe on womenswear when it came to dresses and so on in your purchasing heading into the spring season. Is there sort of anything that you've done entering the autumn/winter season that is sort of increasing the likelihood that you won't make that mistake again in terms of predicting the trends and so on? Hermann Haraldsson: Yes. That -- it's a good question, actually. Yes, there is because we became too cautious in the first half. We bought what we thought would be the sure thing. So we bought more depth than breadth. We kind of internally refer to it like we looked a bit more down, so looking too much to the numbers instead of looking up. So we set the buyers a bit more free and saying, okay, try to buy more inspiration, more breadth and try to see kind of there to take more risk again because our inventory position is so good. And then, of course, we bought less dresses going into the quarter. So that was kind of -- so it's kind of -- when you're in a position when you have too much stock, you tend to be -- become a bit more too cautious. And I think that we became a bit too cautious. So I think that we are going to be more -- liberate our buyers a bit more than we've done before because we know that we are very good at eliminating stock risk. So I think that you -- and I think that already now that the women can see that there's basically more and better choice in the shop. Daniel Schmidt: So that's basically a reflection of what you're seeing in October, you think? Hermann Haraldsson: Yes. I think that's a good bet that women are able to find more exciting stuff. They still buy the sure thing, but they also want to be inspired, right? And we're getting better at that. Daniel Schmidt: Just coming back to a detailed question on the marketing spend. And again, that was on the low side in Q3, and you already touched upon that, but it was also on the high side in Q2. And I think you wrote something about a timing effect, and you also mentioned that in Q2, they went a little bit overboard maybe or maybe it was also timing between the quarters. Is that correct? Or shed some more light on that? Hermann Haraldsson: Yes, that's correct. We had quite a big offline marketing campaign in May. which was a really bad month and the quarter [ get ] results. So we went slightly kind of -- I wouldn't say we went overboard, but the timing was unfortunately compared to the market, and our execution was maybe not spot on. So that's why kind of we are regrouping and redefining kind of what and how we want to communicate, especially offline. I think in our performance marketing, we're on a good track. We are using marketing technology to an even greater extent, and it shows promising results. But again, we've been discussing this for like -- like now 8 years, Daniel, that we are very, very careful not to overspend on performance marketing because the marginal cost of the margin customer is just too high. So we'd rather not spend and then accept low growth because often doesn't make sense. So that's why we're trying to guide it. And then again, the long term, our target is to get the margin cost ratio down to maybe 6%, 7%. So I think it's a path towards that goal. Daniel Schmidt: And then also maybe coming back to the inventory and the size of the inventory, and I clearly hear you that you've been overstocked for quite some time, and you've done quite a lot of excessive clearance of inventory in the past couple of quarters, and you seem very happy entering the fall and winter season. Is there any risk that the inventory is too low to get up to the upper end of the implicit top line guidance that you have for Q4? Or is the sort of the capability to add on campaign buys or additional inventory in the season better now to support if top line would sort of surprise positively or demand would surprise positively? Hermann Haraldsson: You're right. Yes. You're right that there is a risk if demand is higher than projected that we don't have enough inventory with what we have now. This is also why we've started already to do some strong campaign buys and are increasing our campaign buys budget because you're right that of course, if consumers become more happy and start to buy again, then we don't have enough inventory. But we are actually working on that. And I'm quite confident that if there is more growth than we guide, we would probably be able to kind of deliver on that growth. So -- but you're right that we are now going back to doing quite decent campaign buys. Daniel Schmidt: And does that go hand in hand a little bit when it comes to other revenues? How do you see that into Q4 and '26? Hermann Haraldsson: Yes, it does. It has [ other ] revenues, especially the retail media revenue is not 100% linked, but it's quite linked to the buy as it always has been. So with us, if we are turning the buy down, then other revenue is affected and it's difficult to compensate for that by offering additional campaigns also because if consumers are holding back, the brands feel it themselves. So they're also less inclined to spend more in marketing. So it kind of goes hand in hand, but it's not a 100% correlation. So we have been able to compensate slightly for that by offering better and more targeted campaign. Our BMP is actually getting better and better at both targeting and documenting the return on the marketing investments than before. But of course, it's linked to the buy. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Hermann Haraldsson: Okay. Thank you for listening in and the questions. And yes, we are just waiting for a very interesting 1.5 months. And hopefully, we'll meet happy again after Black Friday and over the next coming weeks. Thank you very much, and bye-bye.
