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Operator: Welcome to the BioInvent Q3 Report 2025 presentation. [Operator Instructions]. Now I will hand the conference over to the speakers CEO, Martin Welschof; and CFO, Stefan Ericsson. Please go ahead. Martin Welschof: Yes. Welcome, everybody, to our Q3 report presentation. And as usual, Stefan and myself will go through what has happened during that time period. Stefan will cover the financials. I will do the rest. And without any further ado, I will start the presentation. Our forward-looking statement. And I would like to start with a quick summary what has happened, events in the third quarter as well as the events after the end of the period. And obviously, one very important events during the third quarter was our prioritization in the portfolio to really focus on the two lead programs, all the resources doubling down on the two most advanced programs, 1808 and 1206, and I will come back to a little bit more details later. And then the other thing was that there was a change in the Board. So Vincent Ossipow, who is with us for many, many, many years, stepped down for priority reasons. And I think this is a very normal change. And as I said, he has been with us almost 10 years. So then the events after the end of the period. So the most important thing, and we probably will discuss it also later a little bit more in detail, BI-1206, we started the Phase IIa trial in advanced or metastatic non-small cell lung cancer and uveal melanoma, and this is a first-line study. So super exciting. So this is basically based on the good data that we have generated in heavily pretreated patients. We showed that data to Merck and they agreed that we could go in the combo trial in first-line non-small cell lung cancer and uveal melanoma. So very, very exciting. Then we had some data presentations, so the Phase I clinical data for BI-1910, our TNF receptor 2 agonist for the treatment of solid tumors, will be presented at SITC in 2025. And then together with Transgene, we presented translational data and updated clinical results on the armed oncolytic virus program, BT-001 that was at ESMO this year. So coming back to our prioritization. So what you see here on this slide is the portfolio, and that's still our portfolio. So we think what we're doing is, of course, now we prioritize the two lead programs, and that was -- makes a lot of sense because those 1808 and 1206 are now in advanced clinical studies, which means Phase II. Those are two assets that are active in liquid as well as in solid tumors, first-in-class and the other programs on 1910, our second TNF receptor 2 program as well as 1607, our second anti-Fcgamma 2b program. They are now paused and then the BT-001 program in solid tumors, which is basically the oncolytic virus containing our anti-CTLA-4 antibody, is continued based on investigator-initiated trials. So we are really now focusing and doubling down on 1808 and 1206. And on this slide, you have a summary of what I partly already have said. So in August 2025, we announced the decision that we will focus on our two most advanced programs, BI-1206 and BI-1808. And what I always say, this is obviously an unfair competition, because 1910,1607 might be also interesting, but they're much, much more early. They're still in Phase I, dose escalation. And of course, 1206 and 1808 are already in Phase II. So the earlier clinical programs, as I already have said, will be paused after a [ wind-down ] period to complete the ongoing trial activities, because we want to pause it in a way that we can reuse it either ourselves or with a partner. And also the underlying research activities are now streamlined to better support the 2 lead clinical programs, 1206 and 1808. So this slide then would show you the prioritized portfolio where we then have basically 1808 and 1206, as I already said. So 1808 is our anti-TNF receptor 2 program, which is running as a single agent as well as in combination with pembrolizumab in solid tumors and T-cell lymphomas. And BI-1206, our lead anti-Fcgamma IIB program is running in combination for non-Hodgkin lymphoma with rituximab and acalabrutinib and in solid tumors with pembrolizumab. And there, I already mentioned that this trial has been kicked off where we're focusing on first-line non-small cell lung cancer and uveal melanoma. Then BT-001, as I already said, continues development in an investigator-led Phase I/II trial in collaboration with Transgene. Just for completeness, on the right-hand side of this slide, you see our partners. So whenever we use pembro, we do this under a supply and collaboration agreement with Merck. And whenever we use acalabrutinib, this is under a similar agreement with AstraZeneca. And that, of course, is something very interesting, because those are two potential partners that are already sitting at the table in a way. And then, of course, the last name, this is our long-standing partner in China, CASI. They have exclusive rights for 1206 in China, Hong Kong, Macau and Taiwan. So a little bit more then in detail around the programs, just to recap where we stand. So as I already mentioned, 1808 is developed in T-cell lymphoma as well as in solid tumors as a single agent as well as in combination. Here on this slide, this is the data that we presented in June this year. Basically, the monotherapy showing really promising strong efficacy in CTCL and PTCL. We had 100% disease control in nine evaluable patients, complete responses, partial responses and stable disease. And of course, it's important to remember or to remind everybody that these patients are heavily, heavily pretreated. But we also have then on top of that, two available patients in PTCL, which is an even more severe form of T-cell lymphoma, where we have one partial response in one patient with stable disease. Important to note that the treatment is well tolerated with very mild to moderate adverse events. So basically no toxicity issues. And also very importantly, immune activation was observed early on with depletion of regulatory T cells and the influx of CD8 positive T cells into the skin lesions, which is very, very important. And then to remind everybody, so we have Orphan Drug Designation for T cell and Fast Track designation for CTCL. So what is next? This will be actually additional data already this year, additional Phase IIa data. I think we guided the market that this will come next year, but we have good progress, and we will have already an update this year. Then going into the other parts of the 1808 program, which is the solid tumor study. We have established single-agent activity, which is really something exciting, because antibodies against TIGIT or LAG-3 never have done this. So we saw complete responses, partial responses, and we had actually 11 out of 26 available patients that showed a response. And obviously, again, here, very, very heavily pretreated patients. And again, I emphasize this is single-agent activity. Very good safety profile. And then what we also -- and that was presented at ASCO and what we also presented at ASCO in June 2024 is some first activity or data that we had in the combination, which, of course, was a little bit later since we start with -- started the single-agent clinical development first and then followed on with the combination with pembro. And here, we already guide the market. So the Phase IIa pembrolizumab combination data in solid tumors, there will be also a first data point or the second data point actually after then the ASCO in 2024 this year. So basically, for 1808, there will be an update on monotherapy for CTCL and as promised already the update on the combination with pembrolizumab in solid tumors, both this year. Then I switch to our anti-Fcgamma IIB program, BI-1206 that we develop in non-Hodgkin's lymphoma and in solid tumors. And start with the data that we presented also this year. That is the combination with acalabrutinib and rituximab. We had 100% disease control in the first 8 patients out of 30 patients in the complete trial and complete responses, partial responses and stable disease, a good overall response rate. And again, also this treatment has been well tolerated with no safety and tolerability concerns. And of course, it's important to note that 1206 is subcutaneous. So that means we have a very convenient and safe profile of this combination and which is a highly competitive option in the evolving non-Hodgkin lymphoma treatment landscape. We have Orphan Drug Designation and also here, we have an update, because we guided the market that will come out with a next data set during the first half of next year, and that will already happen this year. So also very, very exciting, which means that is already the third update that will come to in addition to what we already had guided the market for. So then on the other side, the solid cancer study, you might remember the data that we have shown. So very strong also data targeting patients that do not respond anymore to anti-PD-1 or anti-PD-L1 and that were patients that have received two or more -- two and three, so two or more IO treatments. We saw complete responses and partial responses. We showed that data to Merck, and they agreed that we can move into first line. And that's what we have started already. So there was a press release a week or two weeks ago. And we're focusing on advanced metastatic non-small cell lung cancer and uveal melanoma, and we are focusing on sites in Georgia, Germany, Poland, Romania, Spain, Sweden and the U.S. And here, as we have guided already the market, so we will have a first glimpse of the data during the second half of next year. Then very briefly on CTLA-4, even though that is not our core, but at least since it happened, so that was presented at ESMO. We could show that the BT-001 inject in combination with pembrolizumab was well tolerated, showed positive local abscopal and sustained antitumor activity in injected and non-injected lesions, long-lasting partial responses were observed and the overall data support further developments across a range of solid tumor types to improve responses to cancer immunotherapies. And the next step here is that the evaluation of BT-001 via the investigator-led trial in early-stage setting, what I already have mentioned. And then I hand over to Stefan for the financial overview. Stefan Ericsson: Thanks Martin. Okay. I will present the financial overview for Q3 and the 9-month period, January to September. All amounts are in SEK million, unless otherwise mentioned. Net sales were SEK 3.3 million in Q3 2025 compared to SEK 12.8 million in Q3 2024. That decrease is related to the production of antibodies for customers was SEK 9 million lower in 2025. Net sales for January to September 2025 were SEK 223 million. For the same period in 2024, net sales were SEK 23 million. That's an increase of SEK 200 million. The increase is mainly related to the $20 million payment when XOMA Royalty acquired future royalty rights to mezagitamab. Prior to that, a $1 million milestone was received in the collaboration with XOMA. Operating costs increased from SEK 120 million in Q3 2024 to SEK 137 million in Q3 2025. That's an increase of SEK 17 million. We had quite higher costs in BI-1808 and higher cost in BI-1206 and somewhat lower cost in BI-1910. And we also had higher personnel costs in Q3 2025. For January to September, the increase of operating costs was SEK 77 million from SEK 369 million in 2024 to SEK 446 million in 2025. During the period, we had quite higher cost in BI-1206 and BI-1808 and higher costs in BI-1910 and personnel costs in 2025 were quite higher compared to 2024. And the result for Q3 2025 was minus SEK 129.2 million, and the result for January to September was minus SEK 207.1 million. Liquid funds and current investments end of September 2025 amounted to a total SEK 690 million. And based on our current plans, we are financed into Q1 2027. Over to you, Martin. Martin Welschof: Thank you, Stefan. So then at the end, I would summarize again the key catalysts for the remaining 2025 and 2026. I think I mentioned it already, but I think it's always good to go over this again, and you see it here on this slide since there has been some changes, because originally, we guided the market that we will have for 1808 in solid tumors, a data update in combination with pembrolizumab. But in addition to that milestone, we also will update on 1808 additional Phase IIa single-agent data this year as well as additional Phase IIa data with rituximab and acalabrutinib for 1206 in non-Hodgkin's lymphoma. Otherwise, then for next year, so we'll have then the Phase III data with pembro in [ TC/TCL ] for 1808. And then there will be then, of course, additional triplet data, so for BI-1206 in non-Hodgkin lymphoma in combination with rituximab and acalabrutinib. And then in the second half, we'll have the first data update regarding 1206 first line in solid tumors, and that will be the first readout that will be during the second half of next year. So I stop here and open up for questions. Operator: [Operator Instructions] The next question comes from Sebastiaan van der Schoot from Kempen. Sebastiaan van der Schoot: There appears to be a lot of data still coming in 2025. And I just wanted to know whether you can provide a little bit more color on the different readouts. Maybe starting with the triple regimen for 1206. I noticed on the slide that said disclosed data on the first 8 out of 30 patients total. Does that mean that we will get an update on the total patient on 30 with the next one? And how long will the follow-up be for that particular readout? Martin Welschof: Yes. So for that -- Sebastiaan, for that program, BI-1206, that's in combination with acalabrutinib and rituximab. So basically, we have now more patients. We'll have an update on the overall response rate. We'll have an update on the complete response rate. So basically, an update on the study as it's going at the moment. Sebastiaan van der Schoot: Okay. Got it. And could you also provide a little bit more color on the 1808 readout in CTCL for the combination of pembrolizumab in tumors, like how many more patients will we get? Is it going to be like a handful? Or is it going to be a substantial update? Martin Welschof: For the -- so 1808, I'm just repeating because you were interrupted actually because there's some background noise where ever you are, Sebastiaan. So for 1808, this is, of course, monotherapy in T-cell lymphomas, right, so not combination. And because the combination will be next year as already guided. So this is an additional update that we have. And as you might remember, so the single-agent part or dose escalation has been done, and that will be basically then a further analysis on that data and update where we are with the different complete responses, partial responses and stable diseases. And then also quite some interesting information on the translational side. Sebastiaan van der Schoot: Okay. Got it. Thank you so much Martin. Operator: The next question comes from Richard Ramanius from Redeye. . Richard Ramanius: I just continue where Sebastiaan left off. And could you remind us about the next steps for both BI-1808 in T-cell lymphoma and BI-1206 in normal lymphoma in 2026? Martin Welschof: Yes. So basically, I start with 1808 first, as I said to Sebastiaan. So the single-agent part, the dose escalation, et cetera, has been done, so that is finished. What we have already have started is also the combination with pembrolizumab. And the reason why we do this is just to see whether it can be even better. So as you remember, so the data, the single-agent data is very impressive. But nevertheless, we also wanted to test the combination. And that is currently ongoing and the update on that data will then be at some time point next year. And then for 1206, the update that is coming now is basically a further progress of the study. And then next year, we will, of course, then finish the 30 patients. And then it depends on the data a little bit where we move, but we already had discussions with the regulators, such that we potentially could do at some time point a pivotal study. But as you know, so this is something that we want to do in a collaboration. So basically, what we're doing is to finish really up the 30 patients that will happen during next year and hopefully, with a very strong overall response rate plus a very high rate of complete responses, and we are quite optimistic that we can achieve that. Richard Ramanius: And I was thinking about your potential license partners. You're going to get some data in the triple combination now and somewhere in early 2026, while the data in combination with pembrolizumab in non-small cell lung cancer and uveal melanoma will be one year later. So what -- hypothetical question, what if AstraZeneca is very interested, what are the options for MSC Merck then? Martin Welschof: Yes. It's a very interesting question. Obviously, first of all, maybe a slight correction. So the first data that we'll have for the 1206 pembro combination will be during the second half of next year. So it's not a year later because I think we'll have during the first half, we'll have then further update or actually what we have guided now it's mid next year on the triplet. So I think we might even have -- and as you know, Merck as well as AstraZeneca, they don't have any rights, but they see the data a little bit earlier. So what we're doing now is pushing really hard on the 1206 pembro combination as much as we can, such that we might have already some interesting data that we may be -- that are not in the market yet, but that Merck will see since they are following us closely, and that could then trigger interesting discussions. So that might be enough, let's say, AstraZeneca would make the move. And if Merck would see something that is bubbling up, something interesting that is bubbling up, they might be able to counter. And also, I think I will use the opportunity here to update or to remind everybody. So with 1206, obviously subcu. And if you only would see, let's say, a 10% increase of responses to KEYTRUDA first line, this is, of course, a very interesting thing for Merck because Merck KEYTRUDA or Merck's KEYTRUDA has been just approved as subcu. So you could then really think of co-formulating KEYTRUDA subcu and 1206 subcu into one injection basically. And that could be something very, very interesting. And coming back to your question. So I think if we see initial data and Merck would see that rather early, they might then still be able to react in case AstraZeneca should come forward and is interested in a collaboration. Richard Ramanius: And what about an interest from AstraZeneca in combining BI-1206 with Imfinzi or durvalumab, their checkpoint in... Martin Welschof: Absolutely. That could be another option. So because the thing is because I get this question a lot that some people think, okay, AstraZeneca might, if they're interested to collaborate on non-Hodgkin lymphoma and Merck on solid cancers. But if either party is interested to do that, then probably they will opt for the full program, even if they have some specific interest. So AstraZeneca absolutely could also then consider if they think 1206 is interesting enough for them to consider collaboration to also consider on other applications besides non-Hodgkin lymphoma, absolutely. Richard Ramanius: Okay. Then I just have one more financial question. Are we going to see any more results of the cost-cutting measures just recently? And what type of burn rate could we expect going forward? Stefan Ericsson: I think you could say -- you see right now, we had -- for the first three quarters, we have SEK 446 million. So you could extrapolate that to the full year, a little bit less than SEK 600 million, and that will go down a little bit next year. Operator: The next question comes from Oscar Haffen Lamm from Stifel. Oscar Haffen Lamm: My first one would be on the readout coming out earlier than last communicated. Could you just give us some granularity on the reasons behind? Is it simply due to a faster recruitment than you initially planned? Martin Welschof: It's basically due to progress on different fronts. Obviously, recruitment is one part of it. But the interest in both studies is very high. So recruitment is going very well. And then, of course, you have better progress than we originally planned. So that's the main reason. That's the main reason. Oscar Haffen Lamm: Okay. Got it. And then a second question on the 1206 triplet combo data. What is the next data patients that are treated with higher dose of 1206 compared to last update? I'm thinking the 225 milligram compared to 150 milligram that was mainly used in the preliminary data. Martin Welschof: Yes. So basically, the data that you will see is a continuation of the data that we already presented earlier this year. So it will be the same dose, just a higher number of patients. Operator: The next question comes from Dan Akschuti from Pareto Securities. Dan Akschuti: Just one follow-up on the previous one. So in May of this year, you showed that all 8 patients in the triplet combo in NHL had shown a reduction of some of the target lesions, even the stable disease ones moving towards response. And now I'm just wondering, is this end of this year, is that going to be another interim readout? Or will it be of the full 30 patients? Or will we get the full one then still in the first half of next year or -- is there a possibility to go into Phase III as a single agent for 1808 in CTCL number? Martin Welschof: Yes. So starting with 1206 first. So the full 30 patients will be then at some time point next year. So I think roughly by mid next year. So what we have now is not the full 30 patients yet, but significantly more what we have shown in May. And on 1808, so yes, absolutely. So the plans and what we have discussed with the regulator is single-agent pivotal study. And I don't have the slide here in the deck, and I just have to memorize what we will do. So as I said already earlier, so we're currently running the combination with pembro. In parallel, we will start with dose optimization such and then also preparing for the pivotal study such that -- and those plans are still the same. We potentially could start a pivotal study for monotherapy first line in 2027. Operator: The next question comes from [indiscernible] from DNB Carnegie. Unknown Analyst: So good to see the planned readout being ahead of schedule. So first off, on 1206 and the triplet, you've seen pretty upbeat, Martin, on response rates being able to move up as patient numbers increase. So can you say anything about your expectations for the readout before year-end? And what would make this readout live up to expectations? And secondly, you should have a pretty substantial data set on the doublet, and we've seen some really nice long-lasting responses. And we've also seen the duration of complete responses. But can we also expect you guys to disclose the median duration for all responses? Is this data mature enough essentially? I'll start there. Martin Welschof: Yes. Thank you. So for the data package, what we're expecting is basically, as I already mentioned earlier, the overall response rate that should be, and that's our target above 75%. And then on -- then the other point, obviously, is a very high ratio of complete responses. So that is what we hope to present to the market. And then just remind me of the second part of your question. Unknown Analyst: Yes. So that was on the median duration of response for the doublet and whether or not that data is mature enough to present. Martin Welschof: Yes. So what we have, we can present. But obviously, so the study did not start that long ago. But it looks like what we have seen, but it's, of course, since the study is still relatively young, still preliminary data, but it looks that we have a similar or the same duration as we already have presented when we came out with the doublet data. And also to tell everybody, so those patients that were in complete response are still in complete response. So now this is more than 3 years for some of those patients. But obviously, we don't have the same length with the triplet combination because that just started less than a year ago. But we can see that the responses that we get are enduring basically, right? But it's still early days. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Martin Welschof: Yes. Thank you, everybody, for participating and also for the good questions. So we are, of course, happy and excited that we can update the market earlier than what we projected around 1808 single-agent CTCL and 1206 in non-Hodgkin lymphoma. I think this is very good and shows the interest in the study regarding the sites that are involved. And of course, this is driven by good data. Obviously, otherwise, we wouldn't have that progress. And then also next year, I think we are really then zoning into a very interesting phase of the company because then we have more mature data, which should drive partnering and/or financing. And I'm really looking forward to that, especially partnering. So I think I will conclude with those words. I don't know, Stefan, do you have any final comments from your financial perspective? Stefan Ericsson: No further comments. Martin Welschof: Okay. Then I think we can close the meeting. Thank you very much, and talk to you soon.
Operator: Hello, everyone. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's Entergy Corporation Third Quarter Earnings Call and Teleconference. [Operator Instructions] I will now turn the call over to Liz Hunter, Vice President of Investor Relations for Entergy Corporation. Liz? Liz Hunter: Good morning. Thank you, Greg, and thanks to everyone for joining this morning. We will begin today with comments from Entergy's Chair and CEO, Drew Marsh, and then Kimberly Fontan, our CFO, will review results. In today's call, management will make certain forward-looking statements. Actual results could differ materially from these forward-looking statements due to a number of factors, which are set forth in our earnings release, our slide presentation and our SEC filings. Entergy does not assume any obligation to update these forward-looking statements. Management will also discuss non-GAAP financial information. Reconciliations to the applicable GAAP measures are included in today's press release and slide presentation, both of which can be found on the Investor Relations section of our website. And now I will turn the call over to Drew. Andrew Marsh: Thank you, Liz, and good morning, everyone. Today, we are reporting strong financial results as well as continued progress on business and regulatory matters. Starting with our quarterly financial results. Our adjusted earnings per share was $1.53. With our results to date and our biggest quarter behind us, we are narrowing our guidance, raising the bottom by $0.10. We also remain well positioned to achieve our long-term growth outlook. Kimberly will review the financial details in a moment. Turning to the business. Last quarter, we achieved the first quartile Net Promoter Score for utility residential service for the first time since we began tracking this metric. We're pleased to report that we've maintained our first quartile position. We are keenly focused on meeting the needs of our 3 million customers, and we believe our strategy will carry this momentum forward. Our focus on the customer starts with keeping our rates as low as possible. And again, we aim to maintain our average rates well below the national average through the remarkable commitment and creativity of our employees and a culture of continuous improvement. Today's share of wallet is roughly the lowest our customers have seen over the last 20 years. We expect it to stay in that range over the outlook period. Of course, there is more to it than that. We proactively manage the effect of fuel volatility on customers' bills, through fuel hedging programs and mechanisms to defer fuel costs during peak prices. And for individual customers, we have developed tools to help them manage their bills, such as approved bill discounts for low-income seniors, payment options like average billing and payment timing, energy efficiency services and customer assistance programs like Power to Care and LIHEAP advocacy. I'm proud to highlight that our digital LIHEAP platform recently received a Silver Best Practices Award from Chartwell for excellence in serving vulnerable customers. This tool streamlines access to energy assistance and provides real-time updates for customers in need. And as we've worked to attract new hyperscale data center customers, we ensure that they pay their fair share of energy infrastructure investments, while bringing other significant benefits to our communities, such as jobs, property tax payments, direct municipal infrastructure investment and workforce development. This is consistent with their stated intent to be good neighbors. For example, at the recent groundbreaking announcement, Google said that they will protect energy affordability for existing customers by covering the full cost of powering the data center in West Memphis. They're also committed to making a significant community impact, including a $25 million fund to accelerate local energy efficiency efforts and workforce development. In September, Entergy Mississippi announced a new customer-focused initiative known as Superpower Mississippi. The initiative includes a $300 million investment to harden the grid and improve reliability with the goal of reducing outages for customers by half within 5 years. We're able to add this investment for grid improvements at no additional cost to Entergy Mississippi customers because of new revenues from Amazon and other large industrial customers investments in the state. Haley Fisackerly, our CEO in Entergy Mississippi, recently noted that customer rates would be 16% lower than they otherwise would have been due to these large customers, and that includes the incremental Superpower Mississippi investment. In customer growth news, in late September, Sempra reached its final investment decision for Phase 2 of its Port Arthur LNG project. In addition, a colocation data center, AVAIO announced an investment in Entergy Mississippi service area. While these were included in our probability-weighted sales forecast, these developments continue to build confidence in our long-term outlook. As a reminder, we probability weight potential industrial customers in our plans, except for very large businesses, like hyperscale data centers, which we don't add to our plans until there is a signed electric service agreement. Because of our vertical integration, natural Gulf Coast advantages, thoughtful regulation, a long history of successfully working with large industrial projects and now MISO's expedited connection mechanisms, we continue to see strong demand from businesses looking to locate in our service areas. This includes data centers, but also customers from traditional industrial segments. Our data center pipeline has continued to grow and now is extending to -- from 7 to 12 gigawatts. This is based on active conversations with customers for whom we reasonably could expect to sign agreements within the next year or 2. With line of sight on incremental opportunities, we've added 4.5 gigawatts to our agreement for the purchase of power island equipment, including steam turbines, combustion turbines and heat recovery steam generators. This addition represents 6 units that will be delivered in time to support commercial operations in 2031 to 2032. In total, we now have secured more than 19 gigawatts of capacity, 11 gigawatts of which is accounted for due to growth or other supply needs. That leaves 8 gigawatts for additional growth. We secured other critical equipment, including transformers and breakers, and we secured 90% of materials required for our planned transmission projects through 2030. We also have agreements with EPCs for the generation projects through mid-2029, and we have line of sight for additional projects. We're also well positioned for solar projects. For our owned projects, we secured approximately 75% of our critical equipment, including generator step-up transformers, high-voltage breakers and solar modules. We also have clear line of sight to the remaining 25% through our existing supplier relationships. In July, FERC approved MISO's Expedited Resource Addition Study, or ERAS process. We have since submitted 9 interconnection requests for 12 plants into the new process. 8 of these plants in our ERAS submission are in our plan and 4 are available for incremental growth. ERAS has worked well to support speed to market for customers trying to come online as quickly as possible as well as help us respond to the national security priority for rapid energy deployment to win the AI race. We expect to start receiving our first project approvals by the end of this year. With standardized designs for our generation projects and our transmission lines and our history of successful execution on large projects, we remain confident in our ability to manage our operations and execute on our capital plan. We are also well positioned to serve potential new customers above our current plan. For a customer base that continues to grow, perhaps it is no surprise that our system as well as Entergy Arkansas and Entergy Texas hit new peak loads in July. Our system performed well during these high load periods. Responding to that customer growth, Entergy Texas remains on track for the completion of the Orange County Advanced Power Station next spring. The plant's decommissioning -- actually, not decommissioning -- the plant's commissioning -- we're just getting started with that one. The plant's commissioning is underway and first fire is expected in December. Our other large generation and transmission projects are also on track. Last week, Entergy Mississippi broke ground on the Vicksburg Advanced Power Station. We also support customer growth, including the large customer that Entergy Mississippi signed this past February. Entergy Louisiana recently announced selections from its baseload generation RFP to support customer growth. That includes 2 combined cycle resources that will be self-built. For accelerated resilience, we expect to file Phase 2 plans in Louisiana and New Orleans within the next several months. This timing allows us to maintain operational momentum with our resilient investments. To date, our operating companies have invested about $580 million in approved resilience work. We've completed 32 line hardening projects, upgrading more than 13,000 structures. And we have hardened 10 existing substations to mitigate the impacts of both hurricane force winds and storm surge. In addition, Entergy Texas was recently awarded $200 million in grant funding by the PUCT from the Texas Energy Fund for resilience projects with no cost to customers. The grant will allow for the hardening of more than 8,000 distribution poles covering 338 miles as well as hardening 16 transmission lines. We appreciate the proactive support from our state regulators and legislative bodies to improve the storm readiness of our system for the benefit of all customers. With the customer growth opportunity before us and excitement throughout our service areas, we continue to work with our stakeholders, including regulators, elected leaders, community leaders and local vendors to meet customers' needs and to improve their outcomes. In August, the Louisiana Public Service Commission approved the settlement for generation and transmission resources needed to serve Meta. Meta's generational investment will bring significant benefits, including jobs, workforce development and state and local tax income. In addition, as the LPSC Staff highlighted at the business and executive meeting, contracted minimum bills ensure that Meta is paying the incremental cost to serve them during the contract term without imposing costs on other customers. These features provide benefits to support keeping rates as low as possible for Louisiana customers. Last week, the Louisiana Public Service Commission also approved the 200-megawatt Bogalusa West Solar project, which was the first project approved through Louisiana's accelerated solar approval process. In Arkansas, the Public Service Commission approved the Generating Arkansas Jobs Act rider. This rider enabled by the legislation this past spring, allows recovery for new economic development related and other customer-critical generation and transmission investments outside of the formula rate plan 4% cap. Additionally, it includes recovery of carrying costs on CWIP during construction, thus lowering cost for customers. Under the new rider, Entergy Arkansas filed in early August for the Jefferson Power Station approval. Also under the new rider, Entergy Arkansas filed for approval in September for Cypress Solar, a solar and battery storage facility to support economic development via Google's recently announced data center. Moving to Texas. In September, the Public Utility Commission approved the Legend combined cycle power station and Lone Star, a simple cycle peaking unit. They will provide efficient, reliable power to support the rapid growth in our Southeast Texas service area. While the commission approved the generation, it also implemented a cost cap at our filed cost estimates totaling $2.4 billion, including transmission, carrying costs and contingency. As I noted earlier, we have already contracted with the EPC and secured the long lead time equipment, which comprised a significant portion of the construction costs. The Texas Commission also recently approved 2 large transmission projects that serve growth and improve reliability and resilience of the system. SETEX, the Southeast Texas Area Reliability Project at $1.4 billion 500 kV line and the Legend [ that's handling ] 230 kV line, which will serve industrial customers in Port Arthur, including Phase 2 of the Sempra LNG project. Separately, Entergy Texas filed for an increase in its DCRF rider. We expect a decision from the PUCT by the end of the year. These are exciting times in Entergy and exciting times for our industry. We are delivering unprecedented growth for our region and economic development that benefits the customers and communities we serve. At the same time, we are answering the call to support our national security through our rapid response to the energy needs of companies working to win the global AI race. All that while keeping rates as low as possible for our customers. The EEI Financial Conference is in a couple of weeks, and we'll share additional color regarding the strong foundations underpinning our differentiated growth story. Notably, our long-term customer sales growth outlook is robust, including continued support from both traditional industrial and data center customers. We are well positioned to support speed to market through our supply chain positioning, design choices, stakeholder engagement and strong balance sheet. And we are successfully executing on critical issues that our existing customers care about, including keeping rates as low as possible and deploying resilience and reliability investments. We look forward to continuing this conversation with you at the EEI Financial Conference in a couple of weeks. I'll now turn the call over to Kimberly, who will review our financial results for the quarter. Kimberly Fontan: Thank you, Drew. Good morning, everyone. We had another great quarter. I'll now walk through our financial results as well as our guidance and outlook, and I'll provide a look ahead to EEI. Starting with earnings. Our adjusted EPS for the quarter was $1.53 as shown on Slide 4. Primary drivers were strong sales growth and the effects of investments made for our customers, partially offset by higher other O&M and other operating expenses and an increase in our share count from settling equity forwards. Earnings contribution from sales growth was positive even with weather being milder this quarter compared to last year. Weather-adjusted sales for the quarter were once again very strong, increasing approximately 4.5%. Industrial sales were the largest contributor with more than 7% growth, primarily from new and expansion customers that continue to ramp up their operations. Slide 5 summarizes our credit ratings and affirms that our credit metric outlooks remain better than rating agency thresholds. In the quarter, S&P issued credit reports on each of our operating companies and Entergy Corp. Moody's also issued reports on Entergy Mississippi and Entergy New Orleans. Both agencies affirmed all ratings and outlooks. Last quarter, we discussed the nuclear tax credits earned in 2024. Since then, we have completed transactions to monetize these, which netted more than $535 million after transaction costs. We continue to work with our regulators on how and over what time period we will provide these benefits to customers. We expect this to happen over an extended period of time. As a reminder, because the value of nuclear PTCs is highly dependent on average revenue per megawatt hour, we do not include cash benefits in our cash flow or credit metric outlooks beyond 2025. We'll talk more about our credit at EEI, but I'll give you a quick preview. Our credit metric outlooks are strong with FFO to debt above our thresholds throughout the outlook period, achieving our 15% target during the period. Our financial health is bolstered by all the work we've done, including the structure of our new large customer ESAs to protect existing customers and our credit, improvement in our pension funded status, constructive regulatory mechanisms and conservative planning assumptions. All of these have strengthened our balance sheet and created benefits for our customers. We continue to see strong underlying fundamentals and flexibility to meet our objectives. We are rolling forward our outlooks to 2029, shifting our 4-year capital and equity plans forward, as you can see on Slide 6. Our updated capital plan for 2026 through 2029 is $41 billion. The equity associated with that plan is $4.4 billion within the 10% to 15% range of the total capital plan. Our capital and equity plans include alternative financing assumptions, which shifts the capital outlay for some projects beyond our 2029 outlook. This better aligns the cash outflow with when assets are placed in service. We have been proactive in addressing our equity needs, selling forward contracts through our ATM as well as the block transaction we executed in March. We've taken significant price risk off the table and have ample time to raise capital, including through our ATM program. For our 2026 through 2029 equity need, about 45% is already contracted, which takes us well into 2027. Through the third quarter, we have settled approximately $800 million of equity forward. In October, after quarter end, we settled an additional approximately $330 million or about 5.7 million shares. We are using these funds to continue to invest for the benefit of our customers. Our adjusted EPS guidance and outlook are shown on Slide 7. As Drew mentioned, with solid results through the third quarter, we are narrowing our 2025 guidance range, raising the bottom by $0.10. Higher-than-planned revenue from weather as well as other planning updates have enabled us to manage the business and flex spending in areas that benefit our customers. Our Flex program helps us ensure that we deliver predictable adjusted EPS growth year in and year out while meeting our customer needs. Looking beyond 2025, we continue to see very strong growth driven by our customer-centric capital plan. Our adjusted EPS through 2028 remains unchanged. And as we add 2029 to our outlook period, our long-term compound annual growth remains strong at greater than 8%. Drew and I, along with our operating company leaders will be in Florida in less than 2 weeks, where we will talk about our strong customer growth story as well as our plans to invest in reliability and resilience to better serve our customers. We have a solid base plan consistent with our strategic objectives. As Drew discussed, we have a strong customer pipeline, including 7 to 12 gigawatts of data center opportunities, and we have secured critical equipment to bring additional customers online. Today, we have provided our adjusted earnings per share outlook and a high-level view of our preliminary capital and equity plans through 2029. At EEI, we will provide more details on these outlooks. We are excited about the opportunities before us and look forward to talking with you at EEI. And now the Entergy team is available for questions. Operator: [Operator Instructions] It looks like our first question today comes from the line of Shar Pourreza with Wells Fargo. Constantine Lednev: It's actually Constantine here for Shar. Congrats on a great quarter. Maybe starting off on the updated CapEx plan and kind of the 4.5 gigawatts of the power island equipment. Is that directly associated with some of the more visible load in the current pipeline, you anticipate any incremental CapEx needs that would require regulatory approval before making into the '29 plan? Just how should we be thinking about the upside here? Kimberly Fontan: Constantine, it's Kimberly. The $41 billion includes the capital that's needed to support the load that is in the forecast. The 4.5 incremental gigawatts that Drew referenced would support additional customers that could come online. So we referenced 7 to 12 gigawatts in the data center. That's up from 5 to 10 in the last quarter. And we've added, as you noted, additional plant power island equipment in order to support that. To the extent that those customers in that pipeline reach agreement, we would expect that you would need supplemental capital to support that, and that's what we plan ahead for here. Constantine Lednev: Okay. Perfect. And then maybe shifting to the longer-term outlook, kind of with the large load growth solidifying and under contract, you're locking in kind of the CapEx plans and the associated equipment. Do you see any opportunity to potentially guide on the longer-term EPS growth outlook beyond 2030 just as you kind of gain that visibility? Kimberly Fontan: As you know, we added 2029 here. Certainly, good visibility through that period. If we're able to land additional customers that we'll provide you that visibility there. But going beyond that, I think we'll just -- there's good visibility here, including individual outlooks by year, but we do think we have long-term opportunity over beyond this period. Constantine Lednev: Okay. Perfect. And just a quick follow-up on kind of the generation needs, kind of more broadly. Do you see customers agnostic to the resource mix? Or is there still a push for some renewable components as we've kind of seen with hyperscalers demanding for nuclear SMRs and other technologies? Kimberly Fontan: We talk to our customers about all kinds of supply. Certainly, we've lined up here. Drew referenced both gas resources as well as renewable resources. We do have a pipeline of opportunity around renewables based on customer needs, but we also continue to look for ways to meet their needs to ensure that we are speed to market as well as meeting clean needs. So we think it's an all above the approach over time. Andrew Marsh: Yes. And Constantine, I'll just add that we are building this gas generation, but we have expectations that we will also do carbon capture at some point, and we are working on that actively. We have RFPs out in -- for some of our assets in Mississippi and in Texas to test that. We still have FEED studies going on at our Lake Charles Power Station in Louisiana. And we're exploring various options to figure that out. And we're supported by our data center customers that are wanting to achieve those same objectives. So we think we're well positioned to figure that out over time, but we don't have anything specific to announce today. Operator: Our next question today comes from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: Just wanted to dive in maybe a little bit more on the forward outlook as well. I think some of the commentary might have highlighted the capital shifting out closer to plant COD and maybe that kind of spills over into past the plan period. So just wondering if you could talk a bit, I guess, on the momentum across the plan and where -- how that looks after the plan, given I think you've said in the past how this accelerates into the end of the decade. Kimberly Fontan: Jeremy, it's Kimberly. I guess just to clarify, $41 billion through 2029, I referenced some plant that closes outside the period. Some of that is alternate finance. So you don't see the spend in this period and all the spend would go out when that closes. So that was that reference there. But certainly, with the additional equipment that we've secured in the pipeline that we see, we would expect investment to continue well beyond this period. Andrew Marsh: Yes. And we do have turbine slots that are delivering for commercial operations in '29, '30 that still have not been announced as overall projects. So there are still opportunities that could add additional capital in the out parts of our current outlook period. Jeremy Tonet: Got it. That's helpful. And maybe just pivoting to Arkansas here, if you could comment a little bit more, I guess, on the ramp for Google there, the project there. And just wondering any more color you might be able to provide as well as local stakeholder views and, I guess, commission priorities, how that all kind of fits together at this point? Kimberly Fontan: Yes. That project is obviously in early stages. It was filed in September, but the customer is continuing to move forward with the ramp as we would expect. As you know, there are minimum bills associated with all of these large customers that help support during the construction period. But I don't see anything different on that ramp than where we have been similar to all of our other customers. Andrew Marsh: Yes. And people are excited in Arkansas for that project. At Google's groundbreaking last month, the governor was there and numerous local leaders, including the Mayor of West Memphis. And there's also the 600-megawatt solar facility and 350-megawatt battery that are going to be part of supporting Google. And that investment is traveling through the Arkansas Commission's docket as well. So we expect to work through that process with the various stakeholders. But there -- at this point, there's a lot of support in Arkansas for the economic development that this opportunity brings. Jeremy Tonet: Got it. And maybe just taking a step back overall, I guess, commercial discussions here with hyperscalers. At this point, I guess, how would you describe the tone or pace of discussions here? Is there more or less urgency to sign up incremental load at this point given the success that you've had so far? Kimberly Fontan: Well, certainly, I would point to the raise of the -- from 5 to 10 to 7 to 12 gigawatts around our increased customer conversations. Those conversations cover all the things that we've talked about before, speed to market, getting to claim, and also how the stakeholders and bringing the stakeholders along. As Drew said, in Arkansas, very excited about that transaction in Arkansas. So we think the conversations continue to be strong and continue to support our incremental increase in that pipeline. Jeremy Tonet: Got it. One last quick one, if I could, on the transmission side. Just given some of the load shed events due to storm activity earlier in the year, wondering how you think about the opportunity to deploy more transmission, enhance flexibility, such as increasing connectivity into Mississippi. Just wondering how you see the opportunity set at this point. Andrew Marsh: Yes. We do still see a robust transmission opportunity, but it will be customer-driven based on how the grid needs to adapt to continued growth in our service territory. Right now, we have a very robust over 400 miles of 500 kV line. We have a lot of 230 kV transmission that we are also building. We're getting ready to file in Louisiana, the Babel to Webre line. I think I talked about that last quarter, which is part of that 500 kV system, and we have approvals pending in Texas and in Louisiana on transmission right now. So there is the possibility for significantly more. We have quite a bit coming through the MTEP process that's seeking MISO approval by the end of this year. And then depending on the growth, there could be additional investment opportunities out there. So we are expecting continued significant transmission investment going forward. Operator: And our next question comes from the line of David Arcaro with Morgan Stanley. David Arcaro: I was wondering, let's see, you might have said before, but I may have missed it. What's the time frame for the 4.5 gigawatts of the power equipment that you secured? And I guess I was wondering, is this a stepping stone? Are you still actively working to secure additional power equipment in a similar way? Andrew Marsh: The timing for the extra 6 units would support commercial operations in 2031 and 2032. So that's about -- we're using our standard design of 750 megawatts, that's what comes out to a little over 4 gigawatts. So that's the plan. And I can't remember the last part of your question, David, remind me. David Arcaro: Yes. Curious if this is a stepping stone. Are you still actively in discussions and working to increase your access to gas turbine supply beyond that 4.5. Andrew Marsh: Right now, it matches what we see as our customer needs. So if there continues to be growth, then we may continue to go into the market and seek additional turbine access. But I think that's where I would put it right now. It's meeting our expectations of potential growth that we see in the near term. We're also looking at a number of other things. We continue to monitor new nuclear and look into that and talk to our customers about that. We are also -- as you saw with the Google transaction, there's potential for solar and battery. And then we're also looking at a number of upgrades on our system to provide incremental supply. So there's several things that are out there that could still drive incremental generation capacity even beyond just gas turbines. David Arcaro: Got it. Great. And I was curious just to get your latest thoughts on the potential to expand nuclear capacity in your service territory and any reaction or impacts to your thinking from the recent Westinghouse and U.S. government announces -- I mean, announcements that we've seen. Andrew Marsh: Yes. We -- thank you for that question. We're actually excited to see that there is some investment going in. What the industry really needs is to get to end of a kind to manage the construction risk. And so we're excited to see someone moving forward. And so we certainly applaud the work that Brookfield and Westinghouse and Cameco are doing with the Feds to figure this out. Obviously, there's still a lot of details that need to come out about that. So we're anxious to get into that conversation with them at some point about what exactly they're doing and how they're shaping all that up. But we're excited to see that it's moving forward and has an opportunity to really move the industry forward. So with all that being said, we still have a lot of interest in our service territory from our stakeholders to bring new nuclear into Texas, Louisiana, Mississippi and Arkansas. Each state has some sort of commission or task force or something like that, looking at how do we bring new nuclear in, and we're a member of all of them. So we continue to actively look at it. We haven't -- as we said in the past, we haven't figured it out yet. And -- but there is a lot of interest from our stakeholders, and so we continue to explore it. Operator: And our next question comes from the line of Angie Storozynski with Seaport. Agnieszka Storozynski: So I was just wondering, we've all read about the Manhattan sized data center in your Louisiana service territory from Meta. So how much of that is currently covered by ESAs and reflected in your pipeline? Andrew Marsh: So right now, the only thing that we have in our outlook is the signed ESA that we previously announced basically about a year ago almost now. So that project has been publicly said by Meta to be 2 gigawatts of compute. And so anything beyond that is not currently reflected in our outlooks. And we wouldn't comment on any specifics of the size or timing of any project, just like for that potential opportunity, even though we know that they've been posting about it. But we wouldn't comment on it consistent with our ongoing policy for not commenting on specific customer opportunities. Agnieszka Storozynski: And it's -- but again, is it because it's -- the ESA hasn't been signed? Is it because it's beyond the planning horizon when this investment would need to happen? Andrew Marsh: Well, it's not necessarily because the ESA hasn't been signed. We wouldn't comment generally about ongoing negotiations with anybody. But as it relates to putting large data center projects into our capital plan, we would need a signed ESA to do that. That's been our policy because these projects are so large, they have such an impact. It doesn't really fit with our probability weighting methodology that we've had forever. So we still use that methodology with our more traditional industrial projects, like steel mills and LNG terminals and petrochem facilities and the like. But for these really large data centers, it's either all in or all out. So we haven't included anything in our outlook to support any large data centers at this time. Operator: And our next question comes from the line of Sophie Karp with KeyBanc Capital Markets. Sophie Karp: A couple of questions for me. On the regulatory front, given all of the demand from large, large customers and all the trends that we know about, do you envision that you will need something more beyond your regular formula rate plan proceedings to accommodate that growth and recovery, of course. Andrew Marsh: I didn't catch all of that. Sophie, you're breaking up a little bit. Do we need something beyond, what exactly are we talking about? Sophie Karp: Yes. Do you think that you will need a regulatory proceeding that goes like beyond your regular formula rate plans reviews to accommodate all the growth that you have on the system? Andrew Marsh: Yes. It depends on the jurisdiction. Thank you for that clarifying. It depends on the jurisdiction. In Mississippi, they have the law that allows for very large economic development projects to move forward with the presumption of the certificate -- effectively the presumption of the certificate of convenience and necessity. Of course, we still ultimately have to go back through regulatory approval for formula rate plans and the like in Mississippi. So it's not like the commission is not involved, but you'd be able to kind of move forward there. And in the Louisiana and in Arkansas, Arkansas just passed the Generating Arkansas Jobs Act, which allows for an expedited process. And so we're actually using those processes right now. So we still continue to go through the process in Arkansas, and we'd expect the same in Louisiana. So I think we'd be using the same processes that we have today, both in Louisiana, Arkansas and I guess, in Mississippi, although Mississippi is very different for those large economic development projects that we've used in the past. And -- but they would all be somewhat expedited given what we've seen and the interest from the various stakeholders in each jurisdiction. Sophie Karp: Got it. Got it. And then my other question was the 12 gigawatt pipeline, could you help us and break it down by, I guess, the stage it's in, like how much of that is in the ESA stage versus the slightly earlier maybe in the process? Kimberly Fontan: Sophie, it's Kimberly. I would not think of that as signed ESAs. That is opportunity in the pipeline. It's in various stages, but not all the way to the end. As Drew mentioned earlier, we don't include in our forecast until we get to certainty around the signed ESA. So that would not be in that 7 to 12 gigawatts that we gave. Sophie Karp: Okay. Got it. So this is all incremental to ESAs that you have in your plan? Kimberly Fontan: That's right. Andrew Marsh: Yes. And I would just add that our actual pipeline goes well beyond that. I think these are ones that we feel like we would reasonably see come to fruition in the next year or 2. Operator: And our next question comes from the line of Paul Zimbardo with Jefferies. Paul Zimbardo: I had a clarifying question following up on David's a little bit. Could you explain the comment on the 8 gigawatts for additional growth from the power commitments above the plan? Because I recall it was 7 gigawatts from the second quarter call, and I know you said you added 4.5 gigawatts. But does that mean you execute against some of that incremental opportunity? I was just a little confused on that piece, if you could clarify. Kimberly Fontan: Sure, Paul. I would think about in the second quarter call, we said 15 gigawatts, 8 was in the forecast through '28, 7 was for growth. We now have 19.5 gigawatts compared to that 15, and 8 is for growth. So that delta is what I was referencing earlier around it's either in the forecast or it's in the forecast, but the capital closes outside the period, so you're not necessarily seeing that. So that's how you get to that 8 gigawatts of incremental growth. Paul Zimbardo: Okay. Very clear. That's my thought. And then I know you talked a lot about the renewable side today, and obviously, Google is doing solar and storage. Are there any -- and we focus a lot on the turbines, of course. Are there any commitments in megawatts, gigawatts on the renewable side, solar and storage that we should be thinking about also as kind of upside opportunities to the plan to serve hyperscalers? Andrew Marsh: Yes. I think we would expect that there would be additional renewables associated with large hyperscaler deployment in some way. We've certainly seen that with each of our announcements thus far. AWS had, I think, 600 megawatts of solar associated with Google similarly. And then Meta also had 1,500 megawatts of solar. So I would expect that there would be some solar out there commitments as well. Paul Zimbardo: Okay. Great. So we should think of that as kind of upside to the gas gigawatts that you talk about? Andrew Marsh: Yes, potentially. I mean there's also -- there's a lot of solar projects out there. So there's also still potential for PPAs, but we would want to try and compete to land some of those projects ourselves for our own capital deployment. Operator: And our next question comes from the line of Anthony Crowdell with Mizuho. Anthony Crowdell: I think one, just maybe a follow-up. On the 4.5 gigawatts, I guess, of the additional power equipment, is that incremental to what's on Slide 14 of, I guess, you have 7 CCGTs listed that is incremental to that? Andrew Marsh: Yes, it would be. I'm looking -- okay, we got Slide 14 pulled up here in the room. And yes, it would be incremental to the ones that are there. There are other ones that we -- that are part of our overall 19 gigawatts that aren't on that page before you get to the 4.5 that we added. But yes, the 4.5 would be incremental to what's on that page. Anthony Crowdell: Great. And then just on -- and I think you touched on in your prepared remarks on EPC availability. It doesn't seem like there's any issue getting craft labor contracts to build all the generation. Just if you could provide any color whereas we've seen other large projects that maybe have struggled in the size of all of these projects. It's kind of tremendous, but yet no issues on labor. I just wonder if you give any color on that. Andrew Marsh: Well, I would say that there are real challenges with labor. I don't think that it's certainly not easy to get the labor lined up. There is a real need for skilled craft of all types, and that hasn't changed. And the result has been that there are increasing costs associated with these combined cycle projects. And so that's -- and we've been hearing about that trend. It is very real. Our projects aren't immune to that, but we're working through it with the EPCs. Anthony Crowdell: Great. Congrats on a great update. Operator: And our next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: If I can first piggyback on Angie's question about the massive data center build-outs. I don't need or expect you to comment specifically on Meta's Hyperion project, but how are you thinking about the potential for some of these data centers to build on-site power generation themselves? Have you been talking to them about their interest in self-generating versus buying power from your utilities? I know your CapEx and earnings outlooks are based on real signed contracts, but how are you thinking about that going forward? Andrew Marsh: Well, I would say that in order to manage transmission costs, we are actually building generation in many cases, very close to where the customer is located. So maybe it's not on site or behind the meter, but it's very close. So you can see that with the Meta project and stuff like that. So I think there's -- in some ways, there's a distinction without a difference from a physical grid perspective. And then secondly, I would say that these customers, while they certainly have the wherewithal to do their own generation, they prefer to put their capital into something else. And so even see that with, I would say, Meta's recent financing of their facility where they're leasing it back in North Louisiana. They have a lot of capital needs. So if they could avoid putting capital into generating stations, I think they would probably prefer to do that. So while it is possible that they could go behind the meter, I think competitively, we are well positioned to support their growth by putting our own plants nearby getting essentially the same benefits and supporting the capital that's not making the capital deployment somewhere else to support them on our books rather than having them have to carry on their own balance sheet. Andrew Weisel: Okay. Then in Arkansas, I believe you're planning to file a rate case early next year. You talked about the hyperscalers helping with customer affordability and paying their fair share. Can you maybe preview the filing a little bit in terms of customer bill impacts and what role Google might play in that case? Andrew Marsh: Yes. I don't -- I can't give you an update today. The team is still working on the case. So I don't want to get out in front of them. But I think in Arkansas, as we look out over time, you see similar types of things that you've seen in the other jurisdictions where the benefits associated with the large new customer help out the existing customers. And so we would expect to lay that out as part of the rate case going forward. And frankly, within the ongoing conversation that we're having right now with the existing processes over the formula, the special rate contract that we filed for in Arkansas for Google. Operator: And our next question comes from the line of Alex Kania with BTIG. Alexis Kania: Just maybe trying to tie around this 4.5 gigawatts of incremental. I was just wondering if you could maybe tie that with the comments made a little bit earlier on the ERAS queue as well. Is that 4.5 gigawatts, does that tie to those extra incremental, I feel like 4 projects in the queue? And then maybe more broadly, if the ERAS process right now is working as intended and seemingly should be able to kind of help for the forward needs? Andrew Marsh: Yes. The 4.5 gigawatts, those extra 6 turbines are not yet represented in the ERAS queue. Those are -- the things that are in the ERAS queue would be much more near term than those. Those projects are, as I said earlier, are searching for COD in the 2031, 2032 time frame, and the projects that we have in the ERAS queue would be coming in much earlier than that. So hopefully, that answers your question. Alexis Kania: Got it. So in some ways, then those extra turbines in the queue would represent incremental nearer-term demand if the opportunity arises? Andrew Marsh: That's correct. Operator: And our next question comes from the line of Steve D'Ambrisi with RBC Capital Markets. Stephen D’Ambrisi: Drew and Kimberly, just kind of again on some of this discussion around the dispatchable generation. Can you talk a little bit more about the alternative financing agreements that you guys are using? And just can I extrapolate what that is, the sizing of that, if you've gone from 8 gigawatts that I think was committed in 2Q to now the implied 11 gigawatts in Q3. Does that 3 gigawatt increase, is that basically what's being alternatively financed and falls outside of the plan? Just can you give a flavor of the timing around that and the magnitude? Because it seems like that would be a $6 billion to $7.5 billion of spend that could come in 30 or 31, which would look like it would drive an outsized amount of growth. Kimberly Fontan: Steve, it's Kimberly. I wouldn't think of it as a direct correlation between that alternate financing and the 3 gigawatts that you referenced. First, we added an extra year, so you rolled forward to 2029. And you can see the run rate of that is consistent with where we've been in each of the prior years before that. So that's your biggest piece. There is some alternate financing. We talked about that actually in our Legend filing in Texas as a way to help with the overall cost, but also time that closing with when that asset goes into service and throws off cash. So we haven't sized that. We'll have a little more visibility into that at EEI. But I think your numbers are a bit outsized relative to what you have here, and I would think more about the 2029 addition. Andrew Marsh: Sorry, Steve, just to add to that, all of these projects that we are bringing on that we've contracted for, for these turbines, we expect to achieve commercial operations by 2032. So they're all coming pretty fast. And you could see a number of them on that Page 14 that we were referencing earlier. But there's a whole bunch more in the next few years, just beyond that, if everything comes together on the schedule that we've laid out with the turbine orders. So there is quite a bit of capital just over the horizon from 2029 to support that kind of potential build-out. Operator: And it looks like there are no further questions. So at this time, I will now turn the call back over to Liz Hunter for closing comments. Liz? Liz Hunter: Thank you, Greg, and thanks to everyone for participating this morning. Our quarterly report on Form 10-Q is due to the SEC on November 10 and provides more details and disclosures about our financial statements. Events that occur prior to the date of our 10-Q filing that provide additional evidence of conditions that existed at the date of the balance sheet would be reflected in our financial statements in accordance with generally accepted accounting principles. Also, as a reminder, we maintain a web page as part of Entergy's Investor Relations website called Regulatory and Other Information, which provides key updates of regulatory proceedings and important milestones on our strategic execution. While some of this information may be considered material information, you should not rely exclusively on this page for all relevant company information. And this concludes our call. Thank you very much. Operator: Thanks, everyone. Again, this concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to Ternium's Third Quarter 2025 Results Call. [Operator Instructions] I would now like to turn the call over to Sebastian Marti. Please go ahead. Sebastián Martí: Good morning, and thank you for joining us. My name is Sebastian Marti, and I'm Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the third quarter and first 9 months of 2025. This call is meant to provide additional context to that presentation. I'm joined today by Maximo Vedoya, Ternium's Chief Executive Officer; and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's business environment and performance. After our prepared remarks, we will open up the floor to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya. Maximo Vedoya: Thank you, Sebastian. Good morning, and thank you all for joining our quarterly conference call. In the third quarter of the year, Ternium continued to improve its performance. We saw an increase in EBITDA, driven mainly by a decrease in cost per ton supported by the continued execution of Ternium's competitiveness plan. Our cash generation remains strong with operating activities contributing over $0.5 billion during the quarter. Additionally, Ternium's Board of Directors declared an interim dividend of $0.90 per ADS, which keeps the payment level the same as last year. Meanwhile, the business environment continues to be marked by uncertainty, largely resulting from the ongoing changes in the U.S. tariff framework. Within this environment, the U.S.-Mexico trade agreement stands out as particularly significant for our business. In recent weeks, we have engaged in dialogue with stakeholders on both sides of the border. This conversation had revealed support for policies that strengthen the USMCA framework and promote deeper regional integration. The Fortress North America concept is gaining traction, highlighting the importance of deeper economic and industrial ties among the USMCA members. As trade negotiations progress, the focus remains on maintaining fair competition, addressing imbalances and reinforcing rule of origins, all of which are important to ensure the long-term resilience and growth of the industry in the region. Along these lines, the first formal step have already been taken for the planned USMCA review with consultations launched to obtain feedback on the agreement from interest parties. In Mexico, uncertainty resulting from U.S. trade policies has had a significant impact on steel demand during 2025. Recognizing the challenges created at this period of trade volatility, the Mexican government is prioritizing efforts to fortify the country's value chain, aiming to promote greater self-sufficiency and resilience against external competitive pressures. These incentives are closely aligned with U.S. priorities. Throughout 2025, the Mexican government has taken a proactive stance by launching initiatives such as the Plan Mexico, implementing targeted measures to counter unfair competition from certain Asian countries and imposing tariff on imports from nation without a trade agreement with Mexico. For example, in September, a proposal was published to increase tariff on close to 1,500 categories, including steel and its derivatives for imports originating from countries without a trade agreement. It is expected that tariff on steel currently at 25% and its product, auto parts, engines and [indiscernible] will rise to 35%. In the case of light vehicles, the tariff is expected to increase to 50% versus the current 20%. A ruling is expected in November following the approval of the final proposal for the tariff increase. These efforts are primarily aimed at increasing local value adding, promoting more resilient North America supply chains and reducing reliance on imports from Asia. We strongly support these policies, and they are vital for the region's economic development and for the continuous growth of the steel industry. In Brazil, industrial activity continued to expand even in the face of high interest rates. The overall steel environment remains healthy with expectation of 5% growth in apparent steel demand in 2025. In addition, our ongoing efforts to increase efficiency of our operations in the country are yielding positive results, with continued decrease in cost per ton. But still, the Brazilian markets continue to face a high level of unfairly trade imports, primarily from China. In the first 9 months of 2025, import of finished steel products rose by 33% in Brazil as excess production from China floods to international markets. Unlike the United States, Europe or Mexico, Brazil still lacks effective trade defense mechanisms. It is crucial that ongoing antidumping investigations conclude with imposition of duty, whether preliminary or final, under relevant products under review to address these challenges and defend the domestic industry. Turning to Argentina. After a period of growth, activity across the steel value chain leveled off due to increased uncertainty leading up to the midterm elections. Now that the elections are behind us, I am optimistic that Argentina may be entering a period of structural reforms, paving the way for significant growth opportunity across steel value chains. This is especially true in the country's most dynamic sectors like agriculture, mining and oil and gas. Before moving on, I am pleased to share that this quarter, we received a Steelie Award for excellence in sustainability from the World Steel Association. This award recognizes Ternium's Winds of Change project, our first renewable energy initiative in Argentina. The wind farm now provides approximately 90% of our externally sourced electricity in the country, significantly reducing our environmental footprint and delivering considerable cost savings. To sum up, the U.S. transformation of the global trade framework has brought significant challenges, but these adjustments are necessary in light of aggressive trade practice by China and other Asian countries. To navigate the environment in global trade environment -- evolving global trade environment, we are focused on strengthening our market position through ongoing optimization and cost reductions. This effort ensures Ternium remain resilient, efficient and able to deliver sustainable value to stakeholders while adapting to change and pursuing growth. Thank you very much for your continued support. Pablo Brizzio: Okay. Thanks, Maximo, and thank you, everybody, for sharing today this conference with us. Let me review our operational and financial performance following the webcast presentation. Beginning on Page 3, adjusted EBITDA increased sequentially in the third quarter, driven by improved margins. Looking ahead, we expect a slight decline in adjusted EBITDA for the fourth quarter, primarily driven by the usual seasonal slowdown in shipments across all our markets. Adjusted EBITDA margin should remain consistent with the previous quarter as the expected decrease in revenue per ton in Mexico and Argentina is projected to be largely offset by continued reduction in cost per ton. Let's move on to the next slide. Our net result for the third quarter of 2025 was a loss of $270 million. This figure reflects, firstly, a $405 million non-cash loss related to the write-down of deferred tax assets at Usiminas. And secondly, a $32 million loss related to the quarterly update of the value of a provision for ongoing litigation concerning our acquisition of stake in Usiminas. This was driven by interest accrual and by the appreciation of the Brazilian real in the quarter. Without these effects, net income would have been $167 million in the fourth (sic) [ third ] quarter, and earnings per ADS would have been $0.73. You can also see that compared to the second quarter of 2025, the largest impact was related to the write-down of deferred tax at Usiminas and also to $143 million decrease in income tax results, mainly due to lower deferred tax results in the third quarter, our significant gain in the second quarter, driven by the appreciation of the Mexican peso against the U.S. dollar. Let's move to Page 5 to review our steel segment performance. Shipments posted the most increase during the quarter, driven by growth in Mexico and Brazil. This was partially offset by lower volumes in other markets and somewhat in the southern region. In other markets, weaker shipments to the U.S. were partially offset by higher sales volume in other destinations. Looking forward to the fourth quarter of 2025, the company anticipated a sequential reduction in shipments in Mexico influenced by softer construction activity and the typical year-end seasonality. In Brazil, despite persistent challenges stemming from unfair trade steel imports, particularly from Asian producer, Usiminas continues to enhance in competitiveness through cost efficiency initiatives and operational improvements. These efforts are expected to result in a more favorable cost per ton compared to the previous quarter. And in Argentina, we are positive about demand growth opportunities throughout the company's value chain. Turning now to Page 6. Cash operating income in the steel segment continued [ improving ], mainly due to a margin increase. Although there was slight decrease in revenue per ton, this was more than offset by a lower cost per ton as a result of lower prices for raw materials and purchased slabs as well as ongoing efficiency improvements. On the following slide, let's review the performance of our Mining segment. Net sales declined quarter-over-quarter, primarily due to slightly lower iron ore shipments and a decrease in the margin, mostly due to an increase in cost per ton in Las Encinas, one of our Mexican mining operation as a result of a temporary decrease in production. Looking forward, production levels in Mexico are expected to normalize in the fourth quarter. Let's review now our cash flow and balance sheet performance on Page 8. During the third quarter, we had solid operating cash generation, supported by a further reduction in working capital, largely attributable to lower unit cost in [ passive ] inventories. Capital expenditures peaked in the second quarter and totaled $711 million in the third quarter, reflecting our ongoing progress in developing new facilities at the Pesqueria industrial center in Mexico. Net cash position continued decreasing in the third quarter, driven by the funding requirements associated with the ongoing expansion, together with $114 million decrease in the fair value of Argentine securities as of the end of September, which have since then been regained as of yesterday market prices. Let's now turn to the final slide where we will summarize our performance for the 9 months of the year. Adjusted EBITDA decreased in the first 9 months of the year, mainly due to lower margin and shipments. The margin reduction was primarily driven by lower steel prices, partially offset by improved cost performance. We had a robust cash from operations in the period, boosted by working capital decrease and CapEx increase compared to last year as 2025 is a peak year for the growth projects in Pesqueria. As a final remark, yesterday, our Board of Directors approved an interim dividend of $0.90 per ADS, unchanged from last year interim dividend. Together with the $1.80 per ADS paid in May, this brings the total distribution during 2025 to $2.70 per ADS, equivalent to a dividend yield of 7%. This interim dividend will be paid on November 11. With this, I'm concluding my prepared remarks. We are now ready to take any questions that you may have. Operator, please open the floor for the Q&A session. Operator: [Operator Instructions] Your first question comes from the line of Carlos De Alba of Morgan Stanley. Carlos de Alba: My 2 questions. One is, given the results of the elections -- mid-term elections in Argentina, what sort of strategic opportunities do you see in trying to make more efficient the ownership structure of the company with potential stakes in Siderar or Ternium Argentina and Ternium Mexico? Maximo Vedoya: Yes. I mean, I think the election doesn't change the project that we -- what you have. You remember that we have an opportunity now. We analyze simplifying the structure. It couldn't be done. We are not seeking that right now. but the things that can come online, but not because of the election. I think that the change in the election is that, well, we are going to left behind the noise of everything that will happen in the market in Argentina. I think with this election, there are going to come structural reforms in Argentina that probably will make more competitive the industry. I mean, Argentina is in need of these reforms. And I think we can see in the future a market -- a growth in the market, but also a growth in the competitiveness of Ternium Argentina, which is what we need in Argentina. I think those are the change of the election. Carlos de Alba: And then, under what circumstances would you try that initiative that you presented in the past that didn't work to make the structure more efficient? Maximo Vedoya: I think it doesn't depend on us. Remember that a good part of the share of Ternium Argentina is in the ANSeS. So that -- it doesn't depend on us to do that. I don't know, Pablo, if you want to add anything else to that. Pablo Brizzio: Yes. Carlos, you know that -- as Maximo mentioned, we have tried in the past doing that. It's also, as he mentioned, nothing that we can do at this moment. But this is a project that continues to be in our mind. So, if there is, in the future, an opportunity to move forward with this, it's something that we will take in consideration. It will require a full analysis on the process and on the project, but it's clearly something that we may consider. I think that, first of all, you need to see in order to start thinking about this kind of project, the reforms that the government will try to pass, how these are evolving -- how are this evolving and the way they are approved in Congress. So, with all of that behind us, probably opportunities could appear to further analyze this project. So, again, a lot of things moving on in Argentina. We need to see if this evolution is going on the positive direction. And probably after that, there will be a possibility to further analyze this project. Carlos de Alba: Great. And then my second question is related to what would -- I mean, I know that you guys are talking to the government in Mexico and in the U.S. The Mexican government is still negotiating with the U.S. government. But what would be Ternium's planned, or action planned if the U.S. keeps the melt and pour conditions for steel using products that are imported into the U.S. Maximo Vedoya: Well, we are going to continue with the plan we already put forward. I mean, the new investment was exactly because of this. Remember, we have 2.5 million tons of flat products, not including long products there of melt and pour. And with the new steel shop, we are going to have 2.6 million additional to that. So, we are investing because I think that the melt and pour, in some cases, as in the automotive industry, is something that is going to stay or it can be increased. So that's why we made those huge investments, Carlos. Carlos de Alba: All right. I understood that right now, it has to be melt and pour in the U.S., not in Mexico that's included… Maximo Vedoya: Well, yes, you're right about that. That is not to pay -- you're right, I misunderstand the question. I thought you were talking about the USMCA. I mean, if the negotiation or looking forward, that if we are going to have a USMCA, that has to change. The vision or the path we see is that it has to be melt and pour in the region. It cannot be melt and pour only in the U.S. if we have to have a negotiation. You cannot have an agreement where you only have U.S. melt and pour. In the meantime, there are some customers of us -- probably your question also goes through that. There are some customers of us that are -- as you said, are -- well, some I don't know, some affections because of it because there are some steel derivative products, you said that if there are melt and pour in the U.S., they have discounting in the tariff they pay. But we are working with each of these customers for each of these products in particularly to support their sales so that we don't lose any volume. But this is a temporary thing, I guess. Operator: Your next question comes from the line of [ Rich Emerson ] of Goldman Sachs. Unknown Analyst: Can you hear me? Maximo Vedoya: Yes, Rich. Unknown Analyst: Okay. I have 2 questions. The first one, looking at the 4Q outlook, I'd like to understand a little bit more on, first, the cash cost outlook. You guys mentioned that there are ongoing efficiencies in the operation. But could you please just break this down between the cash cost performance at Usiminas and at Mexico and Argentina? So, looking ahead, you guys expect cost to improve also in the operations in Mexico and Argentina. So, this is the first one. And the second one, in terms of prices, I understand that Mexico is undergoing a subdued activity in the construction segment. And prices in Argentina continue to be subdued as well. So, what can you guys share in terms of what you expect on prices for Argentina and Mexico going forward? So this is the second point on the first question. And just another point on CapEx. In this quarter, there was a small decline. So, just trying to understand if you guys still plan to reach the $2.5 billion for this year or indeed we should see lower CapEx for the year, considering that we saw this decline in 3Q? Maximo Vedoya: Thank you, Rich. I'll start from the third one and going up. CapEx, yes, we had said that 2Q was the highest of our CapEx. It was around $800 million (sic) [ $800 million ]. This quarter it's $7 million (sic) [ $700 million ]. Probably in the fourth quarter, the number we are seeing is around $600 million, putting the total CapEx of the year between $2.5 billion and $2.6 billion. For 2026, CapEx will be probably $1.9 billion. So probably every quarter will be around $500 million. And in the 2027, probably will return to $1.11 billion. So, as I said before, the peak of all this CapEx investments, of all this CapEx plan was in the second quarter. That -- I hope I answered the third one with that. Second, you're talking about prices. Prices for the fourth quarter are going to have a little bit of a decrease in Mexico and Argentina, but only slightly and some part of that is because of the mix. Remember, the fourth quarter is usually a low volume quarter and also the mix change a little bit. So, prices -- when you see our prices in the fourth quarter, could be a little bit low, but not very much. Prices in the North American region are stable and prices in Mexico has recovered a little bit from the U.S., but we are not seeing any decrease and probably we are going to start seeing some increases in some of the sectors in Mexico late in the fourth quarter or early in the first quarter. And the first one, Pablo? Pablo Brizzio: Yes. Perfect. Rich, let me try to answer your question by dividing the cash cost from the different operations. But before doing that, in a general view, you have seen that our margin during the third quarter has increased in comparison to the third. That was somewhat practical and something that we announced during our last conference call. And this was due to different things. First of all, of course, there was a reduction in raw material and purchased slabs, which are very important for overall cost structure. But also, there was the implementation of our cost reduction plan that is expected to be fully implemented by the end of this year. So, this is the 2 components of why we have been reducing cost. And if you split up between the different markets where we are, you have an increase of margins in Argentina, somewhat in Mexico and in Brazil, taking into consideration numbers that Usiminas presented to the market last week, you have seen also some increase in margin. The expectation for the fourth quarter is to further increase our cost reduction. And if all other things were equal, our margin should increase. But we know what we have said and Maximo has just answered one question to you, where you will see that our average price, both in the Mexican and the Argentine market will decline a little bit, but we will be able to sustain our margins in the different market. That's why the outlook for the fourth quarter is for sustained EBITDA margin and a small reduction in volumes, and that's where we will see our EBITDA generation. But all in all, we continue or we're expecting to continue to have better margins in the different regions where we operate, and that will be clearly reflected in the cash cost. Operator: Your next question comes from the line of Alfonso Salazar of Scotiabank. Alfonso Salazar: I have 2 questions. The first one is regarding the outlook for demand in Mexico for 2026. I mean, we know that 2025 was pretty weak. And if you think that there is going to be a recovery in 2026, I would like to know what's going to drive that recovery. And more generally, what is your -- the outlook in your view for North America? We know that the situation with tariffs now with Canada an extra 10%. It's very unclear what's going to happen with tariffs the next week and then 1 month from now. But if you can help us to understand, first, how the U.S. has been sourcing all the steel that they need this year so far with the tariffs? And how you think it's going to be once the situation normalizes, let's say, 2 years from now, if we can think of a normalization of the steel trade situation that we are facing today. That would be very helpful. Any comments on that would be very helpful. Maximo Vedoya: Alfonso, I will try to make magic and answer the second question. But first, the outlook of Mexico. Yes, demand in Mexico in 2025 is not good, as you said. Last week, I think the Worldsteel disclosed the SRO for the whole world and apparent consumption in Mexico is probably going to be down 10% in Mexico, steel apparent consumption, which is a very, very big number. What we are seeing for 2026 is a recovery in Mexico demand. We'll still put this at 4%. But probably if the infrastructure -- I mean, part of that decrease in the apparent consumption in 2025 is due to -- well, it's always in a new year from a government, always infrastructure down. Infrastructure is down like 28% to 29% in the first 9 months of the year. So that's a huge number, and it's still intensive. So, this is going to grow next year. Construction will probably start growing again. And the stabilization in the trade between the U.S. and Mexico. I think that's something that is also a driver of improving demand or going back to the demand we have in 2024. So, in the sense for Mexico, we are optimistic that demand is going to recover at least partially in 2026. Outlook for the North America, you said what is going to happen in 2 years? Clearly, I mean, today, imports in the U.S. are decreasing. There are still some countries that are paying the tariff of 50% and shipping to the U.S. But in general, imports are decreasing. I think that at least in the region, I am confident. I don't know if the confident is the word, but I think that USMCA is going to be renegotiated and in at least trade between the USMCA countries is going to be liberalized. I think that the U.S. has a clear vision of that manufacture, industrialization has to come back to the region. And I think that including Mexico and Canada, but I'm speaking about Mexico. In this region was, how to improve the industrialization in the region, I think it's a better outlook for everybody. And everybody, I think, has the same vision. When is this going to happen? It's not clear, but the renegotiation, it's already started. So, I guess that by the mid part of next year, we are going to have an outlook of where this negotiation goes and how tariff between the 2 countries start diminishing. That's at least our vision. I hope that also -- I give some clarity. Alfonso Salazar: Yes. Maybe just a follow-up on what you mentioned. The fact that we already see some bottlenecks for this reshoring of manufacturing, one of them is certainly labor. The second one is energy with data centers consuming so much energy. If you want to make more steel used electric furnaces, that's also going to require a lot of energy. Maximo Vedoya: You're right, Alfonso. That's why I think that a vision of a region more than only the U.S. is what is in the best interest of everybody, including the U.S. I think Mexico can be a partner, if it follows the rule of the USMCA, can be a very, very good partner to help with the vision the U.S. has. And I think that's a common understanding of everybody. Operator: Your next question comes from the line of Alex Hacking of Citi. Alexander Hacking: I guess just following up on the trade point. Have any of your auto customers started to rebalance production back to the U.S. and away from Mexico? Maximo Vedoya: They still didn't rebalance production. Our discussion with our customers are, how they -- I mean, they are sourcing steel from the U.S. They are sourcing steel from us in Mexico, and they are also sourcing steel from some Asian countries, and we are discussing how to -- if we are able to source that steel that they are bringing from, let's put Asian countries back to Mexico. And so, we have very good discussions with them trying to make a ramp-up of that sourcing. From a broad point of view, I mean, the U.S. consumes somewhere around 16 million units in light vehicles per year. They produce today 8 million and Mexico export 2.5 million; 2.3 million, 2.5 million. I mean, I understand that what the Trump administration is trying to accomplish is to increase that 8 million units. And I think that's possible. But I don't think that this is going to be on taking an account in Mexico production. Probably it's going to take account or it's going to gain market share of production in the U.S. against other suppliers because you have to put that -- every car that is exported from Mexico to the U.S. at least has between 35 and 45 U.S. contents. So, in the interest of everybody, if you're going to produce more in the U.S., you have to substitute imports of cars from outside the region and not from Mexico. So that's the vision I think everybody is looking to. I hope I did answer the question, Alex. Alexander Hacking: Yes. No, that's very clear, and it makes sense. I guess a second question would just be, I've seen various news reports about Mexico increasing their own steel tariffs. I guess, what is the current proposal and what will be the timing of implementing any changes? Maximo Vedoya: Look, there are several initiatives in Mexico that are following in a sense also what the U.S. -- not because the U.S. is asking, I think, but because this is what a clear vision of this new administration. I think the new President before she was even elected and when she was already elected but not in office, said that the vision of the Plan Mexico was to -- I mean, to increase value-added content in Mexico and in the region. So, there's a lot of initiatives. There's one initiative that I said, I think, in my initial remarks, that there are almost 1,500 products that are ready in Congress to increase tariff. Those include those of steel and some steel derivatives from 25% to 35%. This should be approved in November. And there are also other initiatives I know they're discussing to try to limit imports whenever it's possible to produce that in the region. That's in the North American region. Alexander Hacking: Okay. And then I guess just one final one, if I may. I mean I assume that Ternium would generally be in favor of sort of creating