Katarina Rautenberg: Welcome to the presentation of Investment AB Latour's Interim Report for the Third Quarter 2025. [Operator Instructions] I will now hand over to CEO, Johan Hjertonsson; and CFO, Mikael Johnsson Albrektsson. Johan Hjertonsson: Thank you very much, Katarina. Welcome, everybody. I'm here together with our CFO, Mikael, and we will take you through our Q3 report that we published earlier this morning. So if we start with the first slide, the overall group structure is unchanged. Continued good performance of our operations despite the challenging business climate. The construction market is still slow overall, but some areas are growing, thanks to trends like energy efficiency, automation, where several of our businesses are well positioned. I will comment more on the financial outcome more in detail later on in this presentation. As for the U.S. tariffs, Latour's exposure in the U.S. corresponds to the 11% of our total net sales and the effects from tariffs are limited. Caljan, Hultafors Group, Nord-Lock Group and REAC within Latour Industries have the most exposure in the U.S. And we aim to pass on as much of the increased cost to customers as possible related to tariffs. Then if we go to the next slide with our portfolio on the 10 listed companies. The majority of our companies have reported for the Q3 and the picture of a weaker business climate is fairly consistent. However, the financial effects varies depending on the industry and geographic exposure. And I think in general, our 10 listed companies in general, show strong resilience. And many of the listed companies has reported strong Q3 results, for example, ASSA ABLOY, Sweco and HMS. The acquisition activities are high in our listed holdings. One example among several is Tomra, who acquired C&C during the third quarter, a leading provider of bag drop solutions for collection and processing of beverage containers in the U.S. And if we go to the next slide, no major changes with the listed portfolio during the quarter. Earlier this year, however, we increased our holding in CTEK to 35.3%. In the 9 months period, the value development of the listed portfolio was minus 2%, whereas the SIXRX was 5.8%. And the value has increased since then. And until yesterday, November 3, the portfolio value was SEK 90 billion, and the total return amounts to 3% so far this year, whereas the SIXRX is 9.6%. And if we go to the next slide again, about the wholly owned industrial operations. The order intake has increased by 70% of which 10% was organic and net sales increased by 8%, of which 2% was organic. This is a strong development, especially considering the somewhat weak business climate. The overall demand is difficult to predict, and the picture is mixed between regions and industries. For example, Caljan's order intake is very strong in the quarter, indicating renewed investment activities in the logistics sector, while Hultafors Group, for example, is still suffering from a weak construction market. The total order backlog is on a strong level, ensuring stable net sales going forward for the next couple of quarters. We have good cost control, but various growth initiatives, combined with currency headwind puts pressure on the operating margin on a short-term perspective. Continuing investments in our companies, however, key to ensure long-term growth and profitability. Hence, we can tolerate somewhat lower margin for a shorter period of time, confidence that will pay off looking ahead. And the adjusted operating profit increased to SEK 936 million compared to SEK 935 million with an operating margin of 13.9%. And if we go to the acquisition slide, during the quarter, Nord-Lock Group has finalized the acquisition of 75% of the shares in Energy Bolting in the U.K. and Latour Industries has signed an agreement to divest Batec in Italy to the Swedish Company, Decon. Batec is a manufacturer of electric and manual handbikes with an annual revenue of approximately EUR 5 million. With Decon as a new owner, the company will get great support to further develop the Batec's product offering. Energy Bolting is a U.K.-based manufacturer of critical fasteners. The company has an annual net sales exceeding GBP 7 billion -- GBP 7 million. Earlier this year, we have finalized 6 acquisitions. All in all, the conducted acquisitions so far this year adds more than SEK 1.8 billion in net sales on an annual basis. And we're very happy with that with good M&A activity so far this year. And having said that, I hand over with a warm hand to Mikael to take us through our business areas to comment on that. So over to you, Mikael. Mikael Albrektsson: Thank you very much, Johan. And in ordinary fashion, we turn page and we start with the business area of Bemsiq Group. And Bemsiq had a continued good performance in the quarter with growing order intake driven by both organic growth and acquisitions. The total organic growth in net sales was 5%, which is a strong performance considering the challenging market within the real estate and construction industries. The operations in North America recorded the most robust development over the quarter. The adjusted operating profit amounted to SEK 110 million with a good margin of 21.4%. The margin was slightly negatively affected by ongoing growth initiatives and recent recruitments. Very well done Anselmi and team. We then turn page and move over to Caljan. And as Johan mentioned earlier, Caljan has recorded a very strong order intake during the quarter, well ahead of last year and a strong order backlog has been established for coming quarters. Net sales is down organically by 8% during the quarter. Aftermarket is growing while product divisions are below last year, adversely impacted by geopolitical uncertainty. But I think it's worth again to mention the very strong order intake in the period that shows a clear positive sentiment from customers' willingness to invest again. Caljan continued to have a good cost control and gross margin, however, not to fully compensate for the lower volumes and the operating margin amount to 13.3% in the period. Thank you, and very well done, Henrik and team. We then turn page and go to Hultafors Group. And the overall market conditions continues to be challenging for Hultafors Group in both Europe and North America and especially for the hardware divisions. The PPE division is, however, growing during the quarter. Total net sales grew organically by 2% compared to the corresponding quarter last year. The profit margin is lower than last year, mainly due to long-term investments for future growth and the adjusted operating profit amounted to SEK 214 million with a margin of 13.4%, which is good under the circumstances. All in all, very well managed by Anders and his team. We then turn page again and look at Innovalift. And order intake is growing by 41% in the period, supported by acquisitions and with a very healthy organic growth of 10%. Net sales grew by 36%, driven by both acquisitions and organic growth, especially within the Components & Modernisation segments. And the gross margin continues to improve step by step, however, slightly negatively affected by the cost inflation in Turkey. But as you can see on the chart, there is a very positive underlying trend on the margin within Innovalift. The quarterly adjusted operating profit amounted to SEK 109 million with a margin of 13.4%. All in all, very well done, Andrea and team. We then continue with business area Latour Industries, and the picture is somewhat mixed for Latour Industries business units, where we see a continued underlying good demand for REAC while the other business units are operating on somewhat slower markets. Order intake is growing organically by 7% during the quarter. Net sales is up 3% from last year and driven by a good performance by LSAB. The adjusted operating profit amounted to SEK 47 million, driven by strong results from MAXAGV. And the result is negatively affected by currency effects and the weak market climate as well as ongoing investments for the future. And it shall also be mentioned that Latour Industries currently has an under-absorption of their fixed cost on the central level following the distribution of Innovalift, putting additional pressure on the margin. But despite this, we are very happy to see a positive development on the margin during the quarter. And as the heading of the future states, the focus of Latour Industries continues to be on developing the existing holdings and to find new platform investments for future growth. So well done, Tina and your team. We then turn page again and look at Nord-Lock Group, who continues to develop very strongly despite a tough business climate, reporting growth across several metrics. Order intake grew organically by 5% during the quarter, and the net sales grew organically by a very healthy 13%, where all sales units contributed to the growth. And the order backlog is now on good levels. The quarterly adjusted operating profit increased to SEK 130 million with a strong operating margin of 25.5%. And as Johan mentioned before, Nord-Lock has acquired 75% of the shares in Energy Bolting in U.K., complementing the product portfolio in a very nice way. Very well done, Daniel and your team. We then turn page again to our last business area, Swegon, where we see that order intake is up 4% organically from last year. And given the business climate, this is a fairly good performance. Net sales were hampered by the general market uncertainty during the quarter. Total net sales grew by 10%, driven by acquisitions and organically, it was in line with last year. Profit margin is somewhat lower than last year, affected negatively by lower volumes, currency effects as well as investments in product development and other growth-oriented investments. And the adjusted operating profit came in at SEK 280 million with a margin of 11.2%. Very well done, Andreas and your team. We then continue the presentation to take a look at our net asset value. That decreased by 0.6% adjusted for dividends during the 9 months and amounted to SEK 210 per share compared to SIXRX that increased by 5.8%. The share price at the end of September was SEK 223, which means that there is a premium of 6% compared to how we present the net asset value. And as of yesterday, the net asset value was SEK 216 per share. The share price on the same day closed at SEK 238, which gives a premium to our way of describing the net asset value of about 10%. The consolidated net debt decreased during the quarter from SEK 16.9 billion to SEK 16.8 billion. And the net debt corresponds to about 11% of the market value of our investments, leaving headroom for further acquisitions going forward. And that summarizes my presentation, and I hand over back to you, Johan. Johan Hjertonsson: Thank you, Mikael, and some comments around the financial