Fortress North America for steel, where Mexico, Canada, the U.S. have steel import policies -- tariff policies that are fairly aligned with each other, but then relatively free trade amongst each other. I assume that's something that Ternium would generally be in favor of and would be quite positive for Ternium. Maximo Vedoya: Yes. And I have been out talking about that. So yes, I can say it without any doubt. I think that each country has to have some differences because the production matrix of the countries are different. But I think internally to say that we are in favor of a North American fortress, and we are actively asking for that. Operator: Your next question comes from the line of Rafael Barcellos of Bradesco BBI. Rafael Barcellos: So, first question, I would say that over the past few years, you worked to simplify the overall shareholder structure of your subsidiaries, right? So, I just wanted to understand how comfortable you are with the current structure across regions. And the second question, if you could provide an update of the Pesqueria project. I mean, if you can go through the expected start-up CapEx, I mean, after the recent CapEx revision, whether you are now comfortable with your estimate. And given the overall market conditions, if there's any change in your commercial strategy for the project? Maximo Vedoya: Thank you, Rafael. I'll start with the second one, Pesqueria. I mean, you know the Pesqueria has several projects. The first one or the first part is the galvanized, the new galvanized line and the new PLTCM, the cold-rolling mill. The galvanized line is going to start the running curve in December, is in time. We are going to start it in December. And the PLTCM is going to start it in January. Remember, this has -- they are very complicated line. So, the ramp-up curve is not very -- it's not short, but we are going to start production in December, and we are going to start production in January, plus/minus some days. And so -- I mean, we are confident of that. The other project is the DRI and the EAF facility. That is going on time. I mean we have on our budget that is going to start in the fourth quarter of 2026. If you see the site, I mean, it's impressive. It's really worthwhile going to visit the site because it's clearly amazing and the tower and 140 meters of the DRI facility going direct to the EAF without any -- I mean, hot DRI. So, we have a lot of efficiency in energy. But -- and today, we have the same budget as we announced. I think it was $2.7 billion. We are in that budget. Of course, still 1 year until we start the production. But so far, it's going very good. And then, we have the structure, Pablo? Pablo Brizzio: Yes. You know that we have been discussing this at length during many conference calls on our idea to simplify the corporate structure. So, clearly, we are not comfortable with the structure that we currently have. We think it would be a plus for Ternium to simplify its corporate structure. But also, you know that it's not a simple proposition. It's not just a decision that from one day to the other, we can achieve. So, we need to be very cautious on the message that we passed that clearly, we are comfortable. Clearly, it's something that at some point, we would like to simplify. But the process to do that is not straightforward, and we will analyze, and we will continue to analyze not only from an economic standpoint, but also from a formal standpoint, how we can achieve that. But again, I guess that we answered this question also from our point of view during this call. It's something that we keep in our short list of things to be done in the future. Nothing that we can do at this specific point, but it's something that we will try at some point to achieve. Operator: [Operator Instructions] Your next question will come from the line of [indiscernible] of J.P. Morgan. Unknown Analyst: So, I would just like to follow up a little bit on the questions that my colleagues did. And the first one is a little bit about your expectations for '26. So, I think there is like the magical number of EBITDA per ton that we like always discuss, $150 per ton. And I would just like to understand if this is your expectation for next year. If not, what is the level that you guys have confidence that you might deliver? And what is the premises that you have been considering for this number? So, does this include like antidumping structures for Brazil or this is like base case that we are not going to have anything at Usiminas level. So just to understand a little bit your rationale here. And I think lastly, we discussed like every earnings call a little bit on what is the update or the most recent update on Compactos, if this is going to be like a project that you have on your pipeline for Usiminas for coming year. I think the last update that we had is, this is going to be a discuss for 2026. But I would just like to understand if there is a space or room for maybe a postponement since like we don't have the best environment right now in the market? Or if this is a priority since like the iron ore mining project still. Maximo Vedoya: I'll start with the Compactos. As I think I said before in some of the conference, I mean, the decision of the Compactos, we don't have to take a decision until next year, I think it was mid or late next year. In the meantime, we are working on all the alternatives. And we are asking the environmental permissions, and we are going through the analysis of the projects. There are several alternatives now for the Compactos. So, we are analyzing the different alternatives. In the meantime, we are doing some work in MUSA, where we are extending a little bit the life of all the non-Compactos with [ interfit ]. But so, we have some more work to do or more time in feeding Usiminas and selling the rest to the market. So, I mean, again, we are analyzing different options, different plant structure for the Compactos, different way of taking the iron ore out of the mine. And probably we have an update by mid-2026. The first one, Pablo, the EBITDA ratio. Pablo Brizzio: So, you're right that this has been our target. And in fact, we have been above this number for a very long period of time. after the increase of our participation in Usiminas, we mentioned that then you need to sum up both things. And if you take into consideration what Usiminas comment last week in their own conference call, the margin that they presented was 7%. And if you take the margin that I mentioned in answering the previous question of our operations in Argentina and Mexico, we are without Usiminas closer to 12% EBITDA margin. Clearly, it is something that we need to keep working. We already commented that we are expecting to increase our margins marginally or some during the rest of this year, 2025. And also, Usiminas has mentioned exactly the same. So of course, we will not arrive to this number during the rest of this year, meaning the fourth quarter of 2025. It will depend on many different things, the possibility of reaching that number during 2026. You mentioned some of them, the tariff, some reduction of imports in Brazil, improvement. On our side, we are doing a lot of things. We are fully implementing our cost reduction plans in order to sustain the reduction of our own cost. But at the very end, also will depend on the scenario on the trade negotiations, the growth in the different markets where we are. It's very difficult for us, especially with uncertainty related to the trade discussions to put a number today to 2026 EBITDA margins. Clearly, we continue to have this as a goal. Clearly, it's something that we will pursue. We are improving. We are entering into 2026 with a margin above 10%. The last one was 11%, and we will continue to work on to that direction. So, we are not that far for that goal. Clearly, it is one target that we have, and we will keep working to achieve as much as we can during the rest of 2026. Operator: There are no further questions at this time. And with that, I will turn the call back to Ternium's CEO. Please go ahead. Maximo Vedoya: Okay. Thank you to all of you for participating in today's call. We really appreciate your insight and encourage you to share any feedback. And have a great day. See you in 3 months. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to the Ethan Allen Fiscal 2026 First Quarter Analyst Conference Call. [Operator Instructions] please note this conference is being recorded. It is now my pleasure to introduce your host, Matt McNulty, Senior Vice President, Chief Financial Officer and Treasurer. Thank you. You may begin. Matthew McNulty: Thank you, operator. Good afternoon, and thank you for joining us today to discuss Ethan Allen's Fiscal 2026 First Quarter Results. With me today is Farooq Kathwari, our Chairman, President and CEO. Mr. Kathwari will open and close our prepared remarks, while I will speak to our financial performance midway through. After our prepared remarks, we will then open the call up for your questions. Before we begin, I'd like to remind the audience that this call is being webcast live under the News and Events tab within our Investor Relations website. A replay and transcript of today's call will also be made available on our Investor Relations website. There, you will find a copy of today's press release, which contains reconciliations of non-GAAP financial measures referred to on this call and in the press release. Our comments today may include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. The most significant risk factors that could affect our future results are described in our most recent quarterly report on Form 10-Q. Please refer to our SEC filings for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call. With that, I'm pleased to now turn the call over to Mr. Kathwari. M. Kathwari: Thank you, Matt. We are pleased to have you all on this call. Considering the many challenges, we are very pleased that our unique vertically integrated enterprise and our focus and investments over the years are providing strong results. Our interior design focus, investments in technology and many years of developing a strong retail network, our North American manufacturing and logistics have positioned us well. Our written sales in the first quarter increased by 5.2% despite the question of tariffs. We continued our history of returning capital to shareholders by paying $16.4 million in cash dividends and ended the quarter with $193.7 million in cash and no debt. Our U.S. government sales were impacted by delays in advance of the government shutdown. I will discuss a lot of this in more detail after Matt provides a brief financial overview of the quarter, and we will also discuss our initiatives to continue to strengthen our enterprise and provide an opportunity to grow our sales and earnings and cash. Matt? Matthew McNulty: Thank you, Mr. Kathwari. Our financial performance in the just completed first quarter was highlighted by retail written order growth, strong gross margin, positive operating cash flow and a robust balance sheet. Despite macroeconomic challenges, our operations produced positive financial results, which I will now discuss. Our consolidated net sales were $147 million as higher average ticket prices and designer floor sample sales were offset by lower delivered unit volumes, reduced traffic and fewer contract sales. Retail written orders grew for the second consecutive quarter as demand patterns continue to improve. Retail written order growth of 5.2% was driven by improved order conversion, increased promotional activities, the strength of our brand, the loyalty of our clients, new product introductions and additional marketing efforts. Wholesale orders decreased by 7.1% during the quarter as the segment was impacted by lower contract business, including reductions in government spending. We ended the quarter with wholesale backlog of $53.5 million. A lower volume of contract orders, combined with improved customer lead times helped reduce our backlog from a year ago. However, in the last 3 months, our wholesale backlog rose by $4.7 million due to the timing of incoming contract orders. Strong consolidated gross margin of 61.4% was driven by a change in sales mix, lower raw material input costs, selective price increases, lower headcount and a higher average retail ticket price, partially offset by increased promotional activities, elevated designer floor sales and higher inbound freight, including incremental tariffs. Our adjusted operating margin was 7.2%. For historical context, our pre-pandemic fiscal 2020 first quarter operating margin was 20 basis points lower. Our current year operating margin was impacted by fixed cost deleveraging from lower delivered sales combined with increased promotional activity, additional marketing, higher occupancy costs from new design centers and sales of floor inventory to make room for new products. Partially offset by a disciplined approach to controlling operating expenses, including reduced headcount. Our headcount totaled 3,189 at quarter end, a decrease of 4.7% from a year ago as we continue to identify operational efficiencies and streamline workflows. Adjusted diluted EPS was $0.43. Our effective tax rate was 25.4%, which varies from the 21% federal statutory rate primarily due to state taxes. Now turning to liquidity. We ended the quarter with a robust balance sheet, including total cash and investments of $193.7 million with no debt. We generated $16.8 million in operating cash flow during the quarter through lower inventory levels and higher customer deposits. Capital expenditures of $2.4 million were primarily for retail design center build-outs and investments in technology. We continued our practice of paying cash dividends. In July, our Board declared a special cash dividend of $0.25 per share in addition to our regular quarterly cash dividend of $0.39 per share, both of which were paid in August. We have paid a special cash dividend in each of the past 6 fiscal years and a cash dividend every year since 1996. Also, as just announced in our earnings release, our Board declared a regular quarterly cash dividend of $0.39 per share, which will be paid in November. In summary, we are pleased to deliver positive first quarter results. With a resilient client base, a debt-free balance sheet and a vertically integrated business, we are navigating the current environment focused on what we control, what we can control, which is talent, service, marketing, technology and social responsibility. Looking ahead, we remain focused on our strategic initiatives in the face of ongoing economic uncertainty. We are confident in the strength of our business model, including our North American manufacturing base and vertical integration, which allows us to provide clients with custom furniture and complementary design services. With that, I will now turn the call back over to Mr. Kathwari. M. Kathwari: All right, Matt. Thanks very much. Now as we have mentioned, considering the many challenges, we are pleased with our results. Our written sales increased by 5.2% despite lower traffic. This is due to: number one, we have continued to position Ethan Allen as a desirable brand. Two, we had more qualified customers who visit our design centers, less customers but more qualified. We continue to focus on key areas of strengthening the following: talent. We have strong dedicated team members in our vertically integrated structure. In marketing, during the quarter, we increased our national marketing with many initiatives. Our marketing costs at the national level increased 44%, going from 2.4% of net sales last year to 3.4% in the current period. We believe that we should continue to see the benefit of this increase as we move forward. In technology, continued utilization of technology in our vertically enterprise is a game changer. This time included technology in our manufacturing. This has included technology in our manufacturing, retail, marketing and logistics. Our focus continues, reinvention has positively impacted many areas included interior design network. We have relocated about 75% of our design centers in the last 20 years, while reducing the design center footprint that's the size of a design center by 25%. We have stronger interior design talent. We have 50% less designers today than 10 years back but generating 75% more business per retail associates, again, combining good talent, technology, products and all the other things we do have made it possible. We invested in our manufacturing, including new technology. Opening new retail locations while closing other locations has been important, new design centers that were opened in Colorado Springs, Greater Toronto and Greater Houston. We have 173 retail design centers in North America, including 143 company-operated and 30 independently owned and operated. About 75% of our furniture is made in our North American manufacturing and almost all custom on receipt of custom orders. This is very different than what happened, say, 20 years back when about 80% of our case goods was made for stock. We deliver our products at one price to our clients in North America with our white glove delivery service. This is very, very important. Not easy to do to deliver the product, whether you are in Seattle or you are in Miami or New York at one delivered price to the customer with white glove service. It is unique, but very important for us. We have consolidated our national distribution into one major distribution center while reducing the number of company-operated retail centers location by 35% in the last 10 years. Keep in mind, we had about 10 national distribution centers. Now one major distribution center with two smaller locations is what makes it work. On social responsibility, our teams continue to focus operating a socially responsible enterprise and treating our associates and our clients with respect. In addition, we focus on operating in an environmentally responsible manner. We recently had our annual convention about 2 weeks back, which was attended both physically and virtually by our entire enterprise. Under the theme of always moving forward, we reviewed our many initiatives, including the launch of new products that will be presented to our clients in the spring of 2026 in our design centers. The new products have been important. We have launched new products in the last 1 year, which, of course, resulted in our selling of floor samples, but we also have included new products, which we introduced in Danbury in 2 weeks back and will be in our design centers by spring of next year. As I stated earlier, both the domestic and international economies are going through major changes. We remain focused on providing great service to our clients through our vertically integrated structure. We remain cautiously optimistic. At this time, we are open for any questions or comments. Operator: [Operator Instructions] Our first question is from Taylor Zick with KeyBanc Capital Markets. Taylor Zick: First off, congrats on the strong comp here in this fiscal first quarter. I just wanted to ask more specifically about the cadence of retail written order trends during the quarter, maybe what you saw during the Labor Day sales period and outside of that as well. M. Kathwari: Yes, that's a good question because the first quarter, we were looking at all these -- the challenges of government shutdowns and everything else. What we saw was much lower traffic, interestingly but more qualified people and the ones who came in were buying. And what we saw was that mostly -- most of the quarter, we maintained more or less the similar increases. We did not see any major highs or lows during the quarter. What we saw was people coming in, working with our designers and buying. Now if the environment was different and we didn't have about a 30% -- 30-plus percent lower traffic into our design centers because of the fact of the economy and what is taking place. But the people who came in were interested, qualified. They worked with our designers, thereby helping us increase our business. Taylor Zick: Yes, that's great. Maybe just a follow-up here on promotional activity. Obviously, we've seen the industry become more promotional over the past few quarters. You noted it this quarter here for Ethan Allen. Can you talk a little bit more about what you're seeing and maybe what your expectations are for the balance of the year or 2026, if you want to comment on that? M. Kathwari: Yes. I mean we are watching what is happening in the industry. We have more or less maintained our promotional activities across the Board. We have not gone into any major promotions we have -- we do give special savings every quarter, and we have maintained that. And we felt we do also provide financing, but also at the levels that we have been doing in the past, small changes, but not much. So we have maintained our -- and that's because of that, you see our margins have been maintained. If that was not the case, we would not have the gross margins that we have today. Taylor Zick: And then I guess just one last question for me before I turn it over. Tariffs continue to impact the industry pretty broadly. What are you seeing in terms of pricing across the industry? And then maybe if you've taken any pricing yourself? M. Kathwari: Yes, that's an important issue. And of course, it's changing consistently. So we do not know where we're going to end. We do make about close to 80% of our product or 75% to 80% of our furniture in North America. In Vermont, North Carolina, then we have in Central Mexico and in Honduras. Now there has -- first, there was no -- hardly any tariffs in Mexico, then there were tariffs and now they are thinking of not having the level of tariffs that they had last 2 weeks. It's ever changing. So fortunately for us, while on the furniture side, we are less impacted by tariffs, we are able to manage it because of the fact of our North American presence. Our other products, which is our non-furniture products, a lot of that does come from overseas, and that has been impacted by tariffs. Now we have taken and again, that changes. So one has to be careful that you don't act too fast. But we have made some changes. We have taken some price increases anywhere from depending on the country, the region, anywhere between 5% to 10%. Some of our partners overseas have worked with us to manage the costs. So overall, I think that we have been much less impacted by margins -- by this question of tariffs, but most of it has been on our non-furniture product. We do have one major plant that we have in Southeast Asia, which has been impacted. But again, we have to watch that every month, the tariffs change. So overall, I think we're managing it well because of our strong presence in North America and our own manufacturing. Operator: Our next question is from Cristina Fernández with Telsey Advisory Group. Cristina Fernandez: I had a couple of questions. I wanted to start with the retail segment. It's been two quarters where the written demand has been positive, but sales for this quarter for that segment were still down 3%. So at what point will we see that demand translate into growth for that segment? M. Kathwari: Well, if you take a look at our retail, we had -- on the -- interestingly our delivered retail was about 3.3% or 3.2% lower than last year. We were able to maintain our relative cost structure. I think that at this stage, our objective is to work towards -- and we are seeing that, that there are challenges that objective is to come close to what we did last year. That's what our objective is. We'll see what happens in November and December. October is just ending. But people, as I said, have been challenged. Our traffic has been down considerably, fortunately, because of the fact of qualified people coming in and especially our talented interior designers. If we didn't have that, the chances are we would be severely impacted with lower sales. So I think that at this stage, Cristina, our objective is to still watch but to come close to what we did last year. Cristina Fernandez: Got it. And then on the contract side, can you talk more about what's happening with the state department? It seems like this was a pretty challenging quarter for that particular contract. So do you think it can normalize here in the near term over the next quarter or 2? Or should we expect this lower trend to be a new steady state? M. Kathwari: Well, it's a good question. It depends upon the opening of the government, where what we have seen is this and what we hear is that we would get orders if the government was open because the government is not open, new orders are not coming in. So it all depends upon where -- what happens with the government. And it also had to some extent, impact on our sales, not completely, we were able to ship some products but it's mostly on the new orders coming in. The government is closed. So we hope that the government opens up and what we hear is that there is some higher pending orders that they will forward to us when they open. And if that happens, again, let's assume that it happens in the next -- in this quarter, then the impact of that would be towards middle or end of the following quarter because we got to make that product. Cristina Fernandez: And then my last question was on the increased marketing spend year-over-year. Can you share where the spending is going? Is it reaching more customers? Is it a different type of, I guess, advertising that you're doing compared to last year? And where are you seeing the benefit of that advertisement and traffic or conversion? Or where do you think you're seeing the return? M. Kathwari: Yes, it's a good question. And where we did was where we increased is on at a national level, we increased it in additional direct mail and paid search and paid social campaigns. We didn't have much in paid search and paid social campaigns in the past. So we accelerated. That's where most of the increase at the national level took place, close to 50% increase. Now we don't see the benefit of it right away. I would say that we should see some benefit as we go forward in this current quarter and as we move forward because this is a longer-term investment, but we believe it made sense. It also made sense that we had also this past quarter an additional direct mail that we didn't have in the previous year. So going forward, we'll continue with our direct mail as we have in the past. But to answer your question, most of the money, the new money, new advertising was on paid search and paid social campaigns. All right. Any other questions? Operator: There are no further questions at this time. I'd like to hand the floor back over to Farooq Kathwari for any closing comments. M. Kathwari: Thank you very much. We are fortunate that we have a very, very strong team. As you know, I always talk of 5 things. So we have very strong talent, even though we have been able to reduce the number of associates, but the team members that we have are very motivated, knowledgeable. And it is also due to the tremendous increase in technology that is helping us in our work. We have reduced the size of our design centers. We have refreshed our design centers. We are opening new design centers and we'll continue to do that. Many of them are relocations. We also have -- we believe very strongly that the new products are going to continue to position us well. So with strong talent, strong product programs, vertical integration, our focus on technology, we believe we are well positioned and in somewhat challenging conditions because we do not know the overall international and the domestic situation. But despite all of that, we have done well in this first quarter, and we believe that we'll do relatively well going forward. Thank you very much for participating. And I'm sure if you have any other questions, please let us know. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group 9 Months 2025 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Simon Hunt, Chief Executive Officer; and Paolo Marchesini, Chief Financial and Operating Officer of Campari. Please go ahead, gentlemen. Simon Hunt: Fantastic. Thank you very much. Good evening, good afternoon to everyone. Thank you for joining us to go through our 2025 9 months results and perspectives for the remainder of the year. Paolo is here with me; our IR team, Chiara and Gulse are happy to connect after the call to further deep dive with all of you in the upcoming days as necessary. Now just before I get going, I think all of you already know, this is going to be Paolo's last call with us before he transitions to his new role as Vice Chairman. I'd like to thank him for all of his support, long-standing contribution to this group and looking forward to continuing to work with him in his new role. And it's pretty rare these days. He, as a CFO that has presided over more than 100 earnings calls, and holds the title being the longest serving CFOO in the Italian Stock Exchange and certainly across our industry by a long, long way. That is an amazing track record and an achievement. And on behalf of everyone in the company, me, my predecessors and all of you here on the call and in our investment community, I'd like to say a big thank you. And for those of you who are joining us on the Strategy Day on the 6th and 7th November, you have a chance to celebrate together with Paolo. Thank you, again, Paolo. Paolo Marchesini: Welcome. Simon Hunt: Now a short summary of our results. As you can see, our performance is on track with what we told you last time. Clearly, the operating environment remains challenging. Despite this, we are continuing to outperform the industry in sellout, and this is exactly our aim. We're keeping our strong focus on commercial execution and continuing to invest behind our brands to ensure we are well positioned for when the market normalizes. In terms of profitability, we're making strong progress, and this is supported by gross margin accretion and visible savings in SG&A more than offsetting the ongoing A&P investments, as I mentioned. And we're maintaining our guidance of moderate organic growth on the top line. While on EBIT-adjusted margin, we continue to expect a flattish organic trend as a percentage of net sales, but now with the tariff impact incorporated. And we'll dive into the details later on. We continue to make solid progress across all of our strategic priorities in line with our expectations. As highlighted in previous updates, our focus remains firmly on the areas we can control, and we are consistently advancing towards our goals. On brand building investments, as already shared, we're not making any compromises. On SG&A, as we already guided, the deceleration trend is evident, and we're also making progress on COGS efficiency. On CapEx, we are on track to complete our extraordinary program for production capacity expansion. In terms of portfolio streamlining, the disposal of our 50% investment in Tannico in Q3 is another step towards simplification following the disposals of Cinzano and the Australian plant in the first half of the year, and we are maintaining our pause on M&A. On the balance sheet, our disciplined approach means that we have now been able to reduce our financial leverage in terms of net debt-to-EBITDA ratio by 0.7x in the last 12 months, down to 2.9x with further improvements to come. Our portfolio approach continues to bear fruit. And while we will discuss this more during our Strategy Day, I can say that we keep growing across geographies where we are continuing to gain share and prioritizing execution and pricing discipline in a challenging backdrop. Now let's look at our top line performance and the drivers. In Q3, we recorded growth across all regions. I'll say that again, we recorded growth across all regions and delivered a very resilient 4.4% organic growth overall. And this means as of 9 months, our organic growth was plus 1.5%, in line with our guidance. And yes, we are still growing even in this tough market. The peak season started possibly in terms of weather, but we did see some variation across geographies in the latter part of the quarter, plus the impact of economic pressures on consumers play a role, especially in the on-premise and in the U.S. But despite this, we recorded solid growth. Regarding some of the technical impacts coming from the first half of the year, you'll remember that of the $11 million U.S. logistics delay impact we flagged in Q1, most of that has now been recovered with a limited impact expected in the fourth quarter. The delisting we flagged in Q2 in Germany continues to impact with EUR 3 million in Q3, leading to a total of $8 million in the 9 months and an expectation to reach $11 million by the end of the year. Net-net, these 2 impacts balance each other out in the quarter. And over the 9 months, the underlying performance broadly matches our reported organic growth. The perimeter impact is plus 1.1% on our top line while the FX impact was negative 2.4%, mainly driven by the U.S. dollar devaluation and Latin American currencies. Overall, our total reported top line growth is 0.2%. Now looking at the sell-out data, which is ultimately the main focus. Our outperformance continued across almost all markets in a challenging backdrop with overall shipments and sellout pretty much to line across the U.S. and EMEA. In the U.S., our outperformance in the strategic on-premise channel and in NABCA is ongoing in Q3 with plus 5% growth year-to-date in the on-premise, indicating a 4 percentage point beat compared to the sector, and a 2 percentage point beat in NABCA. And this is driven by a very resilient growth of plus 12% and plus 9%, respectively, in our tequila and aperitifs portfolio. Note that due to some data policy issues from the provider last night, we're only able to show a 52-week trend in the on-premise data, not the usual quarterly performance, but I'm sure that data will be corrected soon. On the off-premise, while our focus brands continue to show a resilient performance. The rest of our portfolio, which has a higher weight in this channel, impacted our total growth. And by the way, we should highlight that given its universe composition, Nielsen off-premise doesn't sufficiently represent a full picture of Campari America's performance or momentum in the market as we continue to make good progress across the club channel. In EMEA, we also outperformed in each of our main markets with growth of plus 2% versus a market of negative 2% in the region despite the pressurized context. Now let's start and look at our top line growth by region, starting first with the Americas. And Americas grew by plus 1% in the 9 months with an acceleration in Q3 of plus 5%, driven by positive top line across the region. In the U.S., the 9-month performance was impacted by the destocking in Q1, while the last 2 quarters have both been positive with plus 3% and plus 1% growth, respectively, in Q2 and Q3. The main drivers are Espolòn, Courvoisier and Wray&Nephew. And the aperitifs recorded a stable trend with a positive Campari, offsetting inventory reduction post tariff volatility in Aperol in the third quarter. In line with the category trends, we continue to see persisting challenges on SKYY. Jamaica recorded plus 11% growth in the 9 months with a very strong quarter 3 due to the base effect of last year's hurricane but also benefiting from a very positive local market dynamics. And given the news at this stage, I think it's important just to update you with what we know about Jamaica. So at this stage, the team are evaluating the impact of the hurricane from last night. And our primary focus is the safety and well-being of our teams, which we are confirming diligently given the lack of communication available. After that, we have got teams on the ground at each of our sites to assess the impacts and next steps to get us up and running as quickly as we can, recognizing the infrastructure damages anticipated by the Jamaican government. Once we have clarity on the situation, we'll then be able to confirm our support for whatever those recovery plans are and can provide more of an update once we receive it. In terms of the rest of the Americas, which makes up about 11% of our group sales, continued its solid performance with plus 3% growth in the 9 months and quarter 3 was flat, impacted by trade disruption in Canada in connection with the tariffs. But on the positive side, Campari has now become the second largest premium spirits player in Brazil, driven by the strong performance of Campari, and leading Brazilian brands. Now moving on to EMEA. The plus 2% growth was broad-based across almost all countries. In Italy, the environment remains challenging, especially in the on-premise. We saw less willingness by consumers to spend and decreased numbers of visits. Regarding tourism traffic, even though accommodation occupancy rates were relatively solid during the summer, consumers were more selective about spending. There were also a few Italians taking holidays during August pressured by increased prices. In August, we saw all main beverage categories. That's all beverage categories, down 10%, including water a mainstay of Italian consumption in both the on and -- in and out of home, really reflecting the economic pressures that consumers are seeing. And all of this played a role in the performance of Aperol. At the same time, we see our portfolio approach in aperitifs bearing fruit, especially with solid trends in Campari, Crodino, Sarti Rosa as well as the Spirits portfolio. In Germany, the environment has become more challenging over the last few months across all categories and sectors, as I think you know. And consumer propensity to save versus spend has increased significantly. And we are still cycling the impact of the delisting at a retailer to hold our line on pricing. Despite this, we recorded positive top line growth in Q3, mainly driven by the success of Sarti Rosa, which now accounts for more than 10% of our net sales and has become the second largest brand for Campari Group in Germany after Aperol. Again, here, the benefit of our portfolio approach and Spirits leadership is evident. In France, our solid performance is mainly driven by Aperol with plus 6% growth in Q3, and the U.K. performance remains strong, supported by our excellent execution during the peak season with the added benefit of some good weather, too. The main drivers of the plus 22% growth in Q3 were Aperol and Aperol Spritz as well as Courvoisier benefiting from the ongoing marketing campaign. In the other countries in EMEA, which contributed 16% to our overall sales, we had a positive trend in all countries in the 9 months, especially in GTR, Greece and Belgium. And the bulk of the growth is coming from aperitifs and Courvoisier. Now moving on to APAC. Growth was plus 5% in the 9 months. In Australia, the growth of plus 6% in the 9 months was driven by a 15% growth in Aperol with ongoing focus on accelerating the on-premise activations as well as a plus 12% growth on Espolòn bottle and ready-to-drink, which keeps leading the tequila ready-to-drinks. In quarter 3, which in any case, is an off-season quarter for Australia, performance was impacted by the phasing of shipments in Wild Turkey, leading into the key upselling -- upcoming summer selling period. In the rest of APAC, we saw a positive momentum in Q3 with plus 14% growth, mainly driven by China, India and South Korea. And Wild Turkey/Russell’s Reserve continued to perform well and we've also seen some initial reorders on Courvoisier following a clearing of the trade channels that we undertook following the acquisition. Okay. So let's now move on to look at it different way via the houses, starting first with the House of Aperitifs. Here, we recorded resilient growth of plus 1% in the 9 months, primarily driven by Sarti Rosa and Aperol Spritz. As I mentioned, while talking about the regional performance, Aperol performance was impacted by a variety of factors during the quarter, and I'll deep dive a bit more on the next page. But in Italy, the impact was a result of pressured on-premise, Germany due to the delisting and operating conditions. And in the U.S., we had an alignment of the inventory post tariff volatility in the U.S. market, which impacted shipments. Excluding these 3 countries, all other countries remain on track with plus 4% growth in the 9 months. For Campari, the main impact is coming from Brazil, where we had a very high comparison base from last year, I think, near on 50% due to the rapid growth as well as price increases. And excluding this impact, the performance remains solid with a plus 2% growth in Q3 and a plus 1% in the 9 months, led by the U.S., Italy and the rest of the Americas. The remainder of the aperitifs portfolio is showing positive trends across the regions. Sarti Rosa continues its solid growth in its core German market and has started to benefit from the rollout into other European markets as well. Aperol Spritz is performing nicely, driven by the convenience trends. And Crodino, our nonalcoholic Spritz, is growing double digit across all seeding European markets. As I said, let's have a closer look at Aperol. The geographic expansion is fully on track across all seeding markets. More than 10 countries representing 12% of the brand's total sales are delivering outstanding double-digit growth, reinforcing the strength of our approach and the excitement in these markets. And this really is a testament of the fact that Aperol's desirability and consumer trends continue to support its growth. On sellout, our outperformance is continuing in the strategic on-premise and in NABCA in the U.S. European markets are facing some pressure and it's evident, especially in the on-premise data. In Italy, despite this stock levels remain healthy in the trade. In Germany, given the operating backdrop, Aperol's been impacted, especially in the on-premise. But if you include also Sarti Rosa, in fact, we continue to perform better than the market. In France and the U.K., the performance is very robust, particularly benefiting from favorable weather conditions and excellent execution. This is all to say we are very confident in the trajectory of Aperol. It's a tough market without a doubt and the quarterly performance can get impacted by various factors, but the long-term opportunity remains fully intact. Okay. Looking at the House of Whiskey & Rum. In whiskey, we recorded strong growth in Q3 with Wild Turkey benefiting from the stock availability in its core U.S. market. And you'll see it later in this session, but we also launched a new campaign, which we expect to support more going forward with initial encouraging results. South Korea and China are also supporting off a small base. Jamaican Rum showed a solid growth of plus 16% with Q3, driven by an easy comp from the last -- from the hurricane last year as well as strong underlying trends in the U.S. and in Jamaica. In the House of Agave, Espolòn grew plus 3% in the 9 months. Growth was supported especially by Reposado plus 11% while Blanco remained broadly flat due to our focus on pricing. And Q3 was impacted by the phasing of shipments. Key seeding markets also continue to grow for a small base, in line with our international expansion strategy. Within the House of Cognac & Champagne, Grand Marnier recorded a stabilized performance in Q3, also supported of an easy comp from last year. Courvoisier recorded EUR 99 million of sales in the 9 months and was included into our organic growth as of May. As we already highlighted in our H1 call, we are piloting some brand marketing in the U.S. and U.K., which has shown initial positive results. And above all, I'm very proud to say that Courvoisier took top honor as Best Cognac for its 30-year XO Royal in the 2025 Beverage Testing Institute Awards. In fact, out of the total of 8 categories awarded during the event, Courvoisier was on the podium in 4 of them, with XO Royal winning the top prize with XO, VSOP and the VS expressions. And this clearly reinforces the quality of our liquid in our bottles. For the rest, I won't comment too much, just to note that 21% of our overall portfolio is currently classified as local brands given their geographic concentration. SKYY remains an important part of the portfolio and showed a positive performance in Q3 driven by Argentina, China and Brazil, more than offsetting the ongoing softness in the core U.S., in line with other major players in the category. Okay. I'd also like to share some of the highlights of our activations from last time. And given that we're in our peak season, the key focus for us has been imperative in this period. So let's start with Aperol. Music festivals are and will continue to be at the heart of our activation strategy for Aperol. This summer has been our biggest and boldest yet with over 130 festivals in EMEA alone reaching more than 10 million consumers and selling, yes, selling over 2.5 million Aperol serves. We're also once again in the U.S. Open, where Aperol engaged with more than 90,000 attendees, driving 26 million influencer impressions. For Campari, the main highlights of the quarter were the strong partnerships with the major film festivals. Venice for the 8th, Locarno for the 5th and Toronto for the 2nd year. We're also very active during Negroni week because as you all know, there is no Negroni without Campari. And this linked with our cinema and the Negroni are critical for the positioning of Campari, and we'll continue to strengthen this further in the upcoming period. And moving from aperitifs to tequila, Espolòn is also very active during the summer with its mark days of summer campaign. Media impressions increased by more than 28% compared to last year. Social impressions reached millions leading to additional coverage in Forbes and Vogue and all of this culminated in a widely publicized drone show over New York. And lastly, we're going to have a look at our new Wild Turkey campaign, which was launched at the beginning of September, focused on our legendary master distiller Jimmy Russell. This initiative represents the brand's largest ever investment with a media spend planned up to $12 million through 2026. And this campaign is rolling out across the U.S. and Japan in '25, expanding to Australia, South Korea and other markets in 2026. The and the pre-launch testing ranked the campaign in the top 1% to 5% of benchmarks, showing strong purchase intent, brand saliency across the key markets. So let's have a look at the video. [Presentation] Simon Hunt: Okay. I think back, hopefully, if the technology is working properly. So before I hand over to Paolo for the P&L and balance sheet section, I'd like to give you an update on our key strategic priorities. We're really excited to welcome many of you in-person to our first-ever Strategy Day coming up on the 6th and 7th of November in Milan. The agenda is going to be pretty packed, giving us the opportunity to review our future direction and priorities while not forgetting to have a bit of fun, showcase our brands and our amazing production capabilities. So moving on to cost containment. You can see that in Q3, the declining trend we guided for in SG&A has started and will continue in Q4. Therefore, we are on track to achieve our target of 50 bps benefit on sales in 2025 and 200 bps benefit by the end of '27. On portfolio streamlining, we continue to take the right steps after disposal of Cinzano and our American plant in the first half. We've now divested our 50% stake in Tannico, the Italian online wine and spirits business. Although this has a limited impact on our results, it's another step in the right direction in terms of business simplification, in line with our strategy to focus on fewer, bigger bets. Any additional potential disposal will be based on the optimization of potential proceeds. And I can say that more conversations are ongoing. Okay. With that said, I'm going to hand over to Paolo. Paolo? Paolo Marchesini: Thank you, Simon. First and foremost, I wish to thank Simon for his kind words at the beginning of the presentation of my past contribution to the Campari success. It's been an incredible journey, a privilege to engage with such a thoughtful and committed community of analysts and investors over the years. I look forward to continuing to support the group in my new role as the Vice Chair, and I hope to see you -- many of you again at our Strategy Day in November. For now, let's dive into the results and the outlook for the remainder of the year. Now if you follow me to Slide 17, let's start by looking at our EBIT margin dynamics for the last time together. I am happy to say that we have recorded solid results so far in 2025 with a flat EBITDA adjusted margin supported by gross margin accretion and cost containment benefits, offset by brand building investments as planned. In terms of gross margin, 9 months was up by 90 basis points with an acceleration in Q3 of a positive 180 basis points. This was mainly due to the positive mix and ongoing benefits of input costs, especially Agave as well as contained tariff impact of just EUR 6 million in 9 months. Tariff impact benefited, in fact, from some pre-tariff in-house inventory position we were holding. Accordingly, our full year impact has been revised down to EUR 15 million for 2025. A&P to sales reached 17.3% in 9 months with an acceleration during peak season leading to a positive 9% organic yearly growth and a negative 110 basis point dilution impact on margin. As Simon mentioned before, we continue to invest behind our brands and our full year guidance of 17% to 17.5% is fully confirmed. As you all know, our cost containment efforts are becoming more and more visible. In Q3, we had a declining trend of negative 4% in value, and we are on track to reach a 50 basis point accretion guidance driven by ongoing value reduction in Q4. Accordingly, EBITDA adjusted was realized at EUR 517 million in 9 months. Within this, there was a positive contribution from perimeter of EUR 1.1 million driven by Courvoisier until April, net of agency brands and co-packing. Foreign exchange impact was realized at a positive EUR 9.8 million, driven by devaluation of the Mexican pesos offsetting the negative impact of U.S. dollar devaluation. Let's move on to look at our group pre-tax profit with a few comments. So far this year, operating adjustments totaled EUR 41.9 million and that includes the impact of plant disposal in Q1 and severance payment. Financial expenses came in at EUR 80 million in 9 months. This is on track with our expectations of EUR 105 million to EUR 110 million for the full year. The increase versus 9 months of 2024 was driven by higher average net debt, actually EUR 2.365 billion this year versus EUR 2.071 billion last year, mainly due to the base effect of Courvoisier closing on cash and debt. Average cost of net debt is now at 4.3% versus 3.7% in 9 months 2024. As in previous quarters, we need to remember that last year's figure was artificially low, given cash at hand ahead of Courvoisier closing coming from acquisition funding. Adjusted 9 months 2024 figure would have been 3.8%. Overall, group pre-tax profit adjusted amounted to EUR 440.4 million in the 9 months, indicating a negative 2.6%. And group pre-tax profit came in at EUR 398.8 million with a negative 5.7% decline. Moving on to look at the net debt, Slide 19. Net financial debt was EUR 2.241 billion in 9 months, improving by EUR 136 million compared to 2024, thanks to positive cash generation. This is before the further benefit expected from the proceeds of Cinzano disposal after the closing, which is expected to occur before the end of the year and will further contribute. Cash and cash equivalents were at EUR 509 million, up versus first half due to cash generation. Compared to the end of 2024, it is down by EUR 157 million due to EUR 78 million of dividend payment, CapEx initiatives, loan repayments and employee termination payments. Lastly, in line with our strategic priority of balance sheet discipline, our leverage ratio improved to 2.9x in 9 months, down from 3.6x in 9 months of 2024, following the acquisition of Courvoisier, 3.2x at the end of 2024. So in 12 months, as we said before, we have a deleverage that is accounting for 0.7x. Pro-forma including Cinzano disposal, the ratio is slightly better at 2.85x. This is a testament to our capability of actively manage our balance sheet following acquisitions and bringing leverage ratio down with further improvement expected going forward. Let me hand back to Simon to comment on our outlook. Simon Hunt: Great. Thanks very much, Paolo. So I started this year by saying it was going to be a transition year. And in these 9 months, we've showed a resilient performance despite the ongoing challenging backdrop you all know. The environment is still one of the most complex any of us has gone through, but we continue to outperform in key markets. At the same time, we keep our focus on what we can control in order to manage our balance sheet and P&L effectively and the results as clear as you just heard from Paolo. For the full year, we continue to expect moderate organic top line growth, assuming no worsening of consumer confidence in Europe or in the U.S. and especially in the on-trade. So far in the 9 months, we recorded plus 1.5% organic growth which confirms our targeted progression. On EBIT-adjusted margin, we're maintaining our flattish organic guidance. Have this in guidance now includes the tariff impact and the drivers behind this provision are as follows: first, lower than previously guided negative impact from tariffs of EUR 15 million as Paolo mentioned before, due to the benefit of our pre-tariff in-house inventory position. Of course, this is assuming the current tariff rates remain the same, which we hope they do. But now anyway, given the stability we've established. But just to consider, we will not have the same benefit next year. Second, the benefit of efficiency gains in COGS and SG&A, where we continue to make good progress. This is more than offsetting the reinvestments in A&P which are critical for our brand building, and we believe investing now while many others are cutting their budgets, helps to deliver strong long-term brand benefits. In terms of FX and perimeter, we expect limited overall impact in value terms. And regarding the medium long-term outlook, we confirm our previous guidance, and we are confident for the future. As I mentioned before, we'll come to the market with more details of how we're going to get there next week during our Campari Strategy Day. So to summarize, we keep our focus as planned in the key areas that we've mentioned before. We continued relative outperformance in sellout, which we are doing; financial deleverage trend, which we are achieving; deceleration in SG&A growth driving operating leverage, which we are delivering; continued focus on commercial execution and pricing discipline, which we are controlling; and portfolio streamlining, which we are delivering. So let's close here, and let's open up the floor for your questions. Thank you. Operator: [Operator Instructions] The first question comes from Andrea Pistacchi of Bank of America. Andrea Pistacchi: So first of all, Paolo, I haven't been on all the 100-plus calls you've done, but many of them. So I really want to say a big thank you for the help, detailed answers, insights that you've consistently provided. And also, of course, congratulations for your appointment to Vice Chairman of the Board. And all your best -- all the best in your new chapter, and I look forward to seeing you in Milan next week. So I have 2 questions, please. First, I'll start with Paolo, on gross margin. Gross margin being one of the key highlights, I think, of these results. Now there are a lot of moving parts here from the tariff impact, the input cost benefit, Agave, mainly mix effects, maybe other things. So it would be helpful, please, if we could go through these drivers in a little more detail if that is okay? For example, how much of a benefit are you getting from input cost and Agave, and is there more to go as we go into next year? And also, if you could say, what is driving the mix benefit? Because I think your aperitifs was a bit more subdued this quarter growing below group average. Yes. So putting all this together also on the margins, how you're thinking about how these moving parts play out in Q4 and maybe going into next year? And then for Simon, please. I wanted to dig a little deeper on EMEA, which I think was very solid overall. Some markets are strong. Others not, however, various companies are calling out how affordability is weighing on consumer demand. Now given that the affordability headwind probably won't go away in the short-term, what are you doing to deal with this to adapt with this? What does it mean for pricing in EMEA in the next 12, 18 months? And in Italy, stock levels, given that there's been a bit of a softer performance that you're calling out in the on-trade in the summer, how are wholesaler stock levels there? Paolo Marchesini: Thank you, Andrea. On -- I'll start with the gross margin question. So vis-a-vis key drivers on the COGS, we have originally highlighted EUR 20 million benefit from input costs, most of it coming from Agave. But also, I have to say that many other commodities are -- the prices are coming down. The only exception to that still remain logistic costs, where we have seen negative variances vis-a-vis a year ago. In terms of -- if you look at the upcoming quarter and more directionally into 2026 for the upcoming quarter, we think we will still benefit from positive contribution at the gross margin level, as we've seen in the third quarter of the year. We will keep on benefiting from a reduction in value of SG&A due to the restructuring initiative that is having an impact in the second half as we have originally guided, more to come with a further 90 basis points in 2026 due to the full year effect of the initiatives that have been implemented in year 2025. Vis-a-vis the mix, the very good news is that on Espolòn, originally the objective was to achieve parity vis-a-vis group average gross margin by Q4 of this year. Instead, we managed to put it forward to Q3. So Espolòn in Q3 was no longer a bleeder and that contributed to a positive mix. Clearly, if we look at the composition of the margin gain in the third quarter, giving the pricing pressure that we had, most of the -- if not most of the gain is coming from cost benefits more than mix and so the very same dynamic we are expecting to see in Q4 with promo pressure negatively impacting the company's ability to take net price gains. COGS, will keep on being positive and mix as we hope will positively contribute. So this is a little bit how we see the first quarter and next year. In terms of clearly, perspective in the past years, our ability to drive gross margin expansion based on sales mix improvement is linked to the performance of primarily aperitifs but now also tequila, Espolòn will be no longer a bleeder. So we remain extremely positive vis-a-vis the possibility of expanding gross margin via sales mix. Commodities remain a tailwind in 2026, whilst at this stage, we believe pricing, the opportunity is minute and less evident given the current market conditions. Simon Hunt: Andrea, looking forward to seeing you next week. Look, your question on EMEA, look, EMEA, overall, it's tough, as you rightly said. But I'm really pleased with the performance that the team has delivered. And I think the call out on affordability, you're seeing consistently across categories and this whole cyclical structural debate. I think one example of cyclical EMEA is a great one where you're seeing it across every category. It's not just within our category, put it that way. I think, look, in terms of what we need to do on this, we are very good, I think, at positioning the brand as aspirational, yet affordable. So the space we play in, we've got to really create that value in the consumers' eyes. And so the best way to do that is execute brilliantly. And that's in the markets where we're carving out, we're getting -- gaining share or outperforming, it's where we're really doing that, and the consumers are seeing the value in what we offer. So I think that's the first thing in terms we need to do. The second thing is then leveraging our portfolio. We have a collection of brands that allow us to compete very effectively in these markets. And you see that whether it be there may be a tougher performance on Aperol in Germany, but the growth in Sarti or the growth in Crodino and other markets. So leveraging our portfolio is key. I mean, more tactically, there are some opportunities, I think we've got to focus on around revenue management, which you'll hear more about next week. And just generally, in terms of our overall strategy, I'm not going to take away from what you're going to hear next week. So maybe by the end of Friday, you can let me know whether I've answered your question probably. Operator: The next question is from Sanjeet Aujla of UBS. Sanjeet Aujla: Hi Simon. Paolo, I'd also like to echo massive congratulations on your new role and many thanks for all of the help of the years [indiscernible]. So also 2 questions from me. Simon, I just want to come back to the consumer demand environment in the U.S. and Europe. Would you highlight there's been a deterioration between Q3 and Q2? And in particular, how are you seeing the evolution of the competitive and pricing environment? Would you say that's further intensified over the summer months? And that's my first question. And then just coming back to stock levels. I think Andrea asked the question, but can you just give us a flavor for where stock levels are, particularly in the U.S. and Italy and anywhere else that might be noteworthy? Simon Hunt: Sure. Absolutely. So I think in terms of the performance in Q3 and Q2, it is really mixed. And as you know, looking at this data from a national point of view, it kind of blurs what's going on. Yes, if you look at the Nielsen data, and it seems very kind of doom and gloom across the industry in many cases, but we have pockets of growth really coming through quite nicely. I mean a good example is not picked up is, in our 11 cities that we're really focusing on building Aperol, we have 10 of them in double-digit growth. So when you talk about the deceleration, it really depends where and on what. And I think that's where we've got to be a bit careful that we [indiscernible] too many conclusions simply because of the negativity in the off-premise. We are still growing. We're growing in the on-premise. We're growing in NABCA and we're growing really successfully on the brands that we're focusing on that we're prioritizing. So I think for me, it's -- it's more about what we're doing and where we're doing it than actually what's happening in the marketplace. As I've said before, we have the benefit of being a smaller operator in the U.S. and therefore, we've got to go after opportunities and maybe some of the other companies don't have. Having your second point on the pricing environment, I think you're saying you see the same data we see, which is from a mix point of view, again, it depends on which category. I think you're starting to see a bit more price competition coming through in Blanco as we've seen within the tequila sector. Repo is dipping down a bit. But if you look at the overall price mix, actually, the tier that most of it is coming from is the tier above where we play with Espolòn. It's up at the super premium price point, where you've got a mix, from memory, at 2.6% negative as consumers are now trying to -- our brands are trying to capture that consumer affordability in that end. And that's actually creating a good opportunity for us, some people on the down trade. So, we're going to have to carry on [ sale. ] I think it's going to be a pretty aggressive festive period. I think everyone is going to be up trying to close out the calendar year strongly. So we'll have to wait and see, but I'm very confident in terms of the plans that the team has got. I mean in terms of the stock levels just quickly in the U.S., I'm very happy, as I said before, with the levels of stock we've got we can -- we've managed to take down some of the pre-tariff stock that we put in, which on the flip side of that allowed us to not get hit by the tariffs quite as much as we originally forecasting. So that's impacted some of the shipment numbers that you see in Q3. In Europe, again, very happy. We see the stock levels we've seen in Italy and perfectly normal with what we're seeing in terms of sell-out. I'm not concerned about excess stock anywhere. There was -- I'm not concerned about heavy pushing through to land Q3. I feel pretty confident. And without getting into the performance in Q4, but I'm not seeing any hangovers running from Q3, put it that way. Operator: The next question is from Simon Hales of Citi. Simon Hales: Can I echo the congratulations to you, Paolo, and look forward to celebrating properly with you when we see you next week at the Strategy Day. So just a couple of quick ones for me as well, please. I want to start, can I just go back to the U.S. sort of briefly. And I wonder if you could just talk about whether you -- obviously, we're seeing a deteriorating underlying trend in the industry through Q3. I appreciate you're outperforming that and some of your comments earlier in terms of you're still winning where you're investing. I wonder what you're seeing as we're coming to the early parts of Q4, obviously, an important festive season to come. Has that deterioration in trends fed through to just sort of do you think weaker ordering by wholesalers in the U.S.? I mean, any comments and color there would be interested. And then secondly, just coming back to Jamaica. I appreciate it's very early days, given the hurricane only hit last night and your focus is rightly on the safety of your people. But you're obviously confirming at this stage, your full year '25 guidance for group moderate organic sales growth. I think consensus is looking for around about 2% to be moderate for the year. I just wonder, is that deliverable that moderate sales growth even if the disruption in Jamaica ends up being pretty significant given the hurricane? Simon Hunt: Yes, Simon, good questions. I mean I think, look, in terms of the underlying Q3 and heading into Q4, we're certainly living in a dynamic environment at the moment is the way I describe it. So I think ultimately, we're not seeing any real pressure from, certainly from our relationships. We came through on the wholesaler side, but that's also probably because we're actually in a reasonably healthy stock position already, healthier than not too high is what I mean by that and appropriate for what we need going forward. So I think -- as I've said on previous calls, the cost of capital, both in on-premise retailers and wholesalers is clearly ask -- people are now asking about what -- are people destocking further. For us, we feel pretty confident in terms of the flow. We're very confident in terms of the stock levels at each level. So we don't really see too much of that coming through. I think what will be interesting is whether or not retailers are willing to take in the holiday stock that they normally take in. And I think that's something we don't know yet. We've had no indication they're not going to. But again, things are changing quite quickly in the marketplace, and we'll see. Maybe they're taking half as much through to a holiday to wait and see what the consumer does. So that may impact. Again, for us, it comes back to a big chunk of our business is in the on-premise as well. So we've got to make sure we're executing really well in the on-premise, which the team is doing a good job on, but also making sure that we can respond to those changes if they come through in the purchase patterns. So I think on the first question, again, it's difficult to kind of predict what's going to happen, as you know, but we feel pretty confident with the plans that we've got. On your second question on Jamaica, you're absolutely right. Look, it's all about the team and making sure everyone is safe at the moment. I've got calls later tonight with the team to find out where we are. In terms of this year, I want to be clear that we've already shipped a vast majority of the stuff that we need to close out the year out of Jamaica. And we're sitting on healthy inventory positions to meet the demand. So I don't see that being an impact into this fiscal or impacting our ambitions to close out the year strongly. I think until I see or until I hear really what the team has found, once I've established everyone is okay, then I'll be in a better position to give maybe a bit more of an update next week in terms of what we found out. But at this stage, it's very hard to get the communication. I think you know electricity is out, phones are out, a lot of the roads are blocked. We're getting kind of piecemeal information. We've got a call later tonight, and I'll know a bit more, but I probably won't have the full picture tonight either. But in terms of full year impact, I don't think there's -- it's a significant impact. Operator: The next question is from Mitch Collett of Deutsche Bank. Mitchell Collett: And I'd also like to say thank you very much, Paolo for all your help and patience over the years and good luck with the future. Two questions for me, please. So the first one is a little bit similar to what we've had before, but you've obviously reiterated this year's guidance, but you've added this line about assuming no further worsening of consumer confidence in Europe, especially impacting the on-trade and in the U.S. I appreciate the importance of OND, but maybe just a bit of color on why you felt that additional line was necessary given how far we are into 2025? And then I wouldn't want to take anything away from next week. But clearly, you've confirmed your medium-term outlook. And I appreciate visibility is low. It's still early to ask for a read on 2026. But the question I want to ask is, do you think that next year, you'll be in that mid- to high single-digit organic growth range? And I guess, if not, what do you need to see to get there? Simon Hunt: Okay. Mitch, yes, in terms of the guidance, the reason we put that in is, as I said on -- literally on the first call, I think I came on with it, we're controlling what we can control. And so the team is working through that. And so yes, we've only got a couple of months to go to close out the year. But this has probably been a year with high volatility than I've seen in 31 years. We've had tariffs, we had economic pressures, geopolitical changes. And as a result, we're seeing consumer behavior really change quite quickly and certainly a lot quicker in terms of purchase behavior. And that was the only reason we put it in. We want to be prudent. We want to make sure that we land the year in line with what we've told you, each one of these calls of what we're going to do. So I think we're just kind of being a bit prudent there. I'm confident we can get where we need to get to. But I think it's also recognizing there are some things outside of our control. And therefore, we want to make sure that we've kind of covered that off in terms of our guidance. I think in terms of your question on '26, yes, you're right. I'm not going to give you an answer yet in terms of where we are, but I think -- the reason we set our medium-term outlook, and we'll talk more about this next Thursday and Friday is really about our confidence in that longer-term outlook and medium-term outlook. What we anticipate '26 will be, will be a step on that journey. Exactly what step? We need to confirm we want to close out this year, and we'll be able to give more guidance once we see how we finish out the year. But it would be, I think, a positive step in that direction. Again, the only caveat on that is there's a bunch of stuff outside of our control and volatility at levels we haven't seen before. So again, what I want to be able to do is be prudent, make sure we can deliver what we tell you we're going to deliver. Operator: Next question is from Laurence Whyatt of Barclays. Laurence Whyatt: Simon and Paolo, and can I echo all the comments to Paolo, and thank you for all your hard work and help over the years and look forward to seeing you next week at the Capital Markets Day. A couple of questions for me there, please. Just on the tariff impact. You mentioned you've managed to get around some of the tariffs by using some of your stock. Presumably, that means that some of the impact will be felt next year. I was wondering if you could quantify what sort of tariff impact you would expect next year once you no longer have that -- the benefit of the stock and whether you think you have taken any price in order to overcome some of those tariffs and if so, sort of on what brands do you think that will be taken on? And then secondly, with regard to Espolòn, of course, the expectations of tequila over the past few years have been, I guess, pretty heroic. The growth has been enormous. And of course, that's slowed down somewhat in recent months and quarters. Just wondering on your sort of contracted Agave supply, whether you've had to adjust how much Agave you're buying in from Mexico and whether that's giving you some of the benefit on the margin on Espolòn recently? Paolo Marchesini: Yes. On the tariff, the -- we confirm -- although this year, we're benefiting from already existing in-house stocks for next year, unfortunately. If nothing changes, the EUR 37 million guidance that we've highlighted before stays. So it's completely unchanged. You alluded to opportunity of taking price. Of course, there's always the opportunity to partially mitigate the impact. But we also have to recognize the fact that the U.S. environment is particularly competitive at the moment. Therefore, I wouldn't bank on it at this stage. Whilst on the second question vis-a-vis the Espolòn brand, we've managed to tweak down the prices and the commitments. And so this is why we're benefiting from the decline of the Agave price. For next year, there will be still a tail end opportunity sitting in the current trend. We have directionally highlighted in the past EUR 5 million, which is, I think, makes sense is confirmed for next year. So we have a little bit of tailwind also on that -- on input costs for next year. We're in a good spot on Agave suppliers. Operator: Next question is from Trevor Stirling of Bernstein. Trevor Stirling: Simon and Polo, let me add to the que Paolo and look forward to really having a proper drink and celebrating next week. Simon, probably one question for you. If we look at the Espolòn shipment data, it looked kind of weak around minus 1%. And so the sellout data we see in NABCA is much stronger than that. I think you alluded to shipment phasing. Maybe could you just give us some sense of where you think Espolòn is on an underlying basis? Simon Hunt: Trevor, you're right. I mean in terms of shipments down 1% and then you see the performance on the sellout, we basically -- there are 2 drivers of this. One was actually just destocking the stock that we brought in ahead of the tariff, we're still unsure as to what was going to happen there. And so we've just been working that through, which is whether ultimately the shipments will catch up with the sell-out performance, is the first thing. The second thing on that is just there's some mix around the different states is about where we're shipping stuff as well. So in terms of whether Repo, whether it's Blanco, again, there's just some different phasing in terms of that. So I don't think either of them are big drivers. It's more just about -- I think you'll see some catch-up on that as we close out the year and head into Q1. Trevor Stirling: And then maybe just one follow-up. The strength of both Jamaica and the Jamaican Rum portfolio, it seems really strong. I mean, I think Jamaica and Jamaican Rum is down about 19%, 20% this time last year, and you're up 45%, 50% which would imply you got underlying growth as you're probably in some of the region of 20% at least. Does that sound about right? Operator: [indiscernible] you have your phone on mute? Simon Hunt: Sorry about that. I thought -- Trevor, I thought I hit it. The -- in terms of the Jamaican Rum performance, really a couple of drivers on that. One is the performance in Jamaica. So we're cycling the disruption of the hurricane last year, which now it looks like we might be doing the same this year. So that's one of the drivers. But the brand is incredibly powerful on the island, and the team has done an excellent job of continuing to drive the execution. So that's been one area. The second area has been the fact that we were out of stock in the U.S. And so now that we've got stock back in, that's allowed us to give us a very positive performance there as well. So put those 2 things together, that's really why. Operator: The next question is from Chris Pitcher of Rothschild & Company. Chris Pitcher: Another round of thanks for Paolo from me for [indiscernible] over the years. And also congratulations on the, The Glen Grant sale, which you highlight in the Annex, which has gone to raise some good money for charity. So good work there. One question on Courvoisier again. Are we through the last really disrupted period for Courvoisier? Because if my numbers are right, you've probably done EUR 13 million, EUR 14 million of organic sales through on Courvoisier. And should that be normalizing into the fourth quarter? Or should we still expect to see continued strong momentum as that brand comes back? Because certainly, the EUR 99 million was a bit ahead of what I was forecasting for the 9 months. Paolo Marchesini: I think as we progress further into the upcoming quarters, the shipment performance of Courvoisier will basically mirror the depletion and the sell-out trend. So it's clearly at the beginning, we benefited from the first time consolidation of Courvoisier. So I think most of that is behind us. Chris Pitcher: The destocking phase? So it's on a more normal comp in the fourth quarter. And are you still expecting to release -- continue to release cash from the inventories given the levels they were at? Paolo Marchesini: On the inventory side, we -- as we said that, we have a lot of aging liquid. Over time, we will more than selling liquid, contain the intake of new aging [indiscernible]. So yes, it's directionally positive. It will take time to absorb the stock we've taken on board as we bought the brand. It was more than EUR 440 million. Operator: The next question is from Alessandro Tortora of Mediobanca. Alessandro Tortora: I have 2 questions. Okay. The first one, if you can comment a little bit on the debt-EBITDA trajectory, considering the leverage ratio you already got in the 9 months, if we can assume, let's say, that you're going to stay below the 3x by year-end or if we need to think about any seasonality or any, let's say, factor that should bring this ratio, let's say, again above the 3x. This is the first question. The second one is just a follow-up on Cognac. If you can comment a little bit, let's say, the recent change on the duty-free side and if you expect also on Courvoisier side, a significant, let's say, impact on the reorder on the duty-free. Paolo Marchesini: On the leverage ratio target, we're not giving any guidance. We have also to take into consideration the fact that in Q4, we still have a significant tail of extraordinary CapEx. The total amount of CapEx is EUR 200 million. And in the first 9 months, we've already spent EUR 120 million. So there is EUR 80 million cash outlay coming from extraordinary CapEx in Q4. Yes. But directionally, you're right in saying that the company generates a lot of free cash flow, one of the highest free cash flow to EBITDA conversion in the sector. Average for the last 5 years at about 60%. So we -- you can easily calculate the deleverage potential in coming years. Simon Hunt: Okay. And Alessandro, sorry, I couldn't quite hear the question. [indiscernible] We got the recent change in duty-free on Courvoisier and others, but we aren't sure what the question was? Alessandro Tortora: Yes, it was related to China. I know it's, let's say, is not so big for you. But if we look at, let's say, the GTR and the restock that is now possible according to the recent tariff agreement. If you see, let's say, any restock for Courvoisier in the coming months? Simon Hunt: Right. So yes, so I couldn't hear you. Look, for us, as you know, look, China is very small for Courvoisier and so is the Asian duty-free at this stage. So it's not a big driver for us. I think China represents less than 2% of Courvoisier sales. So the key thing we want to look at in GTR as part of our relaunch plan of Courvoisier across the region is the strategic role that GTR plays as a shop window for the consumer. So I think that's more where we'll see it with part of the new strategy. But there's no -- we're not looking at a restock and it would be negligible in our case anyway. Operator: [Operator Instructions] There are no more questions registered. Would you like to make any closing remarks? Simon Hunt: Yes, I would just very quickly, thanks very much, and look forward to seeing many of you next week. Just to reiterate, all of your thanks to Paolo again. A remarkable run and a remarkable set of earnings reports, and [indiscernible] to him next week. So thank you again, Paolo. And we'll see you next week. Thanks for your time. Paolo Marchesini: Bye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Greetings. Welcome to Spok Holdings Third Quarter 2025 Earnings Results Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Al Galgano, Investor Relations. Thank you. You may begin. Al Galgano: Hello, everyone, and welcome to Spok Holdings' Third Quarter 2025 Earnings Call. I am joined by Vince Kelly, Chief Executive Officer; Mike Wallace, Chief Operating Officer; and Calvin Rice, Chief Financial Officer. I want to remind everyone that today's conference call may include forward-looking statements that are subject to risks and uncertainties relating to Spok's future financial and business performance. Such statements may include estimates of revenue, expenses and income as well as other predictive statements or plans, which are dependent upon future events or conditions. These statements represent the company's estimates only on the date of this conference call and are not intended to give any assurance as to actual future results. Spok's actual results could differ materially from those anticipated in these forward-looking statements. Although these statements are based upon assumptions that the company believes to be reasonable, they are subject to risks and uncertainties. Please review the Risk Factors section relating to our operations and the business environment, which are contained in our third quarter 2025 Form 10-Q and related documents filed with the Securities and Exchange Commission. Please note that Spok assumes no obligation to update any forward-looking statements from past or present filings and conference calls. With that, I'll turn the call over to Vince. Vincent Kelly: Thank you, Al. Good afternoon, everyone, and thank you for joining us for our third quarter 2025 earnings call. I'm proud of the performance our team was able to deliver in the third quarter, especially after the exceptional performance in the second quarter, where we saw several new customer contracts get accelerated into that period and despite the seasonal headwinds we typically face in the slower summer months. On a year-to-date basis, we continue to make progress in key performance areas, including net income, adjusted EBITDA and cash generation, wireless ARPU trends, software revenue growth and gross backlog levels. Based on our solid performance through the first 9 months of the year and our visibility into our very robust product sales pipeline, we are reaffirming our guidance. We have advantages over the competition in our core healthcare software contact center space, including long-term and deep relationships with the top healthcare systems in the nation who continue to purchase from us on a regular basis, offering customers an integrated platform as opposed to multiple point solutions and continuing to invest in and enhance our platforms consistent with what our customers are requesting. Spok is viewed as an indispensable partner by many of our customers. In other words, they need Spok to efficiently carry out their day-to-day operations. Later in the call, Mike Wallace, our Chief Operating Officer, will lay out for you the product offerings that we have built that we believe will allow us to create significant shareholder value into the future. Let me also take this opportunity right upfront to remind everyone that our mission remains solidly unchanged. That is, to generate cash and return capital to our stockholders over the long term while responsibly investing in and growing our business. As we've demonstrated through our performance since our strategic pivot more than 3 years ago, we believe we are on a sustainable path to achieving that goal. So today, we'll share with you an update on how our strategic business plan is progressing in support of this goal as well as our financial results for the quarter. I'll start by reviewing the agenda for today's call. The order will be as follows: we'll begin by providing a review of our company performance for the quarter. I will then turn the call over to Mike Wallace to review some of our quarterly sales and operational highlights as well as give you an overview of our product offering. Then our Chief Financial Officer, Calvin Rice, will review our third quarter financial highlights and financial guidance for 2025. I'll then wrap the call, and we'll take your questions as time allows. As I said upfront, we're proud of what the Spok team has been able to accomplish through the first 9 months of the year. Year-to-date highlights include strong levels of adjusted EBITDA, which covered our quarterly dividend and capital expenditure requirements; continued sales pipeline growth, providing confidence in our outlook; an increase in cash balances, which we believe hit a low point in the first quarter and will continue to build through the remainder of the year, consistent with past year trends; a 5.2% increase in software revenue that includes triple-digit growth in managed services revenue on a year-over-year basis; improved wireless trends as net unit churn dropped by 20 basis points from the prior quarter; continued expansion of our wireless average revenue per unit, further reflecting the impact of prior pricing actions and sales of our encrypted HIPAA-compliant alphanumeric GenA pager; and continued discipline in expense management as we saw flat year-over-year adjusted operating expense levels while supporting the increase in software sales and making the necessary investments in product research and development to fuel future growth. In short, we're very pleased with our performance in the first 3 quarters of the year and believe that these results provide a solid springboard for the remainder of the year and for 2026. In the third quarter of 2025, we generated more than $6.6 million of adjusted EBITDA, which more than covered the $6.4 million we returned to our stockholders in the form of dividend distributions. At the same time, we maintained our third quarter research and development investment and believe we are on track to invest approximately $12 million in product research and development in 2025. We believe this investment will fuel future software revenue growth and that our extensive experience selling and operating our established communication solutions will continue to create significant value for stockholders by maximizing revenue and cash flow generation. As I mentioned, Spok has a proud legacy of creating stockholder value through free cash flow generation, and we intend to continue this track record. In fact, over the last 20 years, Spok has returned a total of more than $720 million to our stockholders either through our regular quarterly dividend, special dividends or share repurchases. More recently, since we announced our strategic pivot back in early 2022, Spok has returned nearly $100 million to our stockholders. When you take into consideration our current cash balance, distribution to stockholders, share repurchases, debt repayments and acquisitions since our inception, Spok has generated nearly $1.1 billion of free cash flow. Maximizing cash flow over the long term supports the 3 major tenets of our strategy, which include: number one, continued investment in our wireless and software solutions; number two, continued disciplined expense management; and number three, a stockholder-friendly capital allocation plan. Before I turn the call over to Mike, let me take a moment to review Spok's significant positive attributes. As a leader in healthcare communications, we maintain the largest paging network in the United States, we control significant and valuable narrowband personal communication spectrum, we have a blue-chip customer base of more than 2,200 hospitals, we have created a large portfolio of intellectual property via strategic R&D investments, and we continue to generate significant cash flow and return to our investors on a quarterly basis. Spok delivers the critical communication solutions hospitals rely on every day. Our Spok Care Connect suite of solutions integrates with existing workflows in the hospital and enables them to deliver information quickly and securely into the hands of clinicians who need to act on it wherever they are and on whatever device they're using. From the contact center to the patient's bedside, Spok Care Connect provides directory details, on-call schedules, staff preferences, secure texting and a lot more. We have over 2,200 healthcare facilities as customers, representing the who's who of hospitals in the United States. We have built our solutions over many years and have long-standing valuable customer relationships. And as you probably saw earlier this month, we announced that 9 of the 10 children's hospitals named to the 2025 and 2026 U.S. News & World Report Best Children's Hospitals on a roll, rely on Spok industry-leading secure healthcare communication solutions to support care collaboration and deliver outstanding patient experiences. For over a decade, nearly every hospital named to the Children's Best Hospitals on a roll has relied on Spok solutions. And this news comes on the heels of our announcement that 18 of the top 20 adult hospitals on the U.S. News & World Report listed also rely on Spok. This industry-leading reputation is coupled with the financial strength that nearly 80% of our revenue is reoccurring in nature, and we are a company with no debt, which provides us with significant flexibility. We're a pioneer in healthcare communications with a best-in-class product offering and have built an industry-leading reputation over the years. So at this point, I'd like to hand the call over to Mike to outline our sales performance and give you a brief overview of our product offerings. Mike? Michael Wallace: Thanks, Vince, and thank you, everyone, for joining us this afternoon. As Vince pointed out, timing issues impacted bookings levels during the third quarter after an exceptionally strong second quarter. However, on a year-to-date basis, we continue to make great progress in a number of key areas. As we discuss each quarter, we continue to build a solid financial platform and stockholder-friendly capital allocation strategy, and we remain true to our mission of being a global leader in healthcare communications. Today, I'd like to briefly provide you with a little more visibility into Spok's industry-leading product platform and what gives us confidence as we move forward. The cornerstone of that platform is Spok Console, which streamlines operator workflows and ensures rapid emergency response; Spok Messenger, which integrates with clinical systems to deliver alerts and notifications to the right person on the right device; and Spok Mobile, which empowers care teams with secure HIPAA-compliant messaging at their fingertips. Let's begin with Spok Console, being a secure healthcare contact center solution that serves as the central hub for hospital operator workflows. It gives operators the tools they need to respond promptly to every call and process priority communications. By uniting disparate data systems into a centralized digital directory, Spok Console ensures operators have fast access to physicians, patients and staff and that the right message reaches the right person at the right time. With a modern user-friendly interface, it integrates with the organization's PBX and leading UCaaS systems. Call center agents manage calls directly through the Console software, guided by intuitive screens and color-coded directories that simplify lookups and streamline communication. Spok Messenger is an FDA 510(k) cleared clinical alerting management solution that delivers critical information and updates from nurse call systems, patient monitors, clinical systems and other sources directly to the right care team members on their preferred devices, including pagers, smartphones and voice over IP devices. It intelligently routes, prioritizes and escalates alerts based on roles, schedules and rules, helping to reduce delays and improve response time. Integrating with existing hospital systems, Spok Messenger enables seamless, secure communication across departments and devices. It also delivers near real-time visibility, empowering teams with the transparency they need to track alert delivery and respond with confidence. Designed for reliability and HIPAA compliance, Spok Messenger supports better workflow efficiency, reduces alert fatigue and enhances patient safety. And lastly, Spok Mobile is a secure HIPAA-compliant messaging app that enables clinicians and staff to collaborate quickly and reliably. It integrates with hospital directory information, clinical monitoring systems and on-call schedules to ensure messages and alerts reach the right person on the right device. Spok Mobile supports message escalation based on established priorities and allows users to send notifications directly to providers' mobile devices as an alarm management option. It also maintains a detailed message history to ensure information is readily available for auditing purposes. With role-based messaging, group communication and delivery confirmation, Spok Mobile streamlines workflows and helps care teams stay focused on patient care. In short, we are proud of the product platform that the Spok team has built and believe that these offerings will create significant sales opportunities and drive shareholder value into the future. With that, I'd like to turn the call over to Calvin to review the financials. Calvin? Calvin Rice: Thanks, Mike, and good afternoon, everyone. I would now like to take a few minutes and provide a recap of our third quarter 2025 financial performance, which we reported today. I encourage you to review our 10-Q when filed as it includes significantly more information about our business operations and financial performance than we will cover on this call. Turning to our income statement. In the third quarter of 2025, GAAP net income totaled $3.2 million or $0.15 per diluted share, down from net income of $3.7 million or $0.18 per diluted share in 2024. In the third quarter of 2025, total GAAP revenue was $33.9 million, down from total revenue of $34.9 million in the prior year. Revenue in the current year quarter consisted of wireless revenue of $17.8 million and software revenue of $16.1 million compared to $18.3 million and $16.6 million in the prior year, respectively. With respect to wireless revenue, we saw a 20 basis point sequential improvement in quarterly net unit churn in the third quarter at 1.4%, down from 1.6% in the prior quarter. ARPU increased $0.24 or 3% from the prior year, primarily driven by the continued impact from pricing actions and to a lesser extent, continued sales of our GenA pager. As a reminder, we implemented a 3.5% price increase in September that impacts roughly 50% to 60% of units in service, and that will be fully reflected in fourth quarter revenue. While we believe the demand for our wireless services will continue to decline on a secular basis, as reflected in declining pager units in service, we are hopeful that our focus on pricing and other initiatives like the GenA pager will continue to further offset revenue lost through pager unit decline. Also, we closely manage the expense base for the wireless infrastructure to limit the impact of revenue loss. Turning to third quarter software revenue. License and hardware revenue totaled $1.5 million compared to $2.4 million in the same period of 2024 as a result of lower software license bookings. Total professional services revenue in the third quarter was $5.5 million versus $4.8 million in the third quarter of 2024, up nearly 13% from the prior year period and more than 26% for the first 9 months of 2025. Our outperformance in professional services has been primarily driven by the triple-digit year-over-year growth of our managed services. This service offering provides customers with all necessary implementation and upgrade services for any Spok software products they own over their multiyear term, which is typically 3 years. While managed services are likely to be cost prohibitive to our smaller customers, we continue to see great traction with enterprise-focused customers. Adjusted operating expenses, which excludes depreciation, accretion and severance and restructuring costs, totaled $28.5 million in the third quarter, largely unchanged from the prior year period. During the quarter, increases in research and development expenses, selling and marketing expenses and the cost of product were offset by declines in technology operations expense and G&A costs. Technology operations expense continues to decline as we manage costs in relation to our declining wireless unit totals. Adjusted EBITDA in the third quarter totaled $6.6 million as compared to $7.5 million in the prior year period. Despite the year-over-year decline, adjusted EBITDA levels were sufficient to cover our quarterly dividend. We ended the third quarter with $21.4 million in cash and cash equivalents, which grew from the prior quarter as anticipated. Based on our current outlook, we anticipate cash balances to continue to grow through the end of the year. Moving on to guidance for 2025. Based on performance in the 3 quarters of 2025, we are reaffirming our financial outlook in the year for revenue and adjusted EBITDA. As a reminder, the figures I'm going to discuss today are included in our guidance table in the earnings release. For the year, we expect total revenue to range from $138 million to $143.5 million. Included in this financial guidance is wireless revenue ranging between $71.5 million and $73.5 million and software revenue range between $66.5 million and $70 million. Lastly, adjusted EBITDA is expected to range from $28.5 million to $32.5 million. With that said, I will now turn the call back over to Vince. Vincent Kelly: Thank you, Calvin, and thank you, Mike. On a final note, I'd like to again point out that I'm proud of the performance our team was able to deliver in the third quarter, especially after the exceptional performance in the second quarter and despite the seasonal headwinds we typically face in the slower summer months. We believe we can continue to grow our franchise value while returning capital to stockholders. We have a long-term organic growth engine in our software solutions through Spok Care Connect. We also maintain a source of strong recurring revenue in our wireless service line, which remains relevant and important to health care customers and supports critical communications even during network events when cell phones and other technology fail. We run the largest paging offering in the world and have integrated it with our software operations. We believe that the strong combination of these 2 product lines will take us into the future and create significant shareholder value. Before I open the call up to your questions, I'd like to thank our stockholders for their continued support. We appreciate your interest in Spok, and we look forward to updating everyone again when we report fourth quarter and full year results in February of 2026. Thank you for joining us this afternoon, and have a great day. Operator, you may now open the line to questions. Operator: [Operator Instructions] Our first question is from Anderson Schock with B. Riley Securities. Anderson Schock: So could you talk about the 55% year-over-year decline in licensing revenue? I guess, what drove this and whether we should expect to see similar license revenue going forward? Calvin Rice: Anderson, it's Calvin. I mean, I think we've mentioned this before on calls, license revenue is going to be lumpy because the vast majority of it is directly related to sales. And from a quarter-to-quarter basis, given the enterprise nature of a lot of these sales, those can push and pull. Obviously, we pulled a lot of that into the second quarter. We had some big deals from the third quarter push into the fourth quarter. And so from that regard, no, I don't think it's an expectation that should be set that we're going to see a decline. I do think the expectation should be that there is variability in the license revenue from one quarter to the next. Anderson Schock: Okay. Got it. And then you had a really strong second quarter for new software contracts and software operations bookings. I guess what led to the weaker third quarter? And how should we think about the fourth quarter? Is there any seasonality we should be thinking about that impacts the timing of these contracts? Vincent Kelly: Yes. We've looked at this closely, and we're very bullish on our outlook. That's why we reiterated our guidance. We're expecting to have a strong fourth quarter. We went back and looked at since the pivot, which was starting in the second quarter of 2022, we haven't missed a quarterly forecast until this quarter. We did miss our internal operations bookings forecast. Embedded in that was license. We're still forecasting license revenue grows on a year-over-year basis. Our company total revenue will grow on a year-over-year basis. And so we're looking for a strong fourth quarter here. We've got a very robust pipeline. We've got some very large deals in the hopper right now that we're working. We get a couple of those, and we're going to turn in another very strong quarter. We turned in $8.3 million in operations bookings in the first quarter, $11.6 million in the second quarter. We hit that air pocket, which was odd because July started off pretty well in the third quarter, but August and September were very slow. Some deals slipped. Like I said, we've got some large deals in the pipeline. We're very bullish, and we expect to close them this quarter and report a good fourth quarter when we report at the end of February. Anderson Schock: Okay. Got it. And then do you still anticipate a 6% to 8% increase in R&D for 2026? And then could you just detail the focus of this investment? And when should we expect to see revenue contribution or margin improvement from these investments? Vincent Kelly: So R&D this year is going to be a little bit over $12 million. We've given the team more money to invest this year than they had last year, about $1 million more. Next year, it will be a little over $13 million. So about $2 million more a year on a run rate over what our baseline was in 2024 and prior. And a lot of that's going to the consolidation of our Care Connect suite, upgrading it, adding enhancement, adding functionality. And you'll see going forward in each quarter of 2026, some benefits from that. It will result in more new logo. It will result in increased upgrades and multiyear engagements. We're not doing this without the anticipation that we're going to get good benefits from that. Operator: With no further questions, I would like to turn the floor back over to Vince Kelly for closing comments. Vincent Kelly: Okay. Folks, thanks for joining us this afternoon in our third quarter earnings call. We look forward to talking to you in a quarter at the end of February with much better results. Everyone, have a great day. Operator: Thank you. This does conclude today's conference. You may disconnect at this time, and thank you for your participation.