targets. The summary of the financial target during the last 12 months, we have had growth of 10%, EBIT margin of 13.8% and return on operating capital of 13.8%. And if this is the bottom of the cycle, the low cycle that we're in right now, I have to say that's fairly strong because our targets, as you can see here, growth above 10%, operating margin above 15% and return on operating capital above 15% are to be seen over a business cycle. And it's nice to see that growth is once again increasing, and it's driven both by acquisitions and organic growth. And the operating margin I have commented. So let's go to the next slide. And to summarize, we are very happy with the development during the third quarter, especially considering the business climate with a 10% organic growth in order intake and 17%, including M&A. Latour is a long-term sustainable investment company and a responsible owner of creating value for our shareholders. In our wholly owned operations, we continue to invest with a forward-looking view to enable future growth and profitability and in the end, create value for our shareholders. We have a strong corporate culture that we treasure, which is of great value when we move forward in a volatile and rapidly changing world. Thank you for listening. And thereby, we also open up for questions and the Q&A section. Operator: [Operator Instructions] The next question comes from Linus Sigurdson from DNB Carnegie. Linus Sigurdson: Starting off with a question on Bemsiq. So by no means is this a bad quarter, but we're seeing some deceleration of growth here. And you also talked about this short-term pressure on margin from growth initiatives. Could you just help us understand what kind of initiatives these are? And how material the impact is in the quarter and going forward? Mikael Albrektsson: Yes, absolutely. So good morning Linus, thanks for the question. And I mean, I think it's worth to mention that if you look on the historical growth rate for Bemsiq, it's been growing, I mean, double-digit 20% -- north of 20% for multiple years. And I think, of course, that takes its toll to the organization that every now and then you need to, in some way, also step up both, I mean, a bit of central resources, but also to, I mean, invest in the companies to be able to continue to bear that growth level. So I say, I mean, from -- it's that type of investment that is going into Bemsiq to I mean, build a bit more of a central structure as it is, as you know, very much an acquisition-driven growth journey as well in combination with taking the acquired companies to levels where we see that the quality of processes and quality of reporting and everything gets up to standard, which we think is necessarily to continue to grow organically over time. So I think that's what Johan means when that we are investing, but it will pay off over time. Johan Hjertonsson: And a more general answer to your question, Linus, we see that more than 1/3 of the drop on the EBIT margin is currency related that goes directly on the gross margin. And then I would say a large portion is that we have not taken down any forward-looking costs or investments in R&D, marketing or sales activities. And that's a kind of a credo for Latour that we continue those investments on a high level even in a tough market. And then I would say maybe 1/3 of the drop is related to that we have managed to get pricing out quite strongly related to tariffs and other things, but like maybe not 100% but almost. Linus Sigurdson: That is very helpful. And then I had a question on Caljan. Obviously, very impressive order intake and nice to see that the underlying demand is healthy. But it's been a while since we had sort of a normal environment for this company. Could you remind us the typical order book duration for a company like Caljan? Johan Hjertonsson: I would say the order book duration is a bit hard to say exactly, but about 6 months out, you could say, 3 to 6 months out on an average on the order book. Caljan do operate in a market that is fairly volatile. And you could see if we backtrack some years in the onset of the pandemic, there were some extremely heavy investments into the logistics sector because of e-commerce and so on. And then at the end of the pandemic, you could say the sector was overinvested. So it was very low demand, but it's also now very nice to see that the investments are coming back into the logistics sector. So it looks quite good for Caljan now. But to your point, Linus, there has been over the years, some swings in the demand in that market. Linus Sigurdson: Okay. My final question is on MAXAGV. Could you talk a bit about what kinds of end customers this company has? And if it's fair to assume that their geographic exposure is fairly local? Johan Hjertonsson: Yes. And please add on, Mikael. MAXAGV is automated guided vehicles is mainly for manufacturing and factories to help move material in an automatic way in factories. And I would say it's a fairly Nordic-based market that they are addressing. Do you want to add to that, Mikael? Mikael Albrektsson: No. I think that summarized it well. Johan Hjertonsson: Thank you. Thanks for your questions. Highly appreciate it. Let's see if we have any more questions or in the chat. Mikael Albrektsson: No questions in the chat. Johan Hjertonsson: Well, we have to assume it was crystal clear then. So thank you, everybody, for listening in and looking forward to speak to you when we present the full year report in the beginning of next year. Thank you all.