Roger White: Well, good morning, ladies and gentlemen, and welcome to the C&C Group FY '26 Half Year Results. My name is Roger White, and I'm joined today by Andrew Andrea, CFO. I'm sure you will all know that in due course, Andrew will be swapping barley apples and wheat for tomatoes and pepperoni as he moves from drinks to food and from a wholesaler to operator moving into Domino's Pizza CFO. There will be plenty of time to wish Andrew Bon Voyage in due course. In the meantime, we have plenty to do in the period he's still with us. And I know that Andrew is fully focused on C&C Group across the whole of that period. Today, we will start with the highlights of the last 6 months before I hand over to Andrew, who will give you a detailed review of the financial performance in the first half of '26. I will then update on our current thinking regarding strategy, followed by a brief operational review of the first half, a closing summary and outlook before we move on to some Q&A in the room. Now moving directly on to Slide 4 in your packs. We've delivered a solid performance across the first half of FY '26. From a market context perspective, it's been a mixed period. The well-publicized challenges for the hospitality sector have accelerated across the past 6 months. Increased operating costs and mixed demand has impacted most operators. However, some decent summer weather certainly lifted the mood across the sector at certain times across the summer. However, as welcome as the good weather was, it did not lead to positive volume performance across the total market. At C&C, we focused on improving our efficiency, driving out costs and delivering great service to our customers. This has underpinned our performance in the period, leading to a 4% increase in our operating profit. Both our reporting segments, brands and distribution improved margins, and we continue to deliver strong free cash flow, which in turn has supported our capital allocation choices with further returns to shareholders via increased dividends and further execution of our share buyback plans. Revenue in the period appears subdued, but reflects in the main, the transition of contracted Budweiser Brewing Group volume out of the group alongside some thinning out of some lower-margin contract and customer volumes, something which is likely to continue as we look forward and focus our efforts on improving margins, in particular, in the wholesale part of the business. It's been a busy 6 months for the teams inside the business where we have worked hard on business improvement across control, simplification and business process redesign, alongside team development and our initial actions on brand development and innovation. Improvement in C&C is underway, but there is much to do, and it will take time to feed through to our performance. I would like to take this opportunity to thank all 2,850 colleagues at C&C Group who continue to work hard to serve and support all our customers and consumers at the same time as we seek to improve the business. Now I'm going to hand over to Andrew, who will take you through the detailed financial review for the first half. Andrew? Andrew Andrea: Thanks, Roger. So moving on to the next slide and starting with the headline financials. As Roger just alluded to and as we reported back in September, revenues were 4% behind last year, and I'll come back to that in a moment. However, we've made operating margin improvements in both our Branded and Distribution segments. That's helped drive group margins up 40 basis points and consequentially, that's driven positive momentum in each of the key profit metrics, most notably operating profit up 4% and double-digit growth in both PBT and earnings per share. From a cash perspective, we continue to be strongly cash generative. There have been a couple of one-off items, which I will expand on later, but the underlying cash flow of the business continues to be strong and leverage is in line with last year at 1.1x. So a business continuing to generate strong cash flows underpinned by earnings progression. Turning now to revenues on Slide 7. But as you can see from the chart, the majority of the revenue decline was anticipated and relates to the loss of the BBG distribution in Ireland. Just to remind you, this will annualize in January. So there's a little bit more of this to come through in the next 3 months or so. In our underlying distribution business, as widely reported in the market, national customers are reporting like-for-like absolute sales growth, but volume decline in drink, and that's reflected in our own distribution performance. And we are seeing some rationalization in the estates of many of our big customers. In the U.K. on-trade, cider has underperformed. Magners and Orchard Pig have seen lower sales this year. Roger will touch on off-trade progression, but on-trade is harder to land, and that's reflected in the sales performance. But encouragingly, we've seen an improvement in revenues in both Bulmers and Tennent's, our 2 core brands overall. So moving on to earnings. On the next slide, please. Thank you. We've seen operating margin percentage improvement in both Branded and Distribution. And this is driven by 2 key areas of focus in our business across both segments. The first of those is a focus on efficiency through our Simply Better Growth program, driving costs lower through the organization. But secondly, a much more disciplined approach to trading. So what we mean by that is, we want to run a business with sustainable earnings at an appropriate level of margin. We will actively exit things that don't earn us money. It's the classic failed is vanity, profit sanity equation. But by applying that, as you can see, that margin growth has driven absolute operating profit growth in both of our trading segments. Turning now to costs on Slide 9. By way of reaffirmation, our FY '26 costs are in line with our expectations. Modest inflation is the underlying theme for this year. And for FY '27, we are starting to hedge some positions. But as things currently stand, we're anticipating another year of modest inflation overall. There's nothing at this stage that is not in line with our expectations. So moving now on to cash flow and balance sheet. From a cash perspective, as I mentioned earlier, we've seen strong cash generation in the period. But as you can see, we've got a couple of one-off items bolstering that cash flow overall. First of all, from a CapEx perspective, our program this year is second half weighted. We're still guiding full-year CapEx of around EUR 18 million to EUR 20 million, and we've had a GBP 10 million benefit on working capital. I'd expect that to level out in the second half year. So GBP 15 million of that GBP 20 million uplift should flow back in H2. We have closed out some cash positions with the revenue that has given us an income tax benefit in the period. But overall, our aspiration is for free cash flow to be at a similar level to that which we generated in FY '25. Moving on now to debt and leverage. Our borrowings have increased slightly in the period. I'd expect that again to level off in the second half year. We've closed out a couple of lease negotiations on a couple of our bigger depots. So our IFRS 16 obligations have increased in the period. But our leverage, and just to remind you, our focus is on borrowings to EBITDA on a pre-IFRS basis is at 1.1x, in line with last year. And by way of reminder, our financing is long dated with headroom. So we have an RCF and term loan extending out to January 2030, and a couple of private placement notes maturing in 2030 and 2032. So we've got a prudent level of leverage, headroom against our facilities and no short-term refinancing requirements, which gives us cash and capital flexibility. So what does this all mean, then wrapping this up for capital allocation. Well, our primary driver of increased cash generation is growing our earnings in the medium term through growing EBITDA. But importantly, our underlying cash flows outside that are quite predictable. So working capital is pretty stable. There are opportunities, most notably rationalization of our SKU base. Our CapEx is modest in nature. We're forecasting somewhere in the region of EUR 15 million to EUR 20 million of CapEx year in and year out. And because of the finance facilities we've got, our finance costs are stable, and we have a stable effective tax rate overall. What that means, therefore, is we retain and maintain our aspiration of a business generating at least EUR 75 million of free cash flow in the medium term. And that capital allocation priority is to honor our commitment to return EUR 150 million back to shareholders in the 3 years to FY '27. And that will be driven through a combination of growing our base dividend. We've announced a 4% increase in our interim dividend and the option of either share buybacks or special dividends. Clearly, our preference is for the former, and we completed the latest EUR 15 million tranche of share buybacks in September of this year. So including the interim dividend, we've announced just over GBP 90 million of returns to date. So we've got around GBP 60 million to go. If we add in our dividend expectations, that means over the next 18 months, we've got around GBP 30-or-so million of buybacks to achieve in that 18-month period. And in generating that cash flow, coupled with our financing flexibility, we do have the ability to invest in strategic growth opportunities should they arise. And clearly, that will be done on a case-by-case basis and returns driven. Underpinning all of that is a target leverage of 1x earnings overall in the medium term. But what this demonstrates is that we have a business that's generating predictable cash flow. We've got very clear capital allocation methodologies underpinned by a low level of leverage overall. That's everything from me. I'll now hand back to Roger. Roger White: Thank you, Andrew. I'd now like to take a few minutes of your time to update on strategy before I talk through a brief operational review of the first half. So turning to Slide 14 in your packs. It's now around 9 months since my first day at the C&C Group, that time has certainly flown by. I've spent most of my time during the last 9 months just building my understanding of the business and the markets we operate in. It's true to say that we certainly have some complexities as a business, but we also have a range of opportunities and balanced with challenges. Let me update you on where we are thinking regarding the direction of travel of the C&C Group strategy. And if I can start by looking backwards to just set some context. C&C Group has been built over time via acquisition of multiple businesses to create a scale business across multiple markets and multiple geographies. However, integration has not been prioritized in this business build. So systems, policy, procedure and even cultures have in many ways not been harmonized. We, therefore, operate in multiple business models within a group structure, which at times has been unclear in its strategy. In addition, we struggle to realize the benefits associated to our scale. In recent years, to address this, the stated objective has been to create an integrated one C&C approach, attempting to push our group into one operating model. However, this has not been fully delivered due to the complexities of the businesses and the lack of historic integration that I mentioned a moment ago. So we currently operate in a slightly uncomfortable middle ground, neither as an integrated group nor as discrete business units. This reflects in our cost base, it reflects in our controls and it reflects in our focus as a business. We do, however, believe that scale alongside our brands and wholesale model can bring significant benefits in the markets we operate in and thus supports the principle that the C&C Group has a rational role to play in the creation of value across the beverage markets we operate in. Moving on to Slide 15. As we look forward, our immediate priority is to evolve how we operate as a group, simplifying and focusing on execution as we aim to create value from our scale and expertise, both centrally and locally. Our view is definitely that the beverage sector is a great part of the consumer goods market. It has deep consumer penetration across multiple occasions and has products and brands for everyone, whether locally or globally and whether consumed in a hospitality venue at home or even on the go. We can develop our position in this market as a highly credible brand owner and developer, supported by our position as an experienced and sizable wholesale operator. By leveraging our enviable scale alongside our market-leading reach, range and service, supported by our industry-leading category expertise, specifically associated to the hospitality sector. We need to develop further the winning consumer and customer propositions that will drive our business forward successfully. In the meantime, our operating segments will remain Branded and Distribution. We have many things to occupy us as a business in the coming period, but I would boil them down to these 3 simple objectives: simplifying our core central operations, processes and reducing our costs, growing volume in our branded segment and improving margin in our distribution segment. To achieve this, there are multiple actions required, some of which are already underway, others we will develop in the coming months. This will lead to an updated set of performance outcomes and longer-term performance targets, all of which we will set out in May 2026. I believe this evolutionary approach will yield the best outcome for shareholders in the short and medium and long-term and lead to the delivery of our longer-term strategy from a much more solid starting point. Now turning to Page 16. As we look forward and plan how we'll shape and grow the business, one thing underpins all of our ambition, and that is the building of a winning culture where performance and people go hand in hand. To support our evolving strategy, we aim to create an agile, inclusive and performance-driven culture that supports our local hero challenger status, providing our consumers and customers with a great experience, whether that be associated to our brands, our supply or even corporately. As you can all see from the slide, there are a number of work streams across the organization, talent, leadership, communication and capability, all of which tie into our cultural development and all of which are necessary to meet our ambition. However, in the very immediate term, we are still very much fixing the basics across our business to ensure that we are building from the most solid foundations. These foundations will support our operating structures and our growth ambitions as we progress the strategy development of our business. Now turning to Slide 17. Moving on to review the last 6 months, let me briefly update on markets brands, operations and our responsibility agenda. Firstly, turning to consumers and markets on Page 19. Consumer behaviors remain significantly influenced by economic factors. Confidence remains fragile. And as costs in hospitality have risen and consumers have had to shoulder the burden for this, it has led to some volume issues as consumers simply cannot afford to enjoy hospitality occasions as frequently as they historically have. In addition, when they do go out, value for money takes on even more importance. The drive for value has also impacted choices, not only where to visit, but what to consume while you're there. This is manifested in the higher proportion of sales in long alcoholic drinks products, somewhat to the detriment of wine and spirits. This picture speaks to the complexity that exists in our markets and reinforces the importance of our portfolio breadth and market coverage as a business. Now our branded portfolio is performing well in these challenging market conditions, supported by our strong regional routes to market. Our core brands have a unique long-standing importance to consumers within the markets they operate, and we are only just starting to tap into the possibilities of developing our brands further, whether it's in our well-known core or in areas where we currently have a smaller, more niche presence. As I mentioned earlier, we are confident in the potential of the wider beverage market to sustain long-term growth, and we believe there is potential for C&C to grow within that context. Now turning to Slide 20 and specifically to talk about some of our core brands. 2025 marks a major milestone for the Tennent's lagger as we celebrate 140 years of brewing Scotland's favorite beer. Despite market headwinds, Tennent's has shown remarkable resilience, broadly maintaining its market share across Scotland. In the off-trade, we have widened the gap to the 2 nearest competitors, while in the on-trade, our rate of sale is 2.5x that of our nearest competitor. Such as the strength of the brand performance, Tennent's is now a top 10 lagger brand by value across GB as a whole, outperforming a number of leading global brands. Tennent's does play a unique role in Scottish culture, and we have continued to be at the heart of what matters to our consumers from rewarding Scotts for the best and worst Scottish summer weather being part of the conversation and the experience at the Oasis concerts as the tour of the year arrived at Murrayfield. In fact, across the summer set of concerts in Scotland's 2 national stadia over 365,000 pints of Tennent's were enjoyed. Our last financial year-end review, I said we would bring innovation back to the brand. And I'm delighted to say that we've just launched Tennent's Bavarian Pilsner [indiscernible]. And this is a 4.7 ABV limited edition beer with a distinctive Bavarian flavor coming to the market this month. This is the first of a number of planned launches for the Tennent's brand built through our new innovation team and process. In addition, we brought a significantly improved reformulated Tennent's Zero to market alongside an expanded pack range for Tennent's Light, critical to the growing number of adults and GB saying they are moderating. Tennent's is an amazing brand with so much more potential still to be unlocked. Moving on to Slide 20 to talk about Bulmers. Bulmers has delivered a strong first half with total revenue up more than 6%, driven by focused brand investment and a revitalized brand communication strategy. In the on-trade, Bulmers original growth accelerated across the reporting period, up over 10% in the 3 months to July, benefiting from the undoubted spell of decent summer weather, while in the off-trade, it outperformed the cider category with growth of 10% and a 1.8% share gain. Power brand, as measured by Kantar, is up 9.5% year-on-year, reflecting the impact of the above the line and digital campaigns with its our time advertising returning for a second year backed by a 33% increase in media spend, helping Bulmers become the most salient long alcoholic drink brand in Ireland. We backed Bulmers Zero with Tonight's Zero, Tomorrow's Hero campaign, reaching almost 3 million consumers with both strong growth and share growth in the nonalcoholic cider category. Bulmers Light continues to grow with volume up, meeting the growing demand for lower calorie options. Like Tennent's 2025 was also a milestone year for Bulmers as the brand turned 90. We celebrated, as you would imagine, in both the trade and with consumers and employees. So in its 90th year, Bulmers is in good health, growing, innovating and connecting with consumers. Now moving on to Magners on Slide 22. I told you earlier in the year that we were at the beginning of a journey with Magners, and I'm pleased to say that we are on our way, seeing some positive initial impacts from our efforts. However, this is a journey that will take time and commitment. In the period, we have made our largest brand investment in over a decade, which has seen the magnetism campaign begin a renewed energy to the brand and consumers. It's already driving some strong brand health improvements in awareness and consideration and the social engagement scores are moving in the right direction. This marks a real shift in momentum after some very challenging years. Magners remains the #1 package cider in GB on-trade, selling over GBP 90 million in the last 6 months. So we do have scale, but we now need to drive momentum as we improve consumer awareness and drive brand reappraisal. We have new packaging that has now been rolled out and is driving increased consumer perceptions of quality and our focus on pack mix is beginning to bear fruit. Recovery journey for Magners is only just underway. Slide 22 highlights a number of consumer actions made to build brand momentum, including a number of PR-led activities, whether that's in concerts such as Belsonic in Northern Ireland, where we reached an audience of over 200,000 people with the Magners brand. Magners reach continues to grow globally, exported to 45 countries and including the U.S.A, I couldn't resist the picture of a Victoria's Shane Lowry enjoying Magners after clinching the rider cup for Team Europe. Magners is therefore, regaining its edge with renewed brand energy, improved consumer perception and a clear plan to drive value and growth into FY '27. Now moving to Slide 23. Our premium portfolio continues to grow, driven by Menebrea's strong performance in H1. On-trade volume sales are up 8%, with significant growth, particularly in Scotland. For Menebrea, we focused on building awareness and specifically food credentials, particularly through a strategic partnership, including with the well-known celebrity chef, James Martin. This has helped us drive our awareness now at 13% in GB, but a significant awareness in Scotland of over 28%, cementing a key point of difference, which is based on the insight that 73% of [at-home] beer serves are now accompanying food. We've launched new pack formats supported by our biggest off-trade investment to date, and we've delivered the strong growth that I mentioned. We've anticipated across multiple channels from [indiscernible] and digital screens in stores through to a traditional Italian beer window in London, which has brought a touch of Florence to the streets of London and driven national media coverage. Meanwhile, our exciting modern new cider brand Outsider is gaining momentum. It's now the #2 cider brand in Northern Ireland behind -- in the on-trade behind Magners, and it's expanded into Scotland with nearly 300 listings. In the off-trade, our new 4 packs and 10 packs have been listed in over 700 stores in H1, building on the strong digital-first marketing and consumer engagement position. So Menebrea and Outsider are proving the case that our premium and challenger brands, can drive growth, relevance and value across the portfolio. Now turning to the distribution business on Slide 24. Our distribution business, specifically Matthew Clark Bibendum operates a full-service composite supply model across the U.K. hospitality industry from 11 warehouses, it services 12,000 customer delivery points with a range of over 8,000 SKUs. I talked when we last met about a Road to Recovery for MCB. And I am delighted to confirm that if the measurement of recovery relates to customer service, choice and value, then we are in a much improved position. The tangible measure of service performance is now fully recovered, and we are now firmly into the phase of improvement in our operating efficiency from a strong base level of service. Whilst we have seen our product sales mix move in the period in line with market trends, we are starting to see the benefits associated to our technology investment in this area, such as our sales force efficiency and our ability to improve our customer performance, which is beginning to take shape. This is likely to see some short-term attrition to our customer numbers as we move out of less commercially attractive business and seek mutually beneficial longer-term commercial supply partnerships with our customers. This remains a highly competitive sector, but we're working to ensure we are increasingly capable of providing winning customer propositions at the same time as we provide our branded partners with unrivaled on-trade access. Turning to Slide 26. Let me give you a short update on our sustainability and responsibility performance. We see our sustainability agenda as a core part of our business operations and simply just part of daily life at C&C. We continue to make good progress in our decarbonization journey across the group with the latest major initiative being the anticipated investment in an e-boiler at our Wellpark Brewery next year to replace our current usage of gas at Wellpark with sustainably generated electricity. This initiative will be a major contributor to our decarbonization plan, but obviously, alongside the multitude of smaller but important actions we take every day. Across the group, our commitment to safety is absolute. In the period, we launched our health and safety Center of Excellence at our Birmingham site, where we train and develop our safety activities for rollout across the wider group. This initiative underpins our improvement plans, ensuring our development of safe working practices are successfully trained across the whole business. As a group, we continue to invest in technology and assets that meet our responsibility agenda, including the important enabling investment in dealcoholization technology to support our innovation drive into low and no. This exciting investment will be made at Wellpark and is expected to be operational during the course of next financial year. It will give us a technical edge in the production and delivery in this critical product area. So in the broadest sense, we continue to prioritize our responsibility agenda, not only with words, but also with tangible actions. So moving on to the final slide. In summary, H1 FY '26, we delivered a solid financial and operating performance. We delivered sustained improvement in service to customers and continued to generate strong amounts of cash. Our brand performance was resilient and gives me confidence in our longer-term potential. Distribution has recovered its service, which is critical to us moving to the next phase of margin improvement. I said in May, there is much to do at C&C. I would reiterate that comment once again today. Market conditions are without doubt challenging, but we now have a clear view of our next steps and where to prioritize our efforts as we deliver the balance of the current year and plan for the next. Thank you for listening today, and we are now going to open up to questions from the room, if we have any. And we have a microphone. So if you'd be good enough, if you have a question, just announce yourself who you represent and then ask the question. Harold Jack: Douglas Jack with Peel Hunt. Just a quick one on the distribution. How far along the road do you think you are towards removing unprofitable business within that division? I mean what's -- how many years should we look to you seeing that process complete? And what kind of benefit? Roger White: I think it's a long-term journey. It's not a short-term position. We provide a wide range, as I said, to 9,000 or so SKUs. Within that 9,000 SKUs, there's work to be done to both improve the range and also streamline the range, and that's to be done with the customer and consumer in mind, but will require a reasonable amount of effort to do it. So I think I would look at this as a -- this isn't going to happen overnight. It's going to take time. Some of the volume will be contracted. Some of it will require replacement activity behind it, but it's the motivation to work with our customers -- all our customers to give them a better outcome, but also to give us a better commercial outcome. Laurence Whyatt: Laurence Whyatt here with Barclays. I've got a couple, if that's okay. When you talk about this sort of new integration that you're putting the C&C Group back together, are there any KPIs that you are particularly targeting that we should focus on? Is it simply growth in the branded business, margin in the distribution business? Or are there any other indicators that you think are particularly important? Maybe we start with that. Roger White: I think there will be lots of KPIs that we will need to pull together and as I say, in May next year, come back to you with a set of hopefully -- properly worked through plans, initiatives and actions and a set of numbers that will go with that and a set of monitoring KPIs. I think today was really just about setting the stall out in what the higher level focus would be and that simplification at the center, margin improvement in distribution and growth in brands are, the areas we're working on the initiatives behind those. As I said, some are started. We've got a team of people on innovation. We've got a new process design. We've got the first signs of new things coming to market. So we've got growth in mind. We've got a more growth mindset in the service on the distribution business is going well, but we've got a lot of commercial work to be done to get a ranging right and our pricing right. So I think there will be much more to come. Laurence Whyatt: You mean pricing -- it's a clear focus in the industry at the moment. One of your competitors last week was talking around a lot of price being taken during the pandemic period and perhaps a lot more price than inflation. And then for their plan going forward to 2030, they're looking to take price below inflation, albeit ahead of the cost inflation. I was wondering if you have any similar thoughts on the consumer price environment within the U.K. and where do you think your pricing will be able to be? Roger White: Look, I -- there are in essence, 2 fundamental bits to our business. There's a branded business and there's a distribution business. And in the branded business, for us, it's about -- as I said, it's about growth, and we want to support our customers. If there is inflation there, we'll look to offset that as much as we can with efficiency and cost. And if we need to pass some on it, we'll be as modest as possible in support of the sector. The distribution business is a fundamentally lower margin business. It's about moving cost through, but being efficient, and we're going to do both of those things. So I can foresee -- as we sit at the minute, as Andrew said on his slide around materials, we don't see anything from a cost point of view that looks shocking at the minute. We will wait and see how the next few weeks goes. We are hedging for next year, and we can see a very similar sort of low single-digit amount of inflation coming. Fintan Ryan: Fintan Ryan here from Goodbody. Just a few questions from me, please. Firstly, maybe following on from that last question in terms of margins. Within the 60 basis points branded margin increase in H1, can you break down what was maybe the COGS gross margin? What was -- how much A&P stepped up by? And then what other sort of operational leverage you got? Andrew Andrea: An equal measure. So I wouldn't focus on one thing. With the margin improvement in branded, we're pulling lots of levers, as Roger has alluded to. So I don't think there's any one dominance in all of those 3, Fintan. Fintan Ryan: And in terms of A&P spend for the second half? Andrew Andrea: We're seeing a slight increase year-on-year. So a continuation of that going through to H2, including the continued investment in Magners that we've commenced in H1. Fintan Ryan: Okay. And maybe just following on from that point. Clearly, I know as a consumer see Menebrea everywhere and like good listing, particularly in Tesco. Maybe it's probably a longer-term question, but do you see any positive synergies in terms of reigniting the Magners brand, reflecting some of the wins that you've got from Menebrea and maybe even bringing Tennent's out of the border? Roger White: Look, I think momentum is everything in brands. And to get momentum moving, you need multiple sets of activity. It needs to be a combination of building awareness, growing distribution, bringing something new to market, having great products, convincing people through competitive pricing. There's -- so it's a range of activity. I'm delighted to hear that you're seeing Menebrea everywhere. I don't think we are nearly everywhere, but I'm glad that you're seeing it. I think there is a halo impact. If you are showing momentum, then whether it's consumers or customers or partners all see the positive benefit of that. So we do want to get into that positive momentum with all our brands. Fintan Ryan: One final question. I think you said to get to the GBP 150 million total cash return, you need to do 30 million buybacks over the next 18 months. Any thoughts of when we should expect that buyback? And basically given the shares have come off a bit recently, why not now? Andrew Andrea: Well, I think we sort of hold code when we pay dividends and there was an expectation of what the residual dividend will be. We've always said that we will do GBP 15 million or so tranches. So crudely speaking, we've got 2 tranches to go over an 18-month period. And we'll just align that to match to our cash flows, which was always the intention. But it's well within reach is the key point. Damian McNeela: Damian McNeela from Deutsche Numis. First question on Magners, Roger. I mean I appreciate that we're at the start of the journey on Magners, but it was a particularly good summer, and we saw the evidence of that in Ireland. What are the challenges that Magners brand really faces in the U.K.? And what work do you need to do to remedy that? Roger White: So look, I think the Magners brand is -- has been a great brand in the past, can be a great brand in the future. It's been heavily skewed in recent years to quite high volume, low-value price activity, in particular, in the take-home market. It's lost a lot of its momentum in the on-trade and building that distribution through the draft side of things, it's going to take time to do. So the starting point is consumer reappraisal, and we started that with the work we're doing and the early results on that look encouraging, but that doesn't feed through immediately into brand performance. We are starting to see trade reappraisal, our customer base appreciate the scale, breadth and positioning of the brand and they seem to positively want to support us. We need to get the distribution moving. We need to rebuild it. We need to move away from the lower value, high-volume price promotional work that's characterized it in retail, and we need to get the distribution in the on-trade moving. That is just going to take us a bit of time. But if we can have the consumer reappraisal successfully set up, then the off-trade will follow quickly and then the on-trade will take a little bit longer. So I think it is the longest journey. Andrew Andrea: Yes. I mean most national operators on draft have multiyear arrangements. So you're having to participate as the cycle arises. That will not arise all in a single year. Damian McNeela: And then just the second one, I think you mentioned on the distribution business, you were looking for potential customer attrition over the next -- well, can you qualify and quantify exactly the level that we should expect to see and whether that feeds through to revenue and margin? Roger White: No, I can't quantify. I think I'm just raising the potential as we look at our portfolio, as we look at our customer proposition, then we need to be adding value to our customers. We need to be creating value for our branded partners, absolutely. But we need to make some margin in doing that. And for me, as a relative newcomer here, I can see some areas where we are not making a suitable return, and that will require us to make some changes. I have got, I guess, I hope that we can find suitable ways of doing that, that doesn't lead to customer attrition, but it would be unrealistic of me to not suggest that there is a risk of that as we try and improve it. Now I'd like to think that we can grow the business. But we're -- as we said, we're going to focus on improving the margin and some of that might come at the expense in the short term of some turnover if it's not adding value to what we do. Damian McNeela: Okay. And then one last one for me. Christmas is just around the corner. What's the trade saying about bookings? And how are you feeling specifically about trading into Christmas? Andrew Andrea: The sentiment on bookings is positive at the moment. Christmas will happen fairly enough, 25th of December. It's midweek Christmas. So for the trade, that should be good. In Scotland, there's an old firm game in the middle. And a lot of our plans are making sure we land all of that right. So you've got a backdrop of positivity. But I've been in the pub game for a very long time. And what I do know is no matter what your bookings are, the majority of Christmas is impulse. And so no matter what [Hubco] say about bookings. It's what happens in that 2 weeks of Christmas that is mission-critical. So we'll let you know about Christmas on 6th of January. Roger White: The focus on the controllables for us, we are well set up internally to ensure that we give our customers the best possible service regardless of the challenges of which days fall, what. How the supply process is going to work, we are well setup to do that. And so as Andrew said, we will wait and see what the absolute demand is. But our most important thing we can control is making sure that we are ready and working with our trade customers to make sure that they have absolutely everything that they need. So when the consumers do walk through the doors that the pubs are well served. Clive Black: Clive Black from Shore Capital. Always interesting to have results from Scottish company when Celtics manager resigns. Three questions. Hopefully, one is fairly straightforward. I'll ask that first. Just in terms of your assortment, and you mentioned SKU rationalization, a, how happy are you with your assortment? And b, where are you on your rationalization journey? Roger White: We are just at the start of the rationalization -- first of all, we are just at the start of the rationalization piece. I think it's basic stuff first. We've got some very deep and very complex ranging in the business. Some of it is fully justified. Some of it is less justified. The aim would be to cut out wasteful areas which are not adding value to our customers rather than just have a target number that we are trying to get down to. How happy are we with our range? I mean, pretty happy. I mean it's -- we supply such a variety of outlets. It is important that we have that variety of range. It's just, as I said, looking through for the obvious areas where we can make improvements. And there will be some areas of our assortment, I think, that will grow, but equally, there will be other areas that we have over-ranged. So yes, just at the start. Clive Black: Okay. And then I guess you're going to get this asked repeatedly, particularly after next spring, but of the simplification efficiency program, is it sensible to suggest a fair amount of that has to go back in the business? Or should we be becoming excited about where the operating margin can go in C&C? Roger White: I think that's something we can talk about next May rather than today. What's important for us to do is to have deliverable plans and make good choices for the long-term benefit of the value creation that we can do with C&C. I can see, as I said, there are challenges that we can all see, but there are opportunities as well. And I think it's a balanced scorecard that we need to work out which ones we can unlock, how fast can we get to them and how certain can we be of them. So I'll try and answer that when we've got bankable plans. Clive Black: Okay. Good luck on that. And then lastly, and this, I think, is the most difficult one for any business. You mentioned culture. What is it about C&C's culture you have to change? And how long will that take? Roger White: That's a good question. It's not an easy one to answer. I think I would answer it by saying the business has been grown through, as I've said, through acquisition and bringing together businesses. We want to not -- we want to positively embrace our differences. We want to find consistent ways of building efficiency, driving the benefits associated with scale, but we want to unleash our ability to serve customers and build brands and embrace our differences where it's important and where it supports us. If you travel around our organization, as I have done, and I'm sure many of you have done and you go to the various operating parts of it and you ask people who they work for, they generally work for Bulmers, Matthew Clark, Bibendum, Tennent's Caledonia Breweries. They don't generally work for C&C Group first and foremost, and we need to embrace that rather than try and break it. So I see it more as trying to reestablish what's important for us and trying to get benefit from we have -- what we have -- we have 2,800 and almost 50 colleagues, and they are passionate about the business, and it's just about harnessing that. So I think you don't change culture quickly, but there is a little bit of back to the future about it rather than trying to do something that's alien. Great. Thank you all very much for your attendance, either in person or online. And we will draw proceedings to a close. So thank you all very much. Nice to see you all.
Operator: Ladies and gentlemen, welcome to the adidas AG Q3 2025 Conference Call and Live Webcast. I am Maura, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sebastian Steffen, SVP IR and Corporate Communications. Please go ahead. Sebastian Steffen: Thanks very much, Maura, and good evening, good afternoon, good morning, everyone, wherever you're joining us today, and welcome to our Q3 2025 results conference call. With me here today is our CEO, Bjorn Gulden; and our CFO, Harm Ohlmeyer. Bjorn and Harm will take you through the highlights of the quarter, our financials, the outlook. And afterwards, we will open up the floor for your questions. As always, I would like to ask you to limit your initial questions to 2 in order to allow as many people as possible to ask their questions. And now before I hand over to Bjorn, we want to get everybody in the right adidas mood with this video. Let's go. [Presentation] Bjorn Gulden: Hello, everybody. I hope you enjoyed the live showings of what the brand has done over the last 3 to 6 months because we are actually very proud of what we have achieved. Also, very proud and happy what happened last night, where 2 of our teams, Germany and Spain, won each of the semifinals in the so-called Nations League. And we'll then need to play the final and it's always cool to have 2 teams wearing the 3 stripes play each other in the final, which happened pretty often, especially on the women's side. Also happy actually about what we did achieve in Q3. I think the momentum that we have seen globally even strengthened. And we feel that our teams in the different markets have been very active and has been a lot of positive feedback also when it gets to the activations we have for the future, for example, the workup that you see out there. What also very, very, what should I say, close to today happened was the Shanghai Fashion Week, where we showed up in China in a way that I think we've never done before. And last weekend with the ComplexCon, where we showcased both the jellyfish coming from our friend, Pharrell. And we had many, many versions of Superstar also with our partners from Hellstar. And I think all of you have followed the discussion about Bad Bunny and the Super Show, it happened to be at the same time where we had a Mercedes call up with him, which also did very well. So a lot of fashionable things happening, which is very, very positive for us. And also before we go into the numbers, important for us. We were again named the top employer for those working in the fashion from the TextilWirtschaft. And again, that's a research with ask the employees and the hearing that your employees are happy is always a great confirmation for us in management. And then the Forbes Research who looks at 400 of the biggest companies in the world when it gets to how it is to work for them when you share a woman, we also came up in the top. And again, a very positive story for us confirming that we are a good company to work for. The numbers, you've probably been through them many times. Last week, we reached EUR 6.63 billion in Q3, which is the highest quarter that we ever had, which, again, then for the adidas brand was a growth of 12% currency-neutral. Again, another very strong quarter when it gets to the margin at 51.8%, which was 50 basis points up. And then an EBIT of EUR 736 million, which then is an EBIT percentage of 11.1%, which, again, we are very, very happy with. If you then take Q3 to the 2 first quarters, you get to the EUR 18.7 billion in sales, 14% up for the adidas brand, a margin close to 52%, and then an operating profit of EUR 1.892 billion which is again about 10%. And so again, when we look back, we are very happy with these results. When you look at the regional growth, the North America grew only 8%, year-to-date 12%. I did say in the press call that if you take accessories out, you will see that both Apparel and Foot were up 14% and 11%, and that reason for the accessories being down is that we have a reset in the accessory business that will hit us this quarter. And it has to do with distribution. It also had to do with deliveries. But I don't think you should read too much into it. I think it was heavily exaggerated in some of the press. This is not something that is very crucial for our business. It is a short-term blip. And again, remember, accessories is 7% of our business, so you shouldn't worry too much about it. Look at Europe, the home market, we were skeptical last year that the growth will slow down because it was 9%, now it's back to 12%. We are 11%, what should I say, for the year, and a very strong development, again, both in our own stores and then especially on the performance side around different markets in Europe. Greater China. Again, you probably see a lot of, I would say, tough numbers from our competitors. We grew again double digit and are very happy with the development being up 12% for the year. And you probably know that the profitability also in China is improving. So we are very, very happy with the development that we currently have in China. Same with Japan and South Korea, up 11%, 14% for the year. Historically, 2 very strong markets for us where we had some issues, but very, very strong development now with new management in both of the markets, and feel we are in a very, very good way with very, very strong like-for-like numbers in our own retail in both those markets. Lat Am, still on fire. We are now a market leader in many of the LatAm markets, including Brazil. And as you can see, '21 and '24, extremely happy with that development. Emerging markets, of course, always a little bit mixed bags because it's a group of countries where you have quite some issues, but the team are our entrepreneurs and 13% and 17% confirms that. And that gives you then the Q3 number of plus 12% and plus 14% for the year, in a world, which I think you agree, is not the easiest to maneuver in. So very happy with where we are after 9 months. Wholesale growing at 10%, shows you the support from our partners. And again, happy with that. Own stores, up 13%, we are comping positive both in concept stores and in factory outlets. And we have added net around 85 stores in the last 12 months, and we will get back to that in a second. E-com, up 15% shows you that the digital side of the business is also working. And some of the pure players are actually doing better than the brick-and-mortar guys and so is also with us because we can showcase news quicker and wider than you can do in brick and mortar. That gives you the split of 63-37 and you see brick-and-mortar and e-comm than 22-15. I think we agree that, that's a globally a very healthy split. I talked about the stores. I think we have said to you now for a couple of quarter that what we are doing is that we're trying to open, I would say, impressive brand stores in bigger cities and in bigger trade communities. And instead of having 1 store buildup, we're trying to explore the possibilities in the different markets, as you can see here. And we are investing a lot in the creativity in the stores and I hope when you travel around the world that you get to see some of them extremely happy with the way we look. And they're also, of course, when we open a big store that looks like this, the numbers are also very impressive. As long as we fill it with the right product, which I think we have done lately. Footwear, again, you were skeptical. I think it was 9% in the last quarter. Now it's back again to double-digit, 11%. We have talked about the wish of growing Apparel at the back end of Footwear. So now we are doing that at plus 16%. And then the accessory issue, which, again, I explained that in the U.S., we have kind of a reset when it gets to both the sourcing because it was very China driven and the distribution and that caused that in this quarter, the numbers were negative, and that had an impact on the global accessory business. The performance accessories, meaning, for example, soccer balls is up. And I think I can promise you that you will see accessories very quickly coming back again. And I think I quoted I said we need to clean up something, but I think people, again, overdramatize that there's nothing that you should be concerned about that Accessory is only up 1%, knowing that, as you see here, Accessory is only 7% of the business. And I think we have said that when you have brand heat and you could focus on it, you should get more growth on Accessories going forward. So I think we have some reserve in our pocket, and you shouldn't look upon this negative. Footwear being 57%, Apparel 36%, again, as long as Footwear is above 50%, I think we are in good shape brand-wise. And then very, very important. Even if we have turned the company around on the lifestyle side and the heat, we have said that we have to celebrate sport. And I think when you see the activities from ultra marathon to marathon to running 100,000, basketball, soccer, cricket, whatever, I don't think we have ever been more visible in sports, and we're also producing a lot of content that is visible all over the world because that is what we want to do. That shows also up in the numbers. Our performance, meaning the Sports business is up 17%. Remember, we have told you that there are 4 categories that we need to win globally; football, running, training and basketball. I think you see in football that coming out of comp numbers from the euro last year, we are very, very strong now with our Footwear taking share, I might be arrested saying we are market leader, but that's my feeling on everything I can read. Very happy with the players and also very happy with the product. And then for those of you who follow soccer closely, the Liverpool launch was fantastic globally, although they haven't played very well lately, losing I think, 5 out of the 6 last games, the sales of Liverpool has been tremendous compared to what they used to sell. And again, I think we all know that Liverpool is a street culture city in the U.K., very relevant for the kids. We are extremely happy with that relationship and the way it was executed. Also very proud of the Ballon d'Or. You know that's where they give the prizes to the best players in the world. They give out 5 prizes. We won them all. We had the best male player with Dembélé. We had the best young player with our friend, Yamal. We had the best female player in Aitana Bonmatí. We had the best young female player in Lopez, and we actually also won the best goalie with Donnarumma also; 5 out of 5. I guess we will have to pay a heavy bonus to our sports marketing people because I don't think that's ever happened before. What shows you, why I'm proud and positive is that we were also able, the day after the Ballon d'Or to honor both Dembélé in Paris with both what should I say, outdoor marketing, as you see here and the store and the same in Barcelona with Bonmati. So again, the teams were then actually gambling on that they will win. They didn't have the insight. And we were able then to activate this overnight. So when people woke up, this was what you would see in those 2 cities. And I think this is the energy that we actually need as adidas then to win. And the same thing, we have launched the World Cup Ball. We used a lot of other celebrities and sports people to do that. I have never seen such a campaign ever done organic and I can also report to you that the sellout of the ball has been fantastic. And you have to remember, we have even started with the jerseys. The jerseys for World Cup will start to go on sale on November 6. So that's when you will start to see some impact of World Cup coming into the numbers, which will be very, very positive. Running, we have told you for the last 2 years that we are building our running portfolio up, changing both the collections and also, of course, going back again to running specialty to build credibility and the business. When you follow the marathons and the half marathons and other races you see we win half of them, very proud of what Sebastian Sawe did in Berlin. The weather was too warm; if not, he would have beaten the world record in sub 2 hours. He didn't because it was 27 degrees, but we will save that for next year. We also won the women's class with Rosemary. And again, I think it's not the weekend, where we don't win a major race somewhere because we have the best runners and the best product, that is also proven by this fact, we did set the world record on 100k. Sibusiso won in 5:59:20 and you can calculate the average pace, it's unbelievable. I think he runs 333 per kilometer. And again, with a shoe especially made for it. And again, this is part of our innovation pipeline to do extreme things that we can then feed into the more commercial line. And our Adizero line, which starts then with the Prime X and then down to the Adios Pro 4 is the best line today for racing shoes and speed shoes. And we are taking market share and we're growing this business very, very heavily. And again, this has been the strategy from the beginning that we start at the top and then we start to scale it into every day running and to comfort running. What you see here is new. This is what will go to market next year starting in February and then scaling up during the year. We have developed something called Hyper Boost, which is a new boost material, 40% percent lighter than the old Boost. Boost was the most successful midsole construction that we had, the most successful foam, but a little bit heavy. That's why we have been working for 3 years now to establish this. These are the sign directions, not necessarily the way the shoes will look, but it gives you some kind of feeling how we're going to attack the comfort training area. And then we will also use the foam as a platform into other areas in the performance side and also into Lifestyle. Don't forget that all the successful Lifestyle running shoes we had in the past, both those from Yeezy, but also NMD, for example, Ultra Boost was Boost shoes and that's why this is so crucial for us going forward. And we are very proud that we now have developed this. Training is a huge category that might be executed different from region to region, but what we are doing is that we're using our top athletes from different sports and then showcasing them in training in our products. We can tell that story everywhere. And what we also have done because training today consists of both running and strength, we have combined then the Adizero line with the Dropset line and then creating shoes that are both runnable and stable for strength, gym work, and that's then the Adizero Dropset, which you will see next year and which has received a lot of orders already from the retailers who love it, and we are very, very positive about that development. Maybe a surprise to you, we are then taking the originals into sport. We have seen, especially on the female side that we connect to that young consumer through our original line with the use of threefold and three stripes. And it was then a natural way then together with some of our retail partners then to develop a functional training line in functional fabrics and functional fit also with the design ethics of original. You see some of the samples here. And needless to say, the demand for this for next year is huge. And it's one way for us to differentiate ourselves in the training area where there's a lot of brands that have established themselves lately. But again, very, very positive feedback from the retailers around the world. Basketball, we all know we're a market leader, but we also know we have to invest in it. We have in the design and development of the product for a while now, had a very special language. And it's great to see that this language is now coming through also in sell-through. All our signature shoes are now doing well and the players that we're using are also extremely popular. And we have used them now not only in the U.S., but also in other markets. They've all been to China during the summer, and we see a lot of positive effect for them being active actually selling not only our performance product, but selling the brand as relevant in the culture. And then we have said it the way adidas did the brand, we want to be visible in all sports and also local sports that are relevant. That is why we are making products for more sports, and we also produce more content for those sports so that we get back again the credibility and authenticity that we used to have, and you see some examples of that here. In that trend is also track and field. For a while, we lost the visibility. We are now back again. And if you watch the World Championship on Tokyo, you saw we had more federation. There were more three stripes on the apparel and a lot more feet with our spikes and special shoes. That will continue because for us, track and field is the core of all sports also in the Olympics, and that's why you will actually see a wider investment for us going forward as more federations are actually able to change into our brand. Then finally, when it gets to sport, we have said to you many times, we need to be more American. We need to be a sports brand also in America. You can only do that by investing in the so-called American sports. That is, of course, starting with colleges. It is baseball, it is American football. It is also basketball. You see some of the people we have signed now over the last couple of months. We have also started to get feedback that we are attacking the clear market leader. That's not even the strategy to be visible and actually have personalities that perform. And I think that is also what we have achieved. The college sport in the U.S. is very, very special, very emotional and everybody who's gone to college is a big fan of their college and especially in American football, that is important. And you know that this college team draw attendances up to 100,000. You see that we are now starting to get a pretty impressive portfolio. And in that, what should I say, strategy of getting more visibility and getting more into the college merchandise business, we have then added both Tennessee and Penn State, which are 2 huge colleges when it gives both to the performance and also to the merchandising value. What we also have done is that we started to combine the American sports. So here, you see on the left side, Anthony Edwards and his basketball look. We have then made a clip. So Travis Hunter debuted in the NFL. He's the Heisman Trophy winner of last year. He is, I think, the only one who plays offense and defense, at least in his rookie season, and he's then playing in a clip that is designed the way Anthony Edwards basketball shoes. So a pretty cool thing, and it shows what we can do going forward in the U.S. Short about Formula 1. You know great success when it gets to the agreement with Mercedes, a lot higher sales than I think both we and the Mercedes thought, a lot of collapse, a lot of interesting stuff happening. And then on the left side, we announced that for next year, we will also do Audi. And again, we see a huge demand from wholesalers already in those 2 setups. And then, again, I'm repeating myself, but we are, of course, trying to take everything we do on the pitch in the stadium then to the street. And I think that's the magic of ours. We are using our athletes and our, what should I say, teams on both sides and are trying then to create the street culture out of not only basketball, but also other sports. We have talked about the need for doing this in football, and it's finally happening. We have never seen so high demand for soccer-related apparel as we do currently. And a lot of non-soccer fans are actually wearing retro jerseys or even the current jerseys or product that is coming out of the soccer world. And I think I've mentioned to it a couple of times that the Oasis collab, for example, are soccer pieces that have been batched up and the demand has been unbelievable for people that has not any connections to football. And then on the footwear side, EVO SL, our $150 Evo Adizero shoe without the carbon plate meant to be a running shoe, but gone widely on the lifestyle side, best-selling running shoes currently and the best named running shoes in many, many markets, a great development for us. So when do they get to lifestyle, you saw performance growing at 17%, Lifestyle now growing at 10%. Again, this was always the strategy that you build the heat through marketing and lifestyle, you sell shoes, then you hope that it will also go into performance and then you start to commercialize apparel that has actually happened. And two, the haters, who are the people who don't like it, Terrace is not over. We have grown Terrace every quarter. So Q3 was actually the highest quarter ever also of the Samba. I think the key to it is, of course, that you're not selling the white black and the black white more and more and more because you're actually putting, what should I say, a limit on it. But when you work on materials and you work on different, what should I say, Collabs and you keep the excitement in it, all Terrace shoes are doing extremely well. And especially in certain markets now, the Spezial is doing great. And as you probably know, Spezial has never been a lifestyle shoe before. So -- it's not over, and it's a huge business, and we will manage this business probably longer than many of you had expected. The Campus was more a freebie that came unplanned with the heat of the brand. We did then put a lot of shoes in the market. It worked perfectly. But we also said we will then start to limit the Campus because we were waiting for the Superstar to come. And let's face it, the Superstar is from a construction point of view and from a target consumer probably closer to the Campus than to anything else. We talked about Low Profile. Yes, it has been growing and growing. It's not as big as some people thought. But I think I can promise you that the same thing is here. You need to invest in SKUs, you need to invest in materials, then it will continue to grow also into the spring of '26. And then we have the Superstar, which we again told you we were delaying. But right now, we are pushing it for fall, especially now in Q4 and then into spring next year with global campaigns, a lot of activations. And again, although the language is global, the content is very local. And then may be new to you, you will start to see the Triple White coming back. There are clearly signs that Apparel is going more preppy and more college and then Triple White will be again coming back. And as you know, the Stan Smith is probably the typical shoe to go to when that is happening. So we have limited the pairs heavily. You won't find Stan Smith discounted anywhere, but we will start during next year then both with Collabs and loading up that shoe because we want to be ready when these things are going commercial. And then the final thing on the lifestyle that we talked a lot about, Lifestyle Running. Yes, we admit that all the brands have had a big trend, both on '90s and 2000 running and that we had many options starting with the retro thing all the way into 3D printed shoes. Many of these shoes are now starting to get volume. None of them are the winners right now, except for EVO SL. But when you look to the left, you see Adistar, where you will see the Jellyfish coming out of Pharrell. You will see takedowns of that hitting the market, and you will also start to see a lot of 2,000 retro running shoes from us with Open Mesh and Metallics, which are already selling very well, and we will start to scale them because we see that the demand is there. And then the final thing where people laugh a little bit is Lifestyle Football. We talked about it in Apparel. You will see soccer-inspired product going also fashion, where we put soccer uppers from the past or also present, and we put them on different constructions. Very different opinion if this is going to be commercial or not. We will have limited pairs in the beginning, and then we will scale it if we see the demand is there. But at least on her, it seems like there is demand there also to scale it. Then on Apparel, we have great success, especially with Her, especially very colorful, the use of 3 stripes, of course, a lot of them are not original. But I think where we have been even better than anybody else instilling innovation in materials. We have denim. We have a lot of knit constructions, and we have a lot of innovation that has not normally been in the sports industry. And this is especially where then people online has a huge success because they can showcase it very quickly, and we've been very quick to the market. Very, very proud of this. Grace Wales Bonner has helped us a lot. I think she had a huge impact on the success of the Samba, to be honest. She has now been made the head creative for Hermes Men, a great honor to her, but I'm also happy to report she will not leave us. She will continue to work with us because we have a fantastic relationship with her, and this will, of course, help us. In general, collabs, a lot of discussions. If there are too many, has it lost this interest? No, it hasn't. If you look at this page, you see some of the ones that we work with. Down left, Hellstar has been great for us in the last couple of months. I mean, Chavvaria has been great for a while. And in general, I think we all have to agree that you need Collabs. You just need to make sure that they fit the market where you're using them. and that you never do too many at the same time. Then at last, accessories. Again, I tried to explain that accessory and performance, great, including soccer balls. All markets actually done well. There is a small clash in the U.S. that we need to fix, and we will fix it. And I'm pretty sure that when we get to next quarter, you will see it fixed already. So don't read anything into it. That was not the intention. So with that background, I hand back to Harm, and then Harm will give you the more details about the numbers. Operator: This is the operator. We are not receiving audio from the speaker line. Harm Ohlmeyer: Can you hear me now? Operator: Yes, sir. Harm Ohlmeyer: Good. all right. Then I'll repeat it again. Thanks, Bjorn, for the update, and I would like to bring some more details to the financials now in the next couple of minutes. Apologies for the short technical issue here. So as always, we start with the net sales. And as Bjorn said already, record net sales from an absolute point of view in Q3 was EUR 6.6 billion. That has been a great achievement. And of course, the most important number there is 12% currency-neutral growth for the adidas brand. Of course, for the people on the call here, you always look at the 8% currency-neutral, which includes Yeezy in the prior year for the reported number, which is 3%. What we believe is relevant as well to show you the next chart, it's a lot of numbers on there, but sometimes we probably forget what percentages mean in absolute numbers. And I want to start on the upper left where we see 17% growth in Q1 for adidas brand and 12% and 12% in Q2 and Q3, so overall 14%. When we look at the absolute numbers in currency-neutral terms, we actually grew EUR 900 million in Q1, EUR 600 million in Q2, and another EUR 700 million in Q3. So we believe it's important summarize that for the first 9 months, what we actually have achieved with the adidas brand. So it's a EUR 2.2 billion in constant currencies in the first 9 months. And then, of course, you got to deduct then the EUR 600 million from Yeezy sales last year. And then you have an FX impact so many currencies, that is a negative EUR 600 million as well leading to only EUR 1 billion nominal growth that you see in the P&L being reported. We believe it's just right to show these numbers in absolute as well to actually showcase again what our brand and sales teams have achieved with great products and good execution on the sales. When it comes to the gross margin, of course, a great story as well is almost 52% or 51.8% in correct terms. It's 50 basis points above prior year. This is again a very, very good achievement. And if I go to the details and decompose it a little bit, a huge, huge credit to our sourcing organization, making sure that we get reasonable prices in strategic relations with our suppliers, still some positives on the freight side, even so some of the transportation lead times are complicated in today's world. The business mix is still positive. And also from a discounting point of view, we did a great job the last couple of years and now it's stabilizing and still very, very good sell-through of our products when it comes to the underlying drivers. Of course, you know that FX has still been negative. It's just directional when you look at the bars here, but we also talked a lot about the tariffs. Of course, they are negative in the U.S. And you see that is a new thing compared to Q2 call that we had some mitigating actions there as well. That led us still to the very, very good gross margins, 51.8%. So very good achievement, and you can imagine where it would have been without the tariffs in the U.S. When I go further down the P&L line, of course, as always, we say, we keep investing into marketing with almost EUR 800 million in Q3 and actually 10% up or 12% of net sales. Great, great campaigns, as Bjorn alluded to earlier, fantastic product launches and relentless opportunities with our partnerships, whether it's on the cultural side or on the performance side. So very, very well usage of our marketing. Also on the operating overheads, you see there's great leverage with minus 8% or 3.5 basis points. And you see for the first time since the third quarter '21 that we are below 30% when it comes to the operating overheads. Okay. Part of the truth, you might remember also that we had a release in our other operating income with the settlement of Yeezy of around EUR 100 million, and we did a donation of around EUR 100 million in the operating overhead line as well in the third quarter last year. But the real number now, forget about last year, is still below 30% on the operating overhead, which actually leads with a great gross margin to now 11.1% operating profit of EUR 736 million. If I decompose that again from a profitability point of view, similar to what I did on the net sales, great achievement in Q1 with almost 10% already in the second quarter, 9.2%, up from 5.9% and then a very, very good achievement in Q3 with a profitability of 11.1%. That is a great achievement again to the teams. And when you look at the first 9 months with 10.1%, we actually where we wanted to be in '26. That's a great achievement in the first 9 months. Of course, we all know given our guidance that will not be sustainable for this year, but that's where we wanted to be for next year we achieved in the first 9 months. Of course, there have been some questions below the line as well, and I want to spend some time on this one to explain that more clearer. When I start with the net financial results, you see the EUR 4 million plus last year. So during that quarter, we had some stabilized currencies, whether it's the Argentinian peso, the Turkish lira or the U.S. dollar was still stronger. So we had some positive effects from an FX point of view, but also from a hyperinflation point of view. And now the comparison to this year looks dramatic with the almost EUR 90 million. But also there is now a devaluation of the Argentinian peso of the Turkish lira. We all know where the U.S. dollar is right now. So these are the effects that we had in Q3. But it's also important that -- to note that this is normalizing in the fourth quarter again. And well, I wouldn't have imagined that I talk about the election in Argentina with Milei, but we had our Argentinian General Manager here yesterday as well to give an update. So these are also important events for us as a company. So that's why we believe that election and the outcome just want to stabilize again in Q4. Similar things on income taxes, was very low last year, but also this year, it's a pretty much normalized rate with some withholding taxes in there, but that will also stabilize in the fourth quarter. So 2 notes on this one. In the first 9 months, if you looked at the numbers that the operating profit was up 48% in the first 9 months, the net income was up 52%, and that is something you should expect as well more leverage in Q4 on the net financial results. It's normalizing. And you can definitely take away today that the tax rate for the full year will be around what you have seen in the first half. So anywhere between 24% to 25%, hopefully closer to the 24%, which would definitely drive the net income faster than the operating profit and respectively, the earnings per share as well. When it comes to the inventories, also that is a topic, 26% currency neutral up. And I would like to move to the next chart very quickly because also that is something that we are not concerned about. I said it on the last call already, we went probably too low in '24 with a lot of discipline because we came with a lot of inventories into Q4 -- into 2024. So this is where we have a low level last year. We actually made the strategic decision to bring products in earlier, especially World Cup related. So we wanted to make sure that anything around World Cup related, whether it's [indiscernible] or federations available to remain and continue to remain a reliable partner for our retailers that when the demand is there and of course, where we need to ship in for the launch date that the product is already here. And you know that the supply chains are volatile nowadays. So we didn't want to take any risk. So we took them early. What's most important for us internally is that this product is current and with either current this season or for future seasons already, which means spring/summer '26. So also there, you will see an update going forward as well in the next quarter where we definitely go in the right direction again. The same is on accounts receivables. That shows the success that we have with our retail partners. It's not just about D2C, so 22% up. That is not 1:1 the growth in the third quarter, but that's where we see that we have great relations with our retailers, and that also gives us confidence for the fourth quarter when it comes to the cash generation. But before I go there, most importantly, the operating working capital, I've been on this call many, many times. We said if we get below 20% of operating working capital over net sales, we are an excellent company; if we are anywhere between 21% to 22%, we are a pretty good company, and we are still in that range, and we will definitely make sure that we stay within that range and over time, get below the 20% again. That all led with the investment into working capital that the cash got reduced from EUR 1.8 billion to EUR 1 billion. I also said on a previous call that we expect to generate a lot of cash flow in the fourth quarter. And rest assured, we still believe there's probably around EUR 800 million to EUR 1 billion of cash flow being generated in the fourth quarter, which is linked to the inventory increase for the World Cup, which will be reduced and also the accounts receivables that we will cash in, in the fourth quarter. So that's what you should rely on here as well. When it comes to cash and cash equivalents, you see the development here, which led to the EUR 1 billion and also important adjusted net borrowings have been reduced from EUR 5 billion in the second quarter to EUR 4.8 billion. And just as a side note, some of you might remember that we're maturing a bond in November and probably stay tuned for that one. We believe we want to refinance that one in due course, which we believe is also a good message to the capital market because once in a while, the last one we had in '22, we also want to test the market and be a bond issuer in the market once in a while. So that's what you should not be surprised in the next couple of weeks that this could happen. Overall, when it comes to the leverage, we are very stable, which is important for our rating agencies as well. So also no surprise there regardless of what our cash position is. So overall, very, very confident when it comes to the P&L, when it comes to the balance sheet. And with that, Bjorn will finish up with the guidance. Bjorn Gulden: Great, Harm. As you see on this slide, you have seen that many times, we are now into the third quarter, if you will say, some out of 4. We did tell you at the beginning of '23 that we think that this should be a 10% EBIT business. We gave you the different components. And it's pretty cool to see that after 9 months in the third year, we basically hit it with the numbers that you see here and are currently showing you that this is a 10% EBIT business model even if we are not doing everything perfect and even if I would say the world is not that easy to maneuver in. What is very, very crucial, I think, in the business model going forward is this, I don't know what other brands or consumer companies are telling you. But to be a global brand with a local mindset, I think, is crucial, if you are consumer-focused and for us and also athlete focused, you need to be close to the consumer. And unfortunately, there is no global average consumer, the way many consultants and agencies are trying to sell you, the consumer in different parts of the world has their own, what should I say, taste and willingness and are also influenced by different things. And that's why it becomes more and more important to be more local, especially between Asia, with China driving it between America and Europe because there are big, big differences, not only in consumer taste and facing of sports and activities, but also now in supply chain, given all the political tension we have. So again, getting the best people in the market and giving them the authority to make decisions. And in many cases, even the authority to make products becomes important. And then, of course, the role of a headquarter then is, of course, to keep the brand together to provide innovation and concepts. And of course, also maybe the most important thing to make sure that we have the right people in the markets and in the right functions and of course, also provide the systems that we need. And when it gets to creating product, I think this slide is also important for you because we are now making products in all these centers. And these centers are then in addition to having a part of the global, what should I say, creation like LA has for basketball and U.S. sports, they also, of course, have the, what should I say, the clear goal of supplying the local consumer with the products that they need, and that goes for all these centers where you see there are now 5 of them in Asia. And again, the speed to market by actually producing in China or in India is, of course, much bigger for those local markets than there are for Europe and America, where you have very little production, and it's not easy to actually find a supply chain who can make footwear for you. So I think you need to be very, very, what should I say, conscious about this development because I think it's the key to be successful. And I think, for example, our success now in China is because of this setup. We have the ambition to be the #1 sports brand and all our, what should I say, leaders in the market should have the ambition of being #1 in their market. We are, of course, aware of that we will not be #1 in all the markets that will be naive. But if you are hired in Adidas to run a market, you should have the ambition and you should talk to us what you need when it gets to investment and infrastructure to be #1, and then we will together see where we can reach it or not. There is one exception, that is the U.S. The market leader there is so far ahead of us because they've done a fantastic job living the culture, and we have not done it over the time. But we have a clear ambition there to double our business. And we do think with the story of our brand, with the history of the brand and the resources we have that we can start to be a sports brand again in the U.S. with all the things I have explained to you and then also extend that into lifestyle and culture. And that is why we also have a management now sitting in both L.A. and in Portland who has all the tools to do that. And the way we do this globally is, of course, to have the best product. I mean our pipeline and products, I think, has improved a lot. We have talented and creative people, and we have a great supply chain. It is, of course, also the way we present ourselves in the stores. We have said that we're using a lot of creativity to actually build stores that are that also connect to the local culture and to the possibility of utilizing what is allowed or not because you see many of these stores would not be allowed to do here in Germany, but the creativity in other markets we need them to utilize. And then very, very important, the activations and the visibility around the world, not only global, but also in the local markets so that you connect with the consumer and you also let the consumer be part of your activation has become much, much, much more important and all the social media and all the platforms and also actually physical events have become tremendously important around the world. And that's where you, of course, need a lot of talented people with a lot of energy, and that's what we have. So back to the end of this, the outlook, you remember our initial guidance for March, double-digit growth for our brand, if you take Yeezy out. If you include everything, high single digit currency neutral and an operating profit between EUR 1.7 billion and EUR 1.8 billion. Where we are now is that we keep, of course, the brand being at double digit. We have narrowed the high single digit to be around 9%. And then we say that our operating profit will be around EUR 2 billion. Yes, we know that we are in a challenging world. I don't need to repeat that. And we also need again to remind ourselves, we have no Yeezy, neither revenues nor profit in these numbers. And then the other considerations that you need to have is that we think that the positive side is that we're better than we expected after 9 months. And the attitude in general from the consumer and from the retailer is actually more positive than we expected. I know somebody reacted to that there were no strong order book in there. But remember, there's only 2 months left of the order book. So that's why we took it out. There is not a lot to talk about when you only have November and December open for the order book. So that's why that's not removed. There's nothing other into that number. And then the negative thing, which, again, we have to address. I mean, I know you don't like us to talk about it. But of course, there is a direct impact on the tariffs. We told you that the gross impact, meaning how much more duty it would be on the products that we thought we would sell was more than EUR 200 million, and we have mitigated for I would say, almost half of that. So now the estimated negative impact on our P&L, meaning what would the profit be higher if we didn't have tariffs would be around EUR 120 million. This is not a scientific number because it's an estimate, right? So you need to be careful when you try to say is it's EUR 117 million or EUR 123 million because we don't know. And then what we don't know, and again, I think maybe we are too honest about this because you read a lot of criticism into it, is of course, that the indirect impact of the tariffs, no one knows. And prices increases, normally consumer buys less, and that is not only in our sector, but in all sector. And that's why we don't know and are flagging it. And I assume that everybody will flag it after a while. I think maybe we flagged it early and got criticized for it, but I do think that's better to be honest about it than actually trying to hide it. And then, yes, sitting in Europe, there are quite some negative FX impacts when you consolidate your numbers, both on your top line and also on your bottom line, and that's just the way it is. And I'm sure that you understand that. The good thing about ending '25 is that we're going into another great sports year. It starts with the Winter Olympics in Italy, which again is not huge commercially, but it's a great event that will be having interest also for the smaller sports and the winter sports. And then we have this fantastic World Cup that will come in the U.S., Mexico and Canada. I would like to say one comment about that, too. We have said that this is a EUR 1 billion business or more. And people say, of course, that's on top of everything. I mean you don't know that. I mean it's obvious that it is -- some of that is additional, but it's never been an event where everything that you sell for an event is on top of everything else. So you have to have that in your mind when you do your math. And then the last slide I will show you is this. When we met the first time at the beginning of '23, we had the situation over there where we did EUR 300 million. We told you that we had the 4 years plan to get to 10%. And I do think I'm allowed to say that we're pretty proud of the development that we have done. Not everything we have done is fantastic, and we are by far not perfect. But I do think you have to admit that we've done a decent job in a very difficult market. And yes, maybe the market will always be difficult. So I will continue to say that. But the need to change things, especially in the development of products and in the supply chain and also the way you go to market and change the attitude has been enormous. And I'm very, very grateful and proud of what our people have done. So with that, I hand over to you again, Seb. Operator: This is the operator. We are not receiving audio from the speaker's line. Sebastian Steffen: We're now ready to take questions. Operator: [Operator Instructions] First question comes from Ed Aubin from Morgan Stanley. Edouard Aubin: So I guess I've got 2 questions on Footwear, Bjorn. So the first one is on Classic and Terrace. So did I understand correctly that you said that Terrace was still growing year-over-year in Q3. And if we look ahead in 2026, if you look at the Classic segment, the slide that you showed us, can Classic expand if Terrace contracts and so how you see that? So that would be question number one. And then question number two, still on Footwear, I am sorry. On the opportunity with kind of Lifestyle Running, one of your distributor a few weeks ago, JD Sports, not to name it, showed a slide showing that for them, at least Lifestyle Running is substantially bigger than Classic. So I was just wondering to what extent how much an opportunity this category? Obviously, you're already making good inroads in Lifestyle Running. but if you can help us kind of size the opportunity, that would be very helpful. Bjorn Gulden: Two good questions, to be honest. Yes, I said and I confirm that the Terrace Group was actually bigger in Q3 this year than it was in Q3 last year. And that even the Samba from a selling point of view is actually bigger than it was a year ago and that we have continuously grown what you call Terrace, these 3 shoes. Again, I think many people are surprised by it and maybe some of our own people too. But the fact of the matter is that with the innovation that we've done on design and materials, we kept it hot. And we have gazillions of different SKUs around the market when it gets to different versions of it. And of course, some market have stagnated and we stopped supplying growth, but other markets are still on a growing trend. And that was also the reason why we were careful with Superstar. And to be honest, also careful with some of the low-profile side because we didn't see the need in, as you correctly say, in the classic range to oversupply too many franchises. We are now transferring the Campus volumes into the Superstar because that's more of the same consumer. And then as I said, when Triple White is coming on, the whole Classic area will get another boost and that is typically then that we will then load on the Stan Smith. I think it's also correct what JD showed you, although it's different from market to market, what they call Lifestyle Running is substantially bigger, especially on the male side than the Classic side. But again, many of the so-called Lifestyle Running shoes might from some of our competitors then not be running. But if you look at it now, we can be very honest. I mean, New Balance and my friends from ASICS have had a big run on shoes from the '90s and from the 2000. And even Hoka and On to be honest, have with their so-called performance shoes also had a run on the Lifestyle side, maybe for an older consumer depending on where you are in the world. So I agree with you, if you cume all that, the category is actually bigger. And that's why it's been so important for us then to put more effort into the Lifestyle Running side, and we have. I mean the EVO SL was meant to be a performance shoe, but it's then gone Lifestyle also. So that's a huge volume for us. The SL 72, which is the 70s running has been great for us. And then some of the other running models have been, I would call it, mixed. What you will see now is that you will, a, see that we are coming out with products around the Jellyfish, meaning the Adistar shoe that Pharrell did with different takedowns. And then we have a series of shoes from also the 2000 with Openmesh and metallics that is already starting to sell. So we will grow in Running Lifestyle in '26, no doubt about it. Will we be market leader in any other segments? I think that's too early to say. And then we have to admit that with the success we had in the Classic, you couldn't expect that we also have the same success in Running, right? There is always a sequential effort here. And then what I'm very, very positive about is, of course, the development of HyperBoost because that form, when we go from performance into lifestyle, you have to remember that all our lifestyle Boost shoes that were new, did well when coming with Boost. And you should not underestimate that comfort and cushioning, extreme cushioning has a lot to say in that segment. So we are very optimistic about that segment, and that's why we put so much effort in actually developing HyperBoost. And yes, it's taken 2.5 years, but that's why it's also a very good product. So I think that's my answer to your 2.5 questions. Operator: The next question comes from Jurgen Kolb from Kepler Cheuvreux. Jurgen Kolb: A quick one, just housekeeping for Harm. You guided for -- you expected EUR 2 billion of roundabout cash at the end of the year. I guess, with the guidance on free cash flow in the fourth quarter, this is still on and you're quite confident to achieve that, just to double check here. And maybe on prices, I think on Reuters, there were some comments on your reaction on the tariffs in the U.S. Maybe, Bjorn, you could double check and again, talk us through what you have done so far in terms of the prices in the U.S. and what we shall expect going into 2026 in order to mitigate the tariff impact. Bjorn Gulden: I can do it first, and Harm can fill in at the back. The mitigation that we have done, which is about EUR 100 million mitigation from where we started with the EUR 200 million plus down to the EUR 120 million. How many components? One is, of course, in the sourcing in the sense that we have worked with suppliers to get better prices of some of these products. It has then been increasing pricing on new products. You have to remember that the price of a product that hasn't hit the market that is not known. So of course, that's where you can increase it without getting a negative reaction that you're increasing. We have tried to keep all carryovers at the lower price points at the same price, so no increase for the consumer, but therefore, better sourcing or more efficient sourcing and then we have increased prices on some of the expensive models because we believe that the consumer and the higher end will be less sensitive to price increases. And then again, then lifted prices on new models that have never been priced before. So that's not going to be visible for anybody else than us. And of course, some of the retailers have been part of the development. That's basically what we've done. Now I have to tell you that the price increases you see in the market and that you can read about the question is, are these prices then going to stay for the consumer or are discounts going to go up? And I think when you look at the U.S. right now, it's pretty heavily discounted. There has been some big brands that have had a lot of inventory. And I think maybe independent of tariffs, there was a lot of discounted products out there and I think that's what the jury on what's going to happen when it gets to sales, meaning the value of the product. And then the margin on the product when it gets to discounting, I think the jury is still out on that because we need to take and counter at the end of the year and then especially at the end of Q1 where most of the products that are then being sold are actually with a higher tariff on the buying price. So I think that's all I can say to you because everything else is just 100 assumptions, right? We actually feel that we told you very early that the gross impact of this in the financial year of '25 will be EUR 200 million plus. We have reduced it to EUR 120 million, so we think we have done a good job. And remember, we were very, very early telling you that we have removed China sourcing almost completely from the U.S. So we're not exposed to this 100% duties that he has done as of November 1. So let's see what the other people say, and then we can compare notes. We feel we've done what we could do. And again, I actually feel pretty good about it. But how the consumer then in the end reacts on everything happening, I think it's too early to say. Harm Ohlmeyer: On your question on the cash on the balance sheet, the EUR 2 billion. I said to the last time, and I confirmed it earlier in the call, will it be exactly EUR 2 billion, depends a little bit on FX and a little bit on the timing. So I wouldn't have sleepless nights if it's EUR 1.9 billion or whatever, but the goal is still to collect on the receivables, and that's what we plan for. So whether it's EUR 1.9 billion or EUR 2 billion, you know, don't get sleepless nights over it, but we want to get close to the EUR 2 billion, that's correct. Operator: The next question comes from the line of Geoff Lowery from Rothschild & Co Redburn. Geoff Lowery: Just one question, please, on China. Could you talk a little bit more about what's powering the performance in terms of product and distribution? Obviously, you've done tremendous cleanup work there over the last couple of years, but the outperformance against the market is looking really very marked at this point. Bjorn Gulden: The strategy in China has been, of course, to compete both against the success of the local brands and, you know, to the Western brands. And we figured pretty quick out that to do that, you need to have more local initiatives and utilize that you have factories in the market so you can go to market quicker and you can actually work with less inventory. So we developed this creation center in Shanghai. We put together a team of Chinese management that also used to work for Adidas in the past and has then worked in other brands to learn how local brands do it and then come back again. And we have, you know, as we speak, between 50% and 60% of the product that we sell, especially on the apparel side, is designed and developed in China. So they are not the same product as you would then design and develop for America or Europe. On footwear, most of the model are franchises that comes out of the global range, but they might be tweaked when it gets to materials. And then there are certain pockets of product that are only for China, also in the lifestyle, even in originals, and especially in performance. We see that the local brands have brought a lot of quality into price points between [ EUR 80 and EUR 100 ], where we were not competitive. And we have then used the creatives and the developers and the factories to develop them competitive products against that. And we have in those, you call them third, fourth, fifth tier cities where the local brands are dominating, we have started opening stores then which focuses on, I call them this value products and have a special offer for them. I think our success when you look at double digit growth and also the margin that we have is because that we have changed that model to be local and that we give the authority to very, very good people. And I also have to say that the energy, I think the LatAm team and the Chinese team are probably the two teams that has, in a market, the highest energy when it gets to actually chasing business, when it gets to where the consumer is. So I would say that's the reason for the success. And I also think it's the only way in the future to get success. I don't think you can sit in neither in the U.S. nor in Europe and just design a collection and tell them to sell it. I don't think that works anymore. Operator: The next question comes from Wendy Liu from JPMorgan. M. Liu: I have two, please. One is on the World Cup. I think, Bjorn, you previously mentioned that it will be a EUR 1 billion opportunity. Would you mind sharing a bit more details about the drivers behind this EUR 1 billion, and how does this compare with previous World Cups? This is number one. Number two, I wanted to go back to the 10% EBIT margin target you had for next year. If I look at this by region, it looks to me like it was really like North America where you probably still have a bit of gap. And then I look at Q3 numbers, 12.4% EBIT margin in North America was actually better than previous couple quarters in last year, despite you have this tariff headwind and you no longer have [ EV ]. So I just wanted to ask what were the drivers and what are your expectations about North America EBIT margin into 2026? Bjorn Gulden: The EUR 1 billion, I think is the number that we have said that we assume that World Cup can bring when we look upon both what we're selling of replicas meaning connected to the teams and cultural relevant I would say products around World Cup. I think the discussion that some analysts have had is this then fully in addition and what I said is that you can never say it's fully in addition because you have to remember that the stores, when you put World Cup product in, you take something else out. So you can never say it's fully, what should I say, in addition. I wasn't at Adidas in the previous World Cup, so I'm not sure, but I would assume that this is 40% or something higher than what we had before, just to give you a ballpark number. And the number is not final. As I said, we launched the ball three weeks ago. It's been tremendously successful, so we might actually take more orders and produce even more than we planned. We are launching the replicas for the home jersey on the 6th of November, so we will see the reaction to that. I will not be surprised when I look at demand around the world that, that will also increase, so the business might even be higher. And we are pretty sure that we will do EUR 1 billion, and I would not be surprised if it is more. When it gets to the 10% EBIT target, I think we've talked about that from a global point of view, and it was the assumptions in '23 that we will keep basically the mix of the business when it gets to D2C and wholesale the same. And with, of course, the development in certain markets that are higher than they are today, You know that the U.S. market, to get really profitable in the U.S., you need scale, and you can clearly see that our profit margin in the U.S. historically has been lower than our major competitors, and that is just because of scale. The improvement that you have seen this year already compared to last year is, of course, that we are doing a better job. The local, what should I say, development, the investment in American sports, the performance in our own stores, have improved the EBIT margin in the U.S. Having said that, there is a huge upside to that if we get more scale. So it's clearly a target for us and also our American management, of course, to grow over proportionally in the U.S. and then put some of that into the leverage when it gets to getting a higher EBIT margin. I think that's my feedback. Operator: The next question comes from Warwick Okines from BNP Paribas Exane. Alexander Richard Okines: I've got one on gross margins, one on costs, please. On gross margins, discounting was a fairly neutral dynamic in Q3. Have you reached the limits of what you can do in full price? And then secondly, on operating costs, I wonder if you could just comment a little bit more about what's happening there. Have you been taking OpEx out of overheads, and if so, have you got any examples of that, or is the cost story more about leverage and the movements in currency? Bjorn Gulden: You know, the gross margin, that has different components because when it gets to the D2C business, we have been very strong on sellout on inline products. The only place where we've been a little bit more promotional has actually been on e-com. And that is because e-com in general has been, you know, I would say aggressive on discount. And we were probably too restrictive on it last year, mainly because we didn't have enough product. And this year, we've been better in supplying product, we have decided to follow certain events more aggressive. But it's not hugely different, though, because the full price sellout has been very strong. The other discount where you don't control, of course, is what are the retailers doing. And depending on how much inventory is in the market from other competitors, and I do assume you are aware of that big competitors have a lot of inventory that the retailers have discounted, And then, of course, that hurts your full price sale because if you are at full price on EUR 100 shoe and the competitor is on 50% on EUR 200 shoe, then, of course, you will sell less. That's just the math. And we hope, of course, that the inventory level in the trade will go down so that the discounting will be slower. But again, that's outside of your control. On lifestyle products and on the new performance product, I would say that our sell-through rate has been very good. But of course, in a very heavy discounted environment, you had sometimes a slower sell-through because of the discount level in general. But that is very different from market-to-market. But sell-through on full price for us has not been the problem, and I think you see that also in our margins, so we're actually very happy with that. When it gets to the cost, I'm looking at you, Harm. Harm Ohlmeyer: Yes, Warwick, good question. There's probably three things I would like to mention. First, I mean, we have been very, very disciplined in the organization around the world because we believe in the past there was a culture of you need to have more people in order to grow the business. And now we put it the other way around. If you do more with one account, whoever the account is, it doesn't mean you need to have more people, right? And even if you, you know, develop the products, you know, I mentioned earlier, the Oasis product is more a batched up, you know, you know, soccer products and you don't need more people in order to do an Oasis range, right? So we put a lot of discipline in, you know, what are the commercial opportunities without asking, you know, for more people. So that has been very disciplined. Secondly, as we said, we have simplified how we run the company overall. We have empowered the markets. It's a new operating model. And we, of course, there were some tasks that we used to be in headquarters that are now being taken over by the markets or there have been duplications, right? And you know that we had a volunteer relief program at the beginning of the year, so that is definitely something that is contributing to that as well. But it's first and foremost simplification of our processes, avoiding duplication. And of course, if you do that, we need fewer people, and that's what you see continuously in the P&L quarter by quarter. Yes, you have a good point. FX helps as well. I mean, that brought the absolute number down in that quarter. But at the end of the day, I want to highlight again, Q3 is a very clean quarter when you look at this here, and that shows you that we can be below, you know, 30% when we have the right top line, right? So that's why I believe regardless of any comparison or path or whatsoever, we show in, you know, with a good top line, we have a clean, you know, cost as well, and that brings us below 30%, and we are not done. Operator: Next question comes from Robert Krankowski from UBS. Robert Krankowski: I've got like two questions. Just first one on the top line, second one on margins. We are almost in 2026 and given your strong confidence around the World Cup, the running category, the lack of easy now in the base, anything that you can see and or any reason why you shouldn't grow double digit in 2026? And then second one on gross margin, like again, we are looking at the gross margin close to 52%, so upper end of your guidance. And next week, we are going to see all the benefits probably of the mix with upper strong growth, as well as some of the transaction effects coming. So how should we think about the gross margin range? Is it more now 52% to 53%, for example, in 2026? Any comment would be really appreciated. Bjorn Gulden: You should be a sales guy, right? I think when you look at '26, we're not guiding it yet. It's the same thing always. We are very conservative when we look into the future because we don't want to disappoint you. We want to bring Q4 behind us. We want to see what's going on in the world. When you look at the industry and you look at what we think we have in the pipeline, I think you're right. But the external factors is; a, how is retail reacting to the uncertainty? How is the consumer reacting? And what other political tensions are getting into the way? Who knows? And the reason why I showed you the slide at the end of the presentation, where we've gone from EUR 300 million EBIT to EUR 2 billion, is, of course, that we think we have; a, taken risk in the sense that we bought enough and marketed enough to actually get there, because growing double-digit three years in a row is, of course, a risk in an environment. And secondly, in the transition to the new business model, you have to remember we changed a lot. So I think it's about, again, how confident are we that we can continue to grow in an environment that they're uncertain? And how can we make sure that we have a base in our organization and the way we work that is aligning to this growth with a new business model? And I think that's the only risk factors. I'm 100% convinced that Adidas is a brand that can stabilize over years a double-digit EBIT. And that the growth to take market shares should be double-digit in most markets, depending, again, what else is happening. And I don't think I can say something else than that because you're going to arrest me, you know, first quarter if something goes wrong, right? When it gets to the margin, is it 52% to 53% again? That, of course, depends on where we are growing then. Are we growing in the e-com side ourselves and in the D2C because, you know, we can do that? Then you're probably right. Are we growing in the markets with high margin like China? Then you're right. The growth for us in the U.S. is, of course, the one with the lowest margin. That's the way it is. So it depends, again, on the mix going forward. But in principle, when we said 50% to 52%, we did not believe that we already would be at 52% now, right? So we have achieved this margin higher or quicker than we thought, and not because of the mix but because of the success in the growth and maybe also because all the brands then didn't have the success that we had. So, again, there's many factors. And, of course, you always want us to be very accurate, but it's very difficult because there's so many variables. We are taking shares, I think, in all markets currently. We have a pipeline of products that we believe in. But of course we do not know these external factors. And of course we don't know what the competitors are doing, especially when it gets to being aggressive on discounts and pricing. So I think that's all I can give you. And I'm looking around if someone wants to add anything. Operator: Next question comes from Aneesha Sherman from Bernstein Societe. Aneesha Sherman: I have two please. The first one's about your running business. It's been growing at strong double digits all year in contrast to the slowdown that we're seeing in some other big running brands. Can you remind us how big your running business is and are you seeing any pressure on order books for 2026 given how competitive this category is becoming? And then related to that, my second question is around marketing. So marketing, you've ramped it slightly through the year. You're still guiding for that 12% level, but we've now seen some big competitors ramping up marketing, trying to gain share. Do you still think 12% is the right level given the increase in competitive intensity, or is there a possibility you might push that up a little bit higher next year? Bjorn Gulden: I don't think Harm will give me more than 12%, to be honest. And I'm not even sure if increasing it will make you more efficient. I mean, marketing is a funny thing because the number itself doesn't necessarily mean that you're better. And I think even in our 12% is not like we will look back and say all the 12% we had were invested the best way. So I think there's room within the 12% to actually do it better. My marketing people will kill me now for saying it, but I think that's the case. So we don't have any plans or needs right now to go above 12%. The beauty would be if we could find ways of actually taking the percentage down, but we also don't have any plans about that because we have said that investment level, when it gets to having the assets, you know, we invest about half of the money in actually having relationship with federations, with teams, with athletes and celebrities and the rest to activate them. And so far, I think that that's been a decent number. If that is changing, I mean, you say people are ramping up, and we don't really see that because, yes, there are some brands who are ramping up, but there's also someone who's slowing down. So when it goes to the competitiveness by actually signing things, I feel it's pretty stable. The best athletes and the hottest celebrities are always getting more expensive. But when you look at the width of it, I don't really see any big differences. The running business, your question is, again, an interesting one. And to quantify exactly how big running is depends on what shoes do you put in there. But I would say it's around EUR 2.5 billion, which, again, when you put that into the context, you will see it is a pretty big running brand. But again, we have created that mostly on the higher end of the pyramid and on the speed thing. And if you look at competitors that have been very successful, they have been much more in the everyday running and especially in the comfort running. And I think we learned from that, and that's also why this hyperboosting is so important for us because we really, really believe that there are Adidas consumers that love a brand who didn't have the products available that they would like to buy from us. And all research that we have done shows that. And we believe that the sector of comfort running, because heavy cushioning, instep comfort, and all those things are also things that people are looking for in their non-performance, what should I say, shoes, meaning in the lifestyle and comfort area. So this hyperboosting is for us very important. We might be a little bit late to the game in your eyes, but we didn't have it ready yet, and that's why we waited. And again, since we were growing anyway and running on the high-end side, we also didn't see the necessity of it. And the third thing is you have to remember we went out of running specialty, meaning that we didn't have any, what should I say, activities and relationships with running specialty because previous management thought we could go D2C on it. To build that back again, a; to hire people to be in the running communities and also to get the specialty to buy into you again, is, of course, something that takes time. And in many, many markets, we were totally out, and the share we have in running specialty in many markets are still very low. And as we're building that with more innovative products and more visibility, of course, we see huge potential in the running category. So that is the category I think that has the biggest potential in performance side to grow in. Operator: The next question comes from Piral Dadhania from RBC. Piral Dadhania: My first question is on the top line, and my second question is on share buyback potential. So sorry to have to come back to this, but could you just help us understand perhaps for the first half of 2026 whether the wholesale order books, which make up like 60% of your revenue base, is showing double-digit revenue growth? I think when you took over, Bjorn, you talked about 10% revenue growth through cycle. So is there anything, aside from obviously the external macro, which is very uncertain, but I think that's true for not just your company but your competitors, is there anything beyond that within your control that would lend itself to a different outcome for '26? And then the second question is just on the buyback potential. I think it's fair to say that the Adidas share price and equity valuation doesn't appear to be fully reflecting all the strong execution and the performance that you're delivering, including relative to peers. I think, Harm, that the initial targets when you guys all took over was to reduce the leverage to 1x net debt to EBITDA to build up a gross cash balance to close to EUR 2 billion, which it looks like you'll achieve either by the end of this year or into the first part of next year. So do we think that a good use of growing free cash flow, especially as the working capital position starts to wind down, as you suggested in your prepared remarks, may be useful in sending a positive signal to the equity markets and to start buying back your stock at a discounted valuation? Bjorn Gulden: I mean, the simple answer to your first question is no. There's no reason why we shouldn't only internal-wise get to the double-digit growth. I think that's fair. And buyback is not my area of speciality, so I give it over to Harm. Harm Ohlmeyer: Piral, thanks for acknowledging that the capital market didn't get our story in full. And that's probably true. So we actually, we look at that when you look at the share price, right? But, first and foremost, we say we want to invest into the operational business. What we have done, you have seen that in the operating working capital. Secondly, you want to be a solid dividend payer, which is always on the 30% to 50% of the net income from continued operations. And then of course, you know, I have a good, good analogy. And what I said, I was one to have EUR 2 billion of cash on the balance sheet. We either, you know, achieve the year end or with some rounding, you know, getting there in Q1. Yes, there are always some cycles from a working capital point of view. But you're absolutely right. So, but that's definitely something we will look into next year when it comes to share buyback, not this year, unless we believe we want to be opportunistic here or there, and then we want to do something short-term, right? But right now, let's get to the EUR 2 billion first and then look at that for next year. That's probably the most logical answer. But we always, you know, look at that opportunistic as well. Operator: Next question comes from Thierry Cota from Bank of America. Thierry Cota: Actually, two questions on Q4 and H2 '25. You've said your implied guidance leads to 6% to 7% organic growth rate in the fourth quarter. So what do you think would be the factors of such a slowdown versus Q3, especially when the Yeezy headwind drops to about 1%. And the second question would be on the EBIT. The EBIT guidance, the new one for '25, implies about EUR 100 million EBIT in the fourth quarter. So what do you think would be the drivers of such a decline versus Q4 '24? So you're on your decline when you remove the one-offs that you saw last year. And I would like to ask, would that be linked to the DNA, which it seems was pretty low in Q3? So is there a catch-up that we could expect in the fourth quarter and impacting negatively the EBIT? Bjorn Gulden: Well, I think as always, Q4 is this quarter where people react to different things, and we are always careful guiding for Q4. It's always the same because we are dependent on that retailers take their order book. We are dependent on what happens when it gets to discounting on the digital side. That's why I think historically you always see me guide very, very conservatively on Q4. I think that's the only reason. And, you know, there might be in the way that we are trying to improve ourselves that we will also have some one-offs that we will do in Q4. So I think it's just a conservative outlook and the need not to say anything that we actually disappoint you because that's always in the way we talk. And then I think there was a question to you, Harm, wasn't there? Harm Ohlmeyer: Yes, there's nothing specific on the depreciation that you called out, and that is not the reason for the Q4, but I want to echo what Bjorn said. I mean, when you get ready for '26, we have achieved a lot in the first nine months, and there's nothing specific we look at last year as well, or even going back in history, what our Q4 was. There's some seasonality in this one, but there's nothing specific we want to call out. So as Bjorn said, I want to make sure that we achieve what we say and then get ready for the World Cup here. Thierry Cota: Sorry, just a follow-up. The DNA again was particularly in Q3. Was there any particular reason for that? And should we expect a rebound in fourth quarter? Harm Ohlmeyer: I'm not aware of any specific reason, quite honestly. Let me come back to you then, Thierry, but I could not say there was any specific in Q3 or anything special for Q4 relative to Q3, but -- and if you look into this one, I'm not have anything specific. Operator: The next question comes from the line of Andreas Riemann from ODDO BHF. Andreas Riemann: Two topics here. One is tariffs. In the past, you stated that the market for takedown versions of tariffs would be larger than the market for original versions of Samba or Gazelle. So today, you didn't mention that. So how relevant are those takedown versions at this stage? And then what markets is the penetration of the takedown versions already quite high? This will be the first topic. And the second one on the cash flow, Harm, you mentioned the EUR 800 million or EUR 1 billion to be generated in Q4, that operating cash flow, right? That's from my side. Bjorn Gulden: Yes. I think I quoted that because normally, when you have higher end price points, the market for the takedowns is bigger, I have to tell that the sell-through of the higher end, meaning the originals, has been so high. So still, the higher end is actually bigger than the takedowns. Having said that, if you look at the family channel, of course, they have followed all these trends. So you will find takedowns of all the [ Terrex ] shoes in the market. But it is true that in this case, and it might have to do that, you know, the original classics and [ Terrex ] are, you know, between EUR 100 and EUR 120. So it's not expensive, expensive, that the higher end of the market has actually been bigger than the takedowns. That might change as we are converting more of the takedowns also into the same materials as we do upstairs. But to be honest with you, because we've been so successful upstairs, we haven't pushed the takedowns as much as I thought that we had to. So this is more of a, what should I say, coincidence in the sense that it has worked so well in the distribution upstairs, also in our D2C, that the need for doing takedowns hasn't been there. So I think this is a very unique situation, to be honest. Harm Ohlmeyer: Yes. And to the second question, we indeed talked about operating cash flow, you're right. Sebastian Steffen: Maura, we have time for 2 more questions. Operator: Next question comes from Anne-Laure Bismuth from HSBC . Anne-Laure Jamain: Yes. My first question is regarding the FX. So can you tell us or help us to quantify what would be the tailwind from FX on margin in 2026? My second question is related to tariff. Actually, regarding the tariffs in Vietnam, a final trade agreement is expected soon. So is there any industry expectation on Vietnam tariff changes for the sportswear industry? And maybe your last one regarding the performance in the U.S. So you talk about the reset in accessories. So is it a one-off impact? So does that mean that all things being equal, you can return to a double-digit growth rate in Q4 -- thank you very much -- in the U.S.? Bjorn Gulden: Well, the tariff for the U.S. hasn't changed. They came out and said they keep it at 20% and then negotiate in categories that might be exempt. But there's nothing new on that. So all products currently is at 20%. And we are not assuming any reduction because that would be dangerous. But, of course, we hope with Vietnam and other markets that shoes and apparel would be exempt. But that's not the case. And I think that came out actually yesterday for many markets, if I'm right. And then when it gets to the US, the accessory business that is not performance-oriented has been, I would say, first of all, a lot China sourcing. So, of course, that had to change. And secondly, it's been in the distribution that you're trying to upgrade. So, It's not a one-off in the sense that there is something you do from today to tomorrow, but I think there's good, good chances that that will come up again to double-digit increases. There's nothing drama in this, to be honest, and maybe we didn't explain it well, but it did hit us in Q3 for those reasons, and then there are plans actually to improve that very quickly. There is also no inventory sitting anywhere to clean up. I think people under or overestimated the impact of this. So I think accessories being global is 7% of our business, and we have said all the time that it should grow quicker over time. It's kind of the last thing in the sequence of footwear apparel that accessories come. And we grew it 1% now, and I do think that in the future when we get to '26, we should see double-digit growth there. I think that's my only answer to it. And don't read too much into this because it is not a big, big thing, to be honest. Harm? Harm Ohlmeyer: Yes, When it comes to the FX for '26, I understand you all want to have a concrete percentage or number for your spreadsheets, but I can just promise you there will be tailwind, given where we're hedged. But there's more than just the U.S. dollar. There are other currencies as well, whether it's the Japanese yen. I talked about Argentinian peso, Mexican peso, the other currencies as well. We have sizable markets, meanwhile, not just in Latin America, but around the world. But also, assume it will be tailwind when it comes to Euro, U.S. dollar. We also are fully hedged already for spring-summer '26, but there are also some open hedges. We normally hedge only 80% of our exposure, so it also depends on where the spot rate is, and we always run a simulated hedge rate if you would close it today, but of course we are waiting. It will be more tailwind if the dollar goes to $1.25, then we probably struggle on the translation again. But overall, we are going very positively from an FX point of view into '26. That's all I can say. Operator: Today's last question comes from the line of Anna Andreeva from Piper Sandler. Anna Andreeva: Happy to have made it. A follow up on North America. Great to hear about the double digit strength in footwear and apparel during the quarter. Can you talk about how lifestyle is performing versus performance in the U.S.? Is Terrace still growing in the U.S.? And what are you seeing with sell-through in Run Specialty and other wholesale partners? And then separately on gross margin, improved very nicely sequentially in the region, despite the tariffs. Maybe talk about what drove that and sustainability of that as we get into the fourth quarter. Bjorn Gulden: I think it's fair to say that the growth in the U.S. has been more lifestyle-driven than performance. I do think it's fair to say that for us to be a real sports plan in the U.S. we need to continue to invest, to get better distribution of a market share in the sports trade is very low. And you're asking about the Running Specialty. We were almost out of it. So we expect actually over the next 18 months to see a pretty high growth when it gets to Running Specialty because you're coming from a low base. And we are a hundred percent sure that the investments that we're currently doing in American sports, connecting to both college and professional sport will help us to get much better distribution with the [indiscernible] of this world and the academies and also in the specialties. So I think it's fair to say that it's obviously been lifestyle-driven so far. Anna Andreeva: Terrific. And on gross margin as a follow-up. Bjorn Gulden: Yes. As I said, I do think that the gross margin in the U.S. is, of course, dependent on that you get good distribution and that you avoid discounting. I do think also that the margin in general in the U.S. has to do with scale. There is an upside on margin in the U.S., no doubt about it. You have seen improvement, and that has, of course, to do that we have had better sell-through, and we got more of the right product into the wholesale business and we have run especially our factory outlet much better than we used to do, but that has clear an upside. So we see optimistic. Okay. If you take the tariffs out, which, of course, is then the negative side of it. But everything being equal, we should be able to build gross margin and actually our operating margin in the U.S. over time because we have not run that market optimal, to be honest with you. Sebastian Steffen: Thanks very much, Anna. Thanks very much, Maura. And of course, thanks very much to Bjorn and Harm. And thanks very much to all of you for participating in our call today. . Before concluding today's call, I would like to highlight that we will be welcoming a group of investors here at the World of Sports next week. We talked quite a bit about our excitement about our product pipeline, be it Hyperboost, be it our new Original sports line, be it the Superstar, but also the material updates within tariff. So if you're interested in experiencing that, then please let us know, and we'll be happy to host you next week as well. If you have any more questions to ask, then please feel free to reach out to Adrian, Philip, myself or any other member of the IR team. And with that, thanks very much again for your participation. We wish you a good and golden autumn season and look forward to chatting with you soon. Bye-bye.
Operator: Greetings. Welcome to the Align Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Shirley Stacy, with Align Technology. You may begin. Shirley Stacy: Good afternoon, and thank you for joining us. I'm Shirley Stacy, Vice President of Corporate Communications and Investor Relations. Joining me for today's call is Joe Hogan, President and CEO; and John Morici, CFO. We issued third quarter 2025 financial results today via Business Wire, which is available on our investor website at investor.aligntech.com. Today's conference call is being audio webcast and will be archived on our website for approximately one month. As a reminder, the information provided and discussed today will include forward-looking statements, including statements about Align's future events and product outlook. These forward-looking statements are only predictions and involve risks and uncertainties that are described in more detail in our most recent periodic reports filed with the Securities and Exchange Commission available on our website and at sec.gov. Actual results may vary significantly and Align expressly assumes no obligation to update any forward-looking statements. We have posted historical financial statements with corresponding reconciliations, including our GAAP to non-GAAP reconciliation, if applicable, and our third quarter 2025 conference call slides on our website under Quarterly Results. Please refer to these files for more detailed information. With that, I'll turn the call over to Align Technology's President and CEO, Joe Hogan. Joe? Joseph Hogan: Thanks, Shirley. Good afternoon, and thanks for joining us today. On our call today, I'll provide an overview of our third quarter results and discuss performance from our two operating segments, Systems and Services and Clear Aligners. John will provide more detail on our Q3 financial performance and comment on our views for the remainder of the year. Following that, I'll come back and summarize a few key points and open the call to questions. I'm pleased to report third quarter revenues, Clear Aligner volumes and non-GAAP operating margins are all above our outlook. Our Q3 results reflect year-over-year growth in Clear Aligner volumes, driven primarily by EMEA and APAC and Latin American regions as well as strong sequential growth from APAC and Latin American regions, driven primarily by teens and kids category. Our Q3 Systems and Services revenues were down year-over-year and sequentially as expected, given Q3 capital equipment seasonality. Q3 non-GAAP operating margin of 23.9% was above our outlook of approximately 22%. While activity in the orthodontic and dental markets remains mixed, especially in North America, the initiatives we're taking to drive consumer demand and patient conversion, including working with our DSO partners, are delivering results and we continue to focus on execution of these go-to-market programs. In addition to the breadth and depth of our global business and product portfolio and consumer preferences for the Align brand are unique advantages that provide balance in a dynamic global market. In fact, the year-over-year Clear Aligner volume growth rate improved from Q2 to Q3 for our top 10 country markets except for Canada. For Q3, total revenues of $996 million increased 1.8% year-over-year and decreased 1.7% sequentially. Q3 Clear Aligner revenues of $806 million increased 2.4% year-over-year and were up slightly sequentially. Q3 Clear Aligner volume of 648,000 cases increased roughly 5% year-over-year and was up slightly sequentially. Q3 Imaging Systems and CAD/CAM services revenues of $190 million decreased slightly year-over-year and was down 8.6% sequentially. For Q3, Systems and Services revenues decreased sequentially as expected primarily due to seasonality. On a year-over-year basis, Q3 Systems and Services revenues decreased slightly, primarily due to lower volumes, offset somewhat by increased scanner services and exocad CAD/CAM sales. Q3 revenues also reflect strong growth from the iTero scanner leases, an important option for doctors that enables greater access to our advanced digital technology. At the end of Q3, the installation of active iTero systems, which includes sales and leasing, continues to expand, and there are over 120,000 units globally, a 12% year-over-year increase. From a regional perspective, Q3 scanner sales increased sequentially in North America among GPs as well in Latin America and APAC regions. On a year-over-year basis, Q3 scanner sales increased in EMEA and Latin American regions. The iTero Lumina with iTero multi-direct capture technology sets a new standard with effortless scanning and superior visualizations helping doctors transition to our advanced imaging systems. For Q3, iTero Lumina represented over 90% of our full system units, and we're still driving adoption and utilization through wand upgrades as well as new full systems installations. Today, we announced a series of new product innovations for iTero Digital Solutions, a comprehensive ecosystem that includes intraoral scanners, integrated software tools designed to transform dental consultations into a modern multimodal oral health assessment that helps doctors and their teams deliver exceptional chairside experiences supporting Invisalign treatment conversion. These new capabilities span key practice workflows that underline the Align digital workflow. From AI-enabled X-ray assessment to dynamic personalized visualization and patient engagement tools at chairside to expand compatibility with 3D printers and milling machines. These new innovations simplify workflows, improve doctor-to-patient communications, increase patient acceptance and drive practice growth. More information on these innovations is available in today's press release and our webcast slides. For exocad, Q3 revenues increased sequentially and year-over-year. During Q3, we began piloting exocad ART in several countries in Europe. And based on the initial learnings, we're expecting to expand to more countries in 2026. Exocad ART stands for Advanced Restorative Treatment, a module with exocad Dental CAD software that bridges orthodontics and restorative dentistry. It enables orthodontists, dentists and dental labs to integrate tooth alignment with restorative procedures and deliver better function, less invasive restorations and longer-lasting and aesthetically superior treatment outcomes. Exocad ART further extends the value of the Align Digital Platform with comprehensive digital workflows and integrated solutions from Invisalign, iTero and exocad. For Clear Aligners, Q3 worldwide volumes were up 0.5% sequentially and up 4.9% year-over-year. For Q3, 88,000 doctors globally submitted Invisalign cases, an all-time record, driven primarily by the GP channel. In addition, Q3 reflects a new all-time high for the number of doctors submitting Invisalign case starts for teens and kids. On a sequential basis, Q3 Clear Aligner volumes reflect strength from the international adult and teen patients as well as North American DSO adult patients, partially offset by the North American retail doctor channel. Year-over-year, Q3 Clear Aligner volume reflects strong growth across the APAC and EMEA regions, offset somewhat by North America. Q3 Clear Aligner volumes increased year-over-year for both orthodontists and GPs, driven by growth across adults, teens and kids and continued strength by DSOs. From a product perspective, for Q3, we had strong year-over-year growth from Invisalign First, DSP touch-up cases, Invisalign Palatal Expander, retention including DSP as well as continued mix shift from non-comprehensive Clear Aligner products. For the Americas, Q3 Clear Aligner volumes were down year-over-year, primarily due to North America, partially offset by continued growth in Latin America. Despite lower volumes, increased adoption of several products, including Invisalign First for teens and kids, Invisalign DSP touch-up cases, including retention and the Invisalign Palatal Expander system continued. We also saw double-digit growth year-over-year from North America DSOs. Given the economies of scales and more effective optimal cost structures inherent in their business model, we anticipate that our DSO partners will continue to grow their Invisalign business and are one of the best examples of how to incorporate our digital technology and workflows to accelerate practice growth. To offset a financial barrier for patients interested in Invisalign treatment, Align and Healthcare Finance Direct, or HFD, are partnering to increase the affordability of treatment. HFD is a preferred patient financing partner and provides our Invisalign trained doctors with greater options to support their patients and enhance their practices. Among DSOs and doctors enrolled in HFD, enrollment is growing, and we have noticed an incremental lift in Invisalign treatment that we expect will continue. In the EMEA region, Q3 Clear Aligner volumes grew double digits year-over-year, driven by increased submitters and utilization in the orthodontic channel with strength in teens, kids and adult categories. This performance reflects continued adoption of non-comprehensive products, including moderate DSP touch-up cases including retention and Invisalign Palatal expander as well as Invisalign Comprehensive Three and Three and Invisalign First within our comprehensive portfolio. During the quarter, we saw strong double-digit DSO growth in EMEA on a year-over-year basis. For the APAC region, Q3 Clear Aligner volume grew double digit year-over-year, reflecting increased submitters and utilization across both the GP and orthodontics channel, across teens and growing kids, led by China. Invisalign First continues to contribute to year-over-year growth, where the growing patient portfolio provides a significant opportunity in the region with some of the highest rates of complex malocclusion. DSO performance has also -- is also up double digits on a year-over-year basis, led by China and Japan. In addition, Q3 strong retention performance on a year-over-year basis reflects increasing submitters and utilization across both the GP and orthodontist channel. In Q3, over 256,000 teams and growing kids started treatment with Invisalign Clear Aligners. This number represents a 14.7% sequential increase, primarily due to strength in APAC, North America and Latin America, partially offset by softer performance in EMEA due to seasonality. On a year-over-year basis, case starts increased 8.3%, driven by growth in APAC, EMEA and Latin America, partially offset by North America. From a product standpoint, Invisalign First and Invisalign Palatal expander, or IPE, continued to drive growth year-over-year across all regions. During the quarter, we achieved a record number of teen and kids cases shipped in the quarter, representing a record 40% mix of total Clear Aligner cases shipped. For Q3, the number of doctors submitting cases starts for teens and kids was up 3.8% year-over-year, led by continued strength from doctors treating young kids or growing patients with Invisalign First aligners and Invisalign Palatal expander. During Q3, we continued to roll out the Invisalign Palatal Expander system and Invisalign system with mandibular advancement featuring occlusal blocks or what we call MAOB. IPE offers a more hygienic and comfortable alternative to traditional metal expanders that has proven clinically effective at achieving the expansion doctors want for their patients. MAOB is designed to create Class II skeletal and dental malocclusions in growing patients ages 10 to 16 by simultaneously advancing the mandible and aligning the teeth. By integrating solid occlusal blocks into Clear Aligners, MAOB offers greater durability and vertical opening for early mandibular advancement, precision wings that guide the lower jaw forward and SmartTrack material and SmartForce features for predictable tooth movement. Today announced ClinCheck Live Plan. It's a new feature in Invisalign digital treatment planning that automates the generation of initial doctor-ready treatment plans in 15 minutes. This advancement represents a major technical milestone for the Align Digital platform that can reduce the Invisalign treatment planning cycle from days to minutes. ClinCheck Live Plan is built on Align's proprietary data and algorithms derived from decades of research and development and the experience of doctors who have treated more than 21 million Invisalign patients worldwide. With ClinCheck Live Plan, doctors have the option to treatment plan in the moment and can receive a fully customized initial ClinCheck treatment plan in about 15 minutes after submitting an eligible case with Flex Rx. Doctors then have the option to review the proposed tooth movements and approve the case while the patient is still in the office. This can enable the doctor to receive and approve the treatment plan faster, which can lead to the patients starting Invisalign faster, ultimately increasing the office efficiency and improving the patient experience. Over the past few years, Align has introduced a range of new treatment planning tools to enhance consistency, doctor control, and speed and treatment planning. I often refer to these innovations as touchless ClinCheck or ClinCheck in minutes to emphasize the potential for the software to totally transform the treatment planning experience for doctors and their patients. To that end, we continue to make great progress in automation with machine learning and AI-powered technologies that are the foundation of our next-generation treatment planning offerings. I'm excited by our continued progress and immeasurable impact we are beginning to see. The use of Invisalign Flex Rx has doubled every year. And to date, over 1 million Invisalign cases have been submitted through Flex Rx for personalized treatment plans. In addition, we now have over 100 Invisalign Palatal Expander clinical cases published in the Align Global Gallery, both unprecedented milestones for new product introductions in the orthodontic market. With that, I'll turn the call over to John. John Morici: Thanks, Joe. Now for our Q3 financial results. Total revenues for the third quarter were $995.7 million, down 1.7% from the prior quarter and up 1.8% from the corresponding quarter a year ago. On a constant currency basis, Q3 revenues were favorably impacted by approximately $11.7 million or approximately 1.2% sequentially and were favorably impacted by approximately $15.6 million year-over-year or approximately 1.6%. Q3 Clear Aligner revenues were $805.8 million, slightly up primarily due to favorable foreign exchange and a price increase in the U.K. on August 1, partially offset by product mix shift to lower prices -- lower-priced countries and products. Favorable foreign exchange impacted Q3 Clear Aligner revenues by approximately $9.8 million or approximately 1.2% sequentially. Q3 Clear Aligner average per case shipment price was $1,245, a $5 decrease on a sequential basis, primarily due to slightly more pronounced product mix shift to lower-priced countries and products, partially offset by favorable foreign exchange and a price increase in the U.K. On a like-for-like basis, Q3 Clear Aligner ASPs for the U.S. and EMEA were up sequentially. On a year-over-year basis, Q3 Clear Aligner revenues were up 2.4%, primarily from higher volume, price increases and favorable foreign exchange, lower net deferrals, partially offset by higher discounts and product mix shift to lower-priced countries and products. Favorable foreign exchange impacted Q3 Clear Aligner revenues by approximately $13 million or approximately 1.6% year-over-year. Q3 Clear Aligner average per case shipment price was $1,245, down $30 on a year-over-year basis, primarily due to discounts and product mix shift to lower-priced countries and products, partially offset by price increases and favorable foreign exchange. Clear Aligner deferred revenues on the balance sheet as of September 30, 2025, decreased $19.5 million or 1.6% sequentially and decreased $78.7 million or 6.2% year-over-year and will be recognized as additional aligners are shipped under each sales contract. Q3 Systems and Services revenues of $189.9 million were down 8.6% sequentially, primarily due to lower scanner wand sales and scanner system sales, partially offset by favorable foreign exchange and higher nonsystem sales. Q3 Systems and Services revenues were down 0.6% year-over-year, primarily due to lower scanner system sales, partially offset by higher scanner wand sales, higher nonsystem sales and favorable foreign exchange. foreign exchange favorably impacted Q3 Systems and Services revenues by approximately $1.8 million sequentially or approximately 1%. On a year-over-year basis, Systems and Services revenues were favorably impacted by foreign exchange of approximately $2.6 million or approximately 1.4%. Systems and services deferred revenues decreased $7.9 million or 4% sequentially and decreased $30.9 million or 13.9% year-over-year, due in part to shorter duration of service contracts selected by customers on initial scanner system purchases. Moving on to gross margin. Third quarter overall gross margin was 64.2%, down 5.7 points sequentially and down 5.5 points year-over-year, primarily due to restructuring and other noncash charges, impairment on assets held for sale, depreciation expense on assets to be disposed of other than by sale and excess inventory write-off, partially offset by operational efficiencies. Overall gross margin was favorably impacted by foreign exchange of 0.4 points sequentially and 0.6 points on a year-over-year basis. On a non-GAAP basis, which excludes the impact of the above-mentioned restructuring and other noncash charges, gross margin for the third quarter was 70.4%, down 0.1 points sequentially and flat year-over-year. Clear Aligner gross margin for the third quarter was 64.9%, down 5.2 points sequentially, primarily due to restructuring and other noncash charges, Foreign exchange favorably impacted Clear Aligner gross margin by approximately 0.4 points sequentially. Clear Aligner gross margin for the third quarter was down 5.4 points year-over-year, primarily due to the restructuring and other noncash charges, partially offset by operational efficiencies. Foreign exchange favorably impacted Clear Aligner gross margin by approximately 0.6 points year-over-year. Systems and Services gross margin for the third quarter was 61.3%, down 8.2 points sequentially, primarily due to excess inventory write-off. Foreign exchange favorably impacted the Systems and Services gross margin by approximately 0.4 points sequentially. Systems and Services gross margin for the third quarter was down 6.2 points year-over-year, primarily due to excess inventory write-off. Foreign exchange favorably impacted the Systems and Services gross margin by approximately 0.5 points year-over-year. Q3 operating expenses were $542.9 million, down 0.4% sequentially and up 4.5% year-over-year. On a sequential basis, operating expenses were $2.2 million lower, primarily due to lower consumer marketing spend, partially offset by restructuring costs. Year-over-year operating expenses increased $23.4 million, primarily due to restructuring costs and partially offset by lower consumer marketing spend. On a non-GAAP basis, excluding stock-based compensation, restructuring and other charges and amortization of acquired intangibles related to certain acquisitions, operating expenses were $463.3 million, down 6.9% sequentially and 2% year-over-year. Our third quarter operating income of $96.3 million resulted in an operating margin of 9.7%, down approximately 6.4 points sequentially and down approximately 6.9 points year-over-year due to Q3 restructuring and other charges of $36.3 million, primarily related to post-employment benefits and other noncash items, including the impairment of assets held for sale, depreciation expense on assets to be disposed of other than by sale and impairment loss on inventory for an aggregate of $88.3 million. Operating margin was favorably impacted from foreign exchange by approximately 0.4 points sequentially and 0.5 points year-over-year. On a non-GAAP basis, which excludes stock-based compensation, restructuring and other charges, impairments on assets held for sale, impairment loss on inventory, depreciation expense on assets disposed of other than sale and amortization of intangibles related to certain acquisitions, operating margin for the third quarter was 23.9%, up 2.6 points sequentially and up 1.8 points year-over-year. Interest and other income and expense net for the third quarter was an expense of $1.6 million compared to an income of $10.5 million in Q2 '25, primarily due to foreign exchange fluctuations on open assets and liabilities. On a year-over-year basis, Q3 interest and other income and expense was unfavorable compared to an income of $3.6 million in Q3 2024, primarily driven by unfavorable foreign exchange movements and lower interest income. The GAAP effective tax rate for the third quarter was 40.1% compared to 28.2% in the second quarter and 30.1% in the quarter of the prior year. The third quarter GAAP effective tax rate was higher than the second quarter effective tax rate and the third quarter effective tax rate of the prior year, primarily due to the change in our jurisdictional mix of income due to restructuring, partially offset by lower U.S. minimum tax on foreign earnings and changes in the newly enacted tax law. On a non-GAAP basis, our effective tax rate in the third quarter was 20%, which reflects our long-term projected tax rate. Third quarter net income per share was $0.78, down $0.93 sequentially and down $0.77 compared to the prior year. Our EPS was favorably impacted by $0.02 on a sequential basis and $0.03 on a year-over-year basis due to foreign exchange. On a non-GAAP basis, net income per diluted share was $2.61 for the third quarter, up $0.11 sequentially and up $0.26 year-over-year. Moving on to the balance sheet. As of September 30, 2025, cash and cash equivalents were $1.0046 billion, up sequentially $103.4 million and down $37.3 million year-over-year. Of the $1.004.6 billion balance, $190.8 million was held in the U.S. and $813.8 million was held by our international entities. During Q3, we repurchased approximately 0.5 million shares of our common stock at an average share price of $136.77. These repurchases were made pursuant to the $200 million open market repurchase plan announced on August 5, 2025, which we expect will be completed in January of 2026. As of September 30, 2025, $928.4 million remains available for repurchase of our common stock under our previously announced April 2025 repurchase program. Q3 accounts receivable balance was $1.0994 billion down sequentially. Our overall days sales outstanding was 101 days, up approximately 2 days sequentially and up approximately 8 days as compared to Q3 2024 and primarily reflects flexible payment terms that are part of our ongoing efforts to support Invisalign practices. Cash flow from operations for the third quarter was $188.7 million. Capital expenditures for the third quarter were $19.8 million, primarily related to investments in our manufacturing capacity and facilities. Free cash flow, defined as cash flow from operations minus capital expenditures amounted to $169 million. I'd like to provide the following remarks regarding U.K. VAT and U.S. tariffs as of September 30. As previously disclosed in our Q3 earnings release and conference call on July 30, 2025, we stopped charging VAT to impacted customers in the U.K. As of August 1, 2025, our invoices no longer include the U.K. VAT rate of 20% for all Invisalign treatment packages that were ClinCheck approved as of August 1, 2025, and for refinement and replacement aligners, Vivera retainers, PVS processing fees and additional aligners placed on or after August 1, 2025. At the same time, we simultaneously adjusted prices for our Clear Aligners and retainers to keep the overall price consistent. Currently, we do not expect a material change to our result of operations as a consequence of the latest U.S. tariff actions, and we refer you to our Q1 2025 press release and earnings materials as well as our Q2 2025 webcast slides which includes specifics regarding potential tariffs -- impacts of U.S. tariffs. Assuming no circumstances occur beyond our control, such as foreign exchange, macroeconomic conditions and changes to our current applicable duties, including tariffs and other fees that could impact our business, we provide the following business outlook for Q4: We expect Q4 2025 worldwide revenues to be in the range of $1.025 billion to $1.045 billion, up sequentially from Q3 of 2025. We expect Q4 Clear Aligner volume and Clear Aligner average selling price to be up sequentially from favorable geographic mix. We expect Q4 2025 Systems and Services revenues to be up sequentially, consistent with typical Q4 seasonality. We expect Q4 2025 worldwide GAAP gross margins to be 65.5% to 66%, up sequentially from higher revenue, lower restructuring and other charges, noncash items, such as impairment loss on assets held for sale and impairment loss on inventory, partially offset by higher depreciation on assets disposed of other than by sale. We expect non-GAAP gross margin to be approximately 71%. We expect our Q4 2025 GAAP operating margin to be 15.3% to 15.8% up sequentially, primarily from lower restructuring and other charges, noncash items such as impairment loss on assets held for sale and impairment loss on inventory, partially offset by higher depreciation on assets disposed of other than by sale. We expect Q4 non-GAAP operating margin to be approximately 26%. For fiscal 2025, we expect 2025 Clear Aligner volume growth to be mid-single digits and revenue growth to be flat to slightly up from 2024, assuming foreign exchange at current spot rates. We expect fiscal 2025 GAAP operating margin to be around 13.6% to 13.8%, down year-over-year due to higher restructuring and other charges and the incurrence of noncash charges expected to be approximately $145 million to $155 million primarily for the impairment loss on assets held for sale, depreciation on assets disposed of other than by sale and impairment loss on inventory, partially offset by lower legal settlement loss. Most of the onetime charges will be noncash with the expected cash outlay for 2025 estimated to be around $45 million. We expect the 2025 non-GAAP operating margin to be slightly above 22.5%. We expect our investments in capital expenditures for fiscal 2025 to be approximately $100 million. Capital expenditures primarily relate to technology upgrades. We are nearing completion of the restructuring actions that are intended to sharpen operational focus, reduce ongoing costs and enhance capital efficiency. For fiscal 2026, we expect these restructuring actions as well as other initiatives to improve our GAAP and non-GAAP operating margin by at least 100 basis points year-over-year. With that, I'll turn it back over to Joe for final comments. Joe? Joseph Hogan: Thanks, John. In summary, I'm pleased with our third quarter results and encouraged by the sequential and year-over-year growth in the Clear Aligner segment as well as the continued expansion of our digital scanning solutions and footprint. While the North American retail doctor channel remains mixed, we continue to see strength in our other key geographies and areas of our portfolio, including teens and kids, and digital workflow innovation as demonstrated by continued strong double-digit year-over-year growth by our DSOs. Our investment in AI-powered treatment planning software, direct 3D printing of aligners and next-generation iTero Lumina scanning technology are key to helping doctors deliver better outcomes more effectively and efficiently, while enhancing the patient experience. Looking ahead, we intend to remain flexible in navigating headwinds in the U.S. dental market and are committed to supporting our doctor customers with localized marketing, education and clinical support across all regions. We're making good progress against our strategic initiatives to drive long-term growth across our business, and we're excited about the opportunities to further expand our reach, deepen engagement with consumers and providers and deliver value to our shareholders. Before we wrap up, I want to take a moment to express my sincere gratitude to the doctors around the world who continue to trust the Align team and our technology to transform smiles and change lives. Your partnership and commitment to patient care inspire us every day. We appreciate your continued support and confidence. I also want to thank our employees who continue to demonstrate agility, innovation and resilience in everything they do to deliver and extend our leadership in digital orthodontics and restorative dentistry. With that, I thank you for your time today, and I'll turn it over to the operator. Operator? Operator: [Operator Instructions] Our first question comes from the line of Elizabeth Anderson at Evercore ISI. Elizabeth Anderson: Congrats on a nice quarter. It was really nice to see the acceleration in cases in the quarter. I was wondering if you would mind commenting on any early 4Q comments -- color that you've seen in terms of the end market. And also, just if you could comment a little bit further about the new ClinCheck launch and what you think the expected impact on the gross margins will be? Joseph Hogan: Yes. Elizabeth, look, obviously, we felt good about third quarter overall. We are just looking forward to moving forward. The technology we're talking about incorporating overall, it is a comprehensive type of solution we've been developing over a series of years. I can see it -- two critical targets here is one to make it much more efficient for our doctors to be able to convert cases and understand the difficulty of cases and get the proper type of a structure for that case. And secondly, it helps us from an efficiency standpoint also in the sense of we can take our time with customers on other things that are maybe more difficult. So it's great to see these things coming together. It's not just a productivity tool for those doctors also. It also helps them in their communications. We talked about the 15-minute, the live update piece. As you can be able to address that patient in that chair in 15 minutes, you have a much better chance of closing the case because you know what the extent of the case will be and how long it will be. So we're excited about that, Elizabeth. Operator: Our next question comes from Jon Block at Stifel. Jonathan Block: Look, not many blemishes, but I'll try to find one. So ASP was supposed to be up a smidge Q-over-Q. It was down a bit. John, I think I heard you right, you mentioned country mix. So I think like-for-like was still maybe what you expected. But for 4Q, you do expect it to be up sequentially. Just help me out with that. So I'm guessing a full quarter of that probably helps with that. What else gets it up sequentially? And then just more big picture, Joe, for you, if you want to comment on the pricing environment and really any thoughts on the timing about the potential rollout of what we're at least referring to as no refinement plan? And then I'll ask a follow-up. John Morici: Yes, Jon, I'll take the first one on the ASP. It was really just the growth that we saw in some of the markets like China that has a lower ASP compared to Europe. So the opposite of that happened in Q4. Europe becomes bigger as a percentage of our total. They come out of their holiday season and that shows up in Q4 and China as a percentage comes down in Q4. So you really -- those 2 geographies drive a fair amount of ASP impact. Joseph Hogan: And Jon, your bigger picture on the no refinement plan. You can see we've been evolving on that route for a while, Jon. I mean, obviously, we went from a 5 x 5 to a 3 x 3, our moderate products and those kinds of things normally didn't have any more than one aligner associated with it. So I look at this as not like a phase transformation. I look at this as a continued evolution in the sense of serving our doctors the way they want to be served. And you think about it, too, Jon. I think what we've done is developed the technology over the years in a sense that doctors understand these malocclusions. They don't need 5 additional aligners in most cases to be able to address things and they want that optionality to say, "I know this case. I think I can get it done without refinements," or "I can buy one if I do get in trouble," or "I'll buy an insurance policy because I'm not sure." So it's just -- it's an improvement in technology, but it's also an improvement in confidence in the sense that we have in developing our cases and the doctors do, too. Jonathan Block: Okay. That was helpful. And I'll pivot for the second one. Maybe this falls to both of you guys again. You've certainly given some 2026 margin thoughts and the 100 bps is good to see. Just any high-level discussion on the top line next year. It seems like, Joe, like half the Clear Aligner business is growing double digit. The other half is flat to down, being North America. Systems and Services, at least in my view, is maybe a little bit longer in the tooth regarding the Lumina product cycle. John, you talked about ASPs being down low single digits. And when I roll that up, I land up LSD when you think about all those moving parts, but anything directionally for us to think about to sort of pair with the margin commentary? Joseph Hogan: Jon, I'll take a shot at that, but that's a big question, right? So I mean, obviously, we gave you a fourth quarter, and we feel good about those projections that we have in the fourth quarter overall. Obviously, if you look at -- in my script, Jon, we talked about third quarter versus second quarter, we had 9 of our top 10 countries were up. And so we're seeing good robust growth. Our biggest issue is actually North America retail. And obviously, in North America DSO, we talk about it a lot. That growth is over 20% in some areas. And so we look to help us solidify that as we go into the fourth quarter. We think we'll continue with a strong global type of presence that we have. Right now, I'm not making any predictions for 2026. Operator: Our next question comes from Michael Cherny at Leerink Partners. Michael Cherny: Maybe, Joe, if I can just follow up on that last comment you made, at least in terms of the markets in North America. As you think about that retail customer, I'm trying to wrap in a lot of comments we already had, but what do you think is the biggest gating factor do you think gets them back to some level of, I don't want to call it, normalized demand, new normal demand, whatever it might be? And what can Align proactively do relative to waiting out the macro in order to help them get there? Joseph Hogan: Michael, it's a good question. I'd say if you break down, again, North America retail side, Canada, we've had more pressure in Canada than I reported than we had in the United States. But overall, I think we continue to push hard on the DSO side because we know that, that works both on the GP side and on orthodontic side. Secondly is we feel like moving downstream from a marketing standpoint, getting close to our customers, advertising more around ZIP codes and all that can direct those patients to those doctors because I still lean into -- these are economic issues that I think that the retail customers feel more than what I call the business-oriented DSOs that we have out there. And as much as we can leverage our brand and the strength of our portfolio to help to drive that, I think it'll help to drive the marketplace, too. I mean, ultimately, what addresses this, I think, is a much more confident U.S. consumer, but we can't wait for that. So we're going to use our brand. We're going to use our technology. You'll see us use our field force to get closer to our retail customers and doctors and try to help them out as much as we possibly can. Operator: Our next question comes from Jeff Johnson at Baird. Jeffrey Johnson: Joe, just -- I promised you when I met you or when I saw you last time in Vegas that I was going to try to maybe get you to give us a little more detail by geography than you do on these high-level comments. So on EMEA and APAC, I think I heard you say up double digits year-over-year in both markets on Clear Aligner volumes. Just one, want to confirm that was the case on a year-over-year basis; and two, are we talking kind of 10%, 11% there? Just trying to kind of use those numbers to back into how much if North America would have been down a few points or down more than kind of that low single digits, more in the mid-single-digit range from a North American case volume standpoint. Joseph Hogan: Jeff, overall, to confirm that double-digit year-over-year growth that we talked about. Again, it was widespread. We talked about our top 10 countries. India being one that's growing well, Turkey in different areas, really strong performance in EMEA overall. So Jeff, I'm not ready to give any kind of broad specific numbers on the double-digit piece, but it's robust in a lot of different parts of the world, which gives us a lot of confidence in the sense that we can keep that kind of momentum, but also to make sure from a resource standpoint and a focus standpoint, we start to move our retail doctors in the United States more towards positive growth. Jeffrey Johnson: Yes. All right. And then just on the U.S. side, I mean, obviously, that's where the biggest headwind remains. You talked last quarter about kind of the gross receipts looking good, but then the case is not closing. Any change in behavior? Did any of that clear itself up a little bit? Did it get a little worse? And I think more importantly, on that front, just as 3Q itself played out in that retail channel, just again any kind of incremental improvements or degradations throughout the period. We did see consumer confidence come off in September and then again in October. So would just love to hear kind of what the exit rate might have looked like on 3Q as we head into 4Q here as well from a U.S. standpoint. Joseph Hogan: Yes. Jeff, I'd say we did dig down into gross receipts and CCAs last quarter to try to explain what had occurred. I can tell you there's no primary change or any kind of material change in that data at all. It differs all over the world. We watch each one of those countries. There's really nothing to report on in that sense. I think what you just mentioned at the end of your question is obviously, you're watching the North American marketplace pretty closely and what you see consumer confidence and different things. But -- and again, nothing has really changed in the sense of how -- from an overall sales standpoint, how our DSOs continue to grow and how our retail accounts continue to be challenged. I guess I'd overemphasized. It didn't get any worse. It's consistent. Operator: Our next question comes from Brandon Vazquez at William Blair. Brandon Vazquez: Can I first start on the orthodontic side or more specifically, the teens? That seemed to be a nice highlight of the quarter. Last quarter, we were talking about this kind of shift back towards wires and brackets in kind of difficult macro times. I didn't hear any of that this quarter encouragingly. So maybe just spend a minute on teens, what was driving kind of the growth there? And do you think we're moving past this kind of shift back to wires and brackets again and we're a little bit back on the offensive there? Joseph Hogan: Yes. I think overall, when you look at that teen increase, I mean, it was pretty phenomenal when you look at the growth. Remember, it's a big China growth period for us from a teen standpoint. That's their season. And we saw really substantial growth there, which is tremendous. What's helping to drive the growth also are our new products like IPE and mandibular advancement with occlusal blocks. It just gives us more leverage to be able to start those patients earlier. And often, as we mentioned before, Brandon, Invisalign First, goes along with those products one way or another to be able to address different types of expansions or different kinds of malocclusion. So what I like about the teens is it had good breadth to it all over the world. We saw the same thing in Europe also and in some of the emerging economies that we're doing. Again, I think it's the penetration that we're getting in those areas, but also our technology, the breadth of our technology, particularly for early interventions in kids. Brandon Vazquez: Okay. And maybe as a follow-up here, switching gears a little bit. The -- one of the common themes that I've been hearing among many in the dental space, including yourselves, is that DSOs seem to have some kind of algorithm working correctly here, driving growth in some different segments within dental. I don't know if you guys will give this number, but just out of curiosity, if you will, what percent of your business is DSOs at this point, roughly speaking? Can maybe spend a minute or two on why they specifically are doing better and if that should be durable as we head into next year? John Morici: Yes. Overall, Brandon, it's about in the 25% or so. It varies by country, as you know, but that's probably a good ballpark to be in. Operator: Our next question comes from Steven Valiquette at Mizuhu Securities. Steven Valiquette: So I guess from my side, I was just curious to hear more color around the evolution of the HFD patient financing partnership. Just curious if that help in any notable way to help get patients across the finish line in the third quarter? Or is that still maybe going to be just a bigger factor for the fourth quarter and into 2026, where that stands right now? John Morici: Steve, this is John. Yes, I would say it's healthy, and we're seeing more and more doctors use it. You see it across some of the DSOs. They've taken advantage of that as well. But when patients are -- potential patients are deciding whether they want to go into treatment and it usually comes down to some type of pricing, what's the overall price? And then in all cases, it gets down to how much is it per month if I don't pay it outright. So HFD becomes more critical with that. We like the partnership that we're seeing and more and more doctors are using it. So I would say it's playing out how we wanted it to in the third quarter, and I would expect that we'd see more of that in Q4 and beyond. Operator: Our next question comes from Jason Bednar at Piper Sandler. Jason Bednar: I wanted to start on the China market. It sounds like a pretty good third quarter you had there. Just wondering, any updated perspective on the competitive landscape and anticipated VBP in that market as well as how or whether you plan to adjust your go-to-market and pricing strategy in light of VBP. Joseph Hogan: Jason, I mean, we're aware of what's going on from the VBP standpoint. It's still not clear exactly what provinces at all will be included in that and exactly when it will be implemented. But we're positioning ourselves because we know, ultimately, that's probably going to happen one way or another. But I don't have any new news to report versus what we had in the second quarter. Jason Bednar: Okay. And Joe, when you say you're positioning yourself, maybe what exactly do you mean by that? And then I'll just ask my follow-up now. I wanted to drill down on the topic du jour here that U.S. retail commentary you're giving. The DSOs doing well. They're up strong double digits. Sure, they're more sophisticated. But it's also evidence this isn't necessarily just a consumer spending problem in the U.S. So I guess I'm wondering out loud if it's not an economic or consumer spending problem and maybe the business that you're -- that's more sensitive here is some maybe lower volume, maybe lower ROI business for you in accounts that have more economic incentive to switch or convert to a cheaper alternative. I guess, how much effort do you put behind defending that business, especially at a time when you're really committed to delivering on margin expansion targets next year? Joseph Hogan: Yes. I guess the first part of your second question was about China again. Remember, there are a lot of Tier 3 and Tier 4 cities. So we did have to make sure that our portfolio is structured properly to be able to get at those types of patients because primarily, we've been structured around private patients in the larger areas of China. Overall, when you say defending things, I think -- I'd like to think that we expand markets with our new technology and what we do. And I mean, obviously, we have to defend certain territories in certain areas. But I look at this market as a market that we can expand. And obviously, we've had a difficult second quarter and whatever. And -- but as we continue to develop technology, remember, 75% of the people out there still have a malocclusion and there's a lot that we can address by this overall. So part of this is not just playing defense, it's playing offense to help to grow that marketplace. And so that's not just in the United States or different parts of North America. That's all over the world. And you can see that strength in the business as we reported in the third quarter. John Morici: And I would say just to close on your DSO comment, I think that some DSOs are doing a really good job. They're recognizing what's happening in the marketplace. And they're seeing that maybe consumers that they're out, maybe they're coming in for a cleaning. What do those DSOs do? They're scanning most patients. They're giving them a lot of visualization kind of before and after. Many of them are competitive from a price standpoint, an overall price standpoint, and almost all of them are doing external -- internal and external financing like an HFD. So they're really working. It's not to say everybody is on the same page and some retail doctors are doing this as well, but DSOs kind of en masse are taking that digital orthodontic approach and then being very patient sensitive in terms of how do they get that patient into treatment. And that's just a great example of the market opportunities that's there, but doing it in a way that really tries to get those potential patients excited about treatment. Operator: Our next question comes from Vik Chopra at Wells Fargo. Vikramjeet Chopra: I just want to confirm that you're still confident in your 5% to 15% growth targets that you laid out in your LRP. And if so, is mid-single-digit top line growth on the table for next year? Joseph Hogan: Vik, we're sticking with our 5% to 15% plan for the future. That hasn't changed, and we really believe the business can do it. Operator: Our next question comes from Michael Ryskin at Bank of America. Michael Ryskin: I'll just ask one. You called out some of the geographic mix shift in terms of how that impacted ASP as you went through the year between Americas and China and EMEA. You also had an FX tailwind that I think, I mean, actually started as a headwind in 1Q, kind of was essentially neutral in 2Q, and it became more of a tailwind in 3Q. And then I look at the sort of like list of reported ASPs, it's been relatively consistent in the $1,240, $1,250 range. So if you adjust for some of that FX becoming more and more favorable as we go through the year, there is -- it does look like the underlying ASPs are a little bit weaker. Is that purely just attributed to the geo mix and maybe product mix? Or is there anything else going on there you can point to? John Morici: Yes, Michael, this is John. So when you look at a like-for-like on, say, Europe or like-for-like within the U.S., actually ASPs are up on a quarter-over-quarter basis. We just have as such -- we're very pleased with the volumes that we saw in some of these emerging markets, like China and so on for us. It's just that the ASP is lower. And that's the effect that we saw. So despite the FX and everything else, it's that country mix that drives that ASP lower. Had we not -- if you took China out, our ASPs would have been up significantly or pretty well from Q2 to Q3. It's just that you've got that country mix piece of it that comes in. And then you see the converse of that in Q4, where you have less China in Q4, more Europe, as an example, there's just a difference in ASP and you will see an ASP improvement as we go from 3Q to 4Q. Operator: Our last question comes from Erin Wright at Morgan Stanley. Erin, your line is open. Joseph Hogan: Erin, sorry, we can't hear anything. Shirley Stacy: Yes, happy to circle back. Operator: He has left. Shirley Stacy: Okay. Thank you, operator. I think we'll go ahead and close off the conference call. So thank you, everyone, for joining us today. We appreciate it and look forward to the opportunity to meet with you at upcoming investor conferences and industry events. If you have any follow-up questions, please contact Align Investor Relations. And I hope you have a great day. Thanks. Operator: Thank you. This concludes today's conference, and you may now disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, welcome to the Q3 2025 Analyst Conference Call. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ioana Patriniche, Head of Investor Relations. Please go ahead. Ioana Patriniche: Thank you for joining us for our third quarter 2025 results call. As usual, our Chief Executive Officer, Christian Sewing, will speak first; followed by our Chief Financial Officer, James von Moltke. The presentation, as always, is available to download in the Investor Relations section of our website, db.com. Before we get started, let me just remind you that the presentation contains forward-looking statements, which may not develop as we currently expect. We, therefore, ask you to take notice of the precautionary warning at the end of our materials. With that, let me hand over to Christian. Christian Sewing: Thank you, Ioana, and good morning from me. As you will have seen, we delivered record profitability in the first 9 months of 2025. We are tracking in line with our full year 2025 goals on all dimensions. 9 months revenues at EUR 24.4 billion are fully in line with our full year goal of around EUR 32 billion before FX effects. Adjusted costs at EUR 15.2 billion are consistent with our guidance. Post-tax return on tangible equity is 10.9%, meeting our full year target of above 10%. And our cost/income ratio at 63% is also consistent with our target of below 65%. Profitability is significantly stronger than in the same period of 2024, even if adjusting for the Postbank litigation provision, which impacted last year's result. Through organic capital generation, our CET1 ratio rose to 14.5% in the quarter. This reflects our latest share buyback program, which we completed this month and a significant proportion of next year's distributions. Asset quality remains solid. Provisions were in line with expectations, and we had no exposure to recent high-profile cases. In short, we are fully focused on delivering on our 2025 targets. Let me now turn to the operating leverage, which drove our profit growth on Slide 3. Pre-provision profit was EUR 9 billion in the first 9 months of 2025, up nearly 50% year-on-year or nearly 30% if adjusted for the Postbank litigation impacts in both periods. Similarly, adjusted for the Postbank litigation impact, operating leverage was 9% and profit before tax was up 36%. We saw continued revenue growth of 7% with momentum across the businesses. Net commission and fee income was up 5% year-on-year, while NII across key banking book segments and other funding was essentially stable. 74% of revenues came from more predictable revenue streams, the Corporate Bank, Private Bank, Asset Management and the financing business in FIC. Cost discipline remains strong. Noninterest expenses were down 8% year-on-year with significantly lower nonoperating costs, largely due to the nonrepeat of Postbank litigation provisions, while adjusted costs were flat. Let me now turn to our progress on the pillars of strategy execution on Slide 4. We are on track to meet or exceed all our 2025 strategic goals. Compound annual revenue growth since 2021 was 6%, in the middle of our range of between 5.5% and 6.5%. In a changing environment, we are benefiting from a well-diversified earnings mix. Operational efficiencies stood at EUR 2.4 billion, either delivered or expected from measures completed. In other words, 95% of our EUR 2.5 billion goal. Capital efficiencies have already reached EUR 30 billion in RWA reductions, the high end of our target range, and we see scope for further efficiency through year-end. During the quarter, we launched our second share buyback program of 2025 with a value of EUR 250 million, which we completed last week. This takes total share buybacks in 2025 to EUR 1 billion. So together with our 2024 dividend paid in May this year, total capital distributions in 2025 reached EUR 2.3 billion, up around 50% over 2024. This brings cumulative distributions since 2022 to EUR 5.6 billion. Finally, a word on our business on Slide 5. We are delivering strength and strategic execution across all 4 businesses in our Global Hausbank in 2025. All 4 businesses have delivered double-digit profit growth and double-digit RoTE in the first 9 months. Corporate Bank continues to scale further the Global Hausbank model and delivered strong fee growth of 5% in the first 9 months, while recognized as the best trade finance bank. Our Investment Bank has been there for clients through challenging times this year and has seen an increase in activity across the whole client spectrum, institutional, corporate and priority groups. Private Bank has made tremendous progress with its transformation so far this year, with 9 months profits up 71%. Our growth strategy in Wealth Management is paying off. Assets under management have grown by EUR 40 billion year-to-date with net inflows of EUR 25 billion. And in Asset Management, the combination of fee-based expansion with operational efficiency drives sustainable returns of 25%. We are benefiting from our strength in European ETFs and expanding our offering in that area. To sum up our performance in 2025 to date, we have delivered record profitability due to continued revenue momentum and cost discipline. Our 9 months performance is in line with our full year financial goals on all dimensions. We are on track to reach or exceed our strategy execution targets. We have demonstrated strength across all 4 of our businesses. Our capital position is strong and supports our aim of distributions to shareholders in excess of EUR 8 billion payable between 2022 and 2026. Before I hand over to James, I want to briefly address our future. We have built very strong foundations for the next phase of our strategic agenda. And with our positioning in the strongest European economy, we stand to benefit from powerful tailwinds coming from German fiscal stimulus, structural reforms and renewed client confidence. We look forward to discussing this with you at our Investor Deep Dive in London in November. James Von Moltke: Thank you, Christian, and good morning. As you can see on Slide 7, we saw continued strong delivery this quarter against all the broader objectives and targets we set ourselves for 2025. Our revenue growth, cost/income ratio and return on tangible equity are all developing in line with our full year objectives. Our capital position is strong, and our liquidity metrics are sound. The liquidity coverage ratio finished the quarter at 140%, and the net stable funding ratio was 119%. With that, let me now turn to the third quarter highlights on Slide 8. Our diversified and complementary business mix resulted in reported revenue growth of 7% year-on-year or 10% if adjusted for foreign exchange translation impacts. Due to the nonrecurrence of a provision release related to the Postbank takeover litigation matter from which we benefited last year, third quarter nonoperating costs and noninterest expenses were both higher year-on-year. The tax rate of 26% in the third quarter benefited from the reduction of deferred tax liabilities due to the change in the German corporate tax rate, which will start to decline after 2027. We continue to expect the 2025 full year tax rate to range between 28% and 29%. In the third quarter, diluted earnings per share was EUR 0.89 and tangible book value per share increased 3% year-on-year to EUR 30.17. Before I go on, a few remarks on Corporate and Other with further information in the appendix on Slide 36. C&O generated a pretax loss of EUR 110 million in the quarter, mainly driven by shareholder expenses and other centrally held items, partially offset by positive revenues and valuation and timing differences. Let me now turn to some of the drivers of these results, starting with net interest income on Slide 9. NII across key banking book segments and other funding was EUR 3.3 billion. Private Bank continued to deliver steady NII growth, supported by the ongoing rollover of our structural hedge portfolio and deposit inflows. Corporate Bank NII was slightly down quarter-on-quarter, reflecting lower one-offs, while it continues to be supported by underlying portfolio growth as well as hedge rollover. With respect to the full year, we continue to benefit from the long-term hedge portfolio rollover detailed on Slide 24 of the appendix and are on track to meet our plans on a currency-adjusted basis. Turning to Slide 10. Adjusted costs were EUR 5 billion for the quarter. Cost discipline across the franchise remains strong. Compensation costs were up on a year-on-year basis, primarily reflecting the higher performance-related accruals, higher deferred equity compensation and the impact of increasing Deutsche Bank and DWS share prices. With that, let me turn to provision for credit losses on Slide 11. Stage 3 provision for credit losses increased in the quarter to EUR 357 million as provisions for commercial real estate continued to be elevated, while the prior quarter included model-related benefits. Stage 1 and 2 provisions reduced to EUR 60 million and were driven by further model updates, which, as in the prior quarter, mainly impacted CRE-related provisions. Wider portfolio performance and asset quality remain resilient. While the macroeconomic and geopolitical environment continues to create uncertainty, we continue to expect lower provisioning levels in the second half of the year relative to the first half year, primarily due to the expected absence of additional notable model effects impacting Stage 1 and 2. We are actively monitoring and managing risks from private credit, which, as outlined on Slide 28, accounts for about 5% of our loan book. Our private credit exposure predominantly reflects lender finance facilities extended to high-quality financial sponsors backed by diversified pools of loans. These facilities are overwhelmingly investment-grade rated internally and are underwritten and maintained with conservative LTVs. We apply conservative underwriting standards, including our assessment of sponsor and investor quality, loan sizes and structural features. We are comfortable with our portfolio. And as Christian said, we had no exposure to recent high-profile cases. As you might expect, we remain vigilant and have undertaken additional portfolio reviews in light of these events. With that, let me turn to capital on Slide 12. Strong third quarter earnings, net of AT1 coupon and dividend deductions led to an increase in the CET1 ratio to 14.5%, up 26 basis points sequentially. RWA were flat during the quarter. As we head into the fourth quarter, let me remind you of the 27 basis point CET1 benefit we still have from the adoption of the Article 468 CRR transitional rule for unrealized gains and losses, which will expire at the end of the year. Also, following revised EBA guidance from June 2025 regarding the calculation of operational risk RWA under the new standardized approach, we must now perform the annual update of operational risk RWA already by the end of 2025, which is expected to lead to a 19 basis point drawdown in CET1 ratio terms. All else equal, therefore, these 2 items applied to the third quarter would lead to a pro forma CET1 ratio of approximately 14%, which is also roughly where we currently expect to finish the year. Our third quarter leverage ratio was 4.6%, down 11 basis points, principally from higher loans and commitments alongside increased settlement activity at quarter end. Tier 1 capital was essentially flat in the quarter as the derecognition of the USD 1.25 billion AT1 instrument that we called in September materially offset the quarter-on-quarter increase in CET1 capital. Let us now turn to performance in our businesses, starting with the Corporate Bank on Slide 14. In the third quarter, Corporate Bank achieved a strong post-tax return on tangible equity of 16.2% and a cost/income ratio of 63%, maintaining its high profitability. Both metrics showed a year-on-year improvement for the quarter as well as for the first 9 months of 2025. As anticipated in the previous quarter, Corporate Bank revenues remained essentially flat compared to the prior year quarter, demonstrating resilience in a [indiscernible] challenging environment. Margin normalization and FX headwinds were offset by interest hedging, higher average deposits and 4% growth in net commission and fee income, driven by continued expansion in corporate treasury services. On a sequential basis, revenues were slightly lower as the prior quarter benefited from one-off interest hedging gains and seasonally stronger net commission and fee income. Loans and deposits remained essentially flat on a reported basis. Adjusted for foreign exchange movements, loan volumes increased by EUR 5 billion year-on-year, driven by growth in the trade finance business and by EUR 1 billion sequentially. Deposit volumes remained strong with underlying growth both year-on-year and sequentially, offsetting the runoff of concentrated client balances. Noninterest expenses and adjusted costs were essentially flat as effective cost management mitigated the impact of inflation and investments in client service. A release of provision for credit losses, reflecting a release of Stage 1 and 2 and a low level of Stage 3 provisions demonstrates the continued resilience of the loan book. I'll now turn to the Investment Bank on Slide 15. Revenues for the third quarter increased 18% year-on-year with continued strength in FIC supported by a material improvement in O&A. FIC revenues increased 19%, driven by strong performance across businesses. Macro products and credit trading demonstrated material year-on-year improvements following strong market activity through the quarter, while financing continued its momentum with revenues again higher than the prior year period, driven by an increased carry profile, reflecting targeted balance sheet deployment. Moving to O&A. Revenues were significantly higher both year-on-year and sequentially, increasing 27% and 22%, respectively. Debt origination was the biggest driver as both leveraged and investment-grade debt grew revenues year-on-year with the leveraged finance market particularly active, having recovered well since the second quarter. Equity origination revenues increased 57%, driven by strong issuance activity, including an improved IPO market. Advisory revenues were essentially flat year-on-year as the industry fee pool moved away from our areas of strength. However, pipeline for the fourth quarter is encouraging. Noninterest expenses were higher year-on-year, primarily driven by the impact of higher deferred compensation and increased litigation charges. Provision for credit losses was EUR 308 million, significantly higher year-on-year, with Stage 1 and 2 provisions materially impacted by further model updates during the quarter and Stage 3 impairments. Let me now turn to Private Bank on Slide 16. The Private Bank continued its disciplined strategy execution and delivered a strong quarterly performance. Profit before tax doubled, reflecting 13% operating leverage in the quarter. Return on tangible equity rose to 12.6%, showing robust growth both sequentially and year-on-year. Revenues increased driven by a 9% rise in net interest income from deposits and lending, while net commission and fee income was essentially flat year-on-year. Growth in discretionary portfolio mandates, specifically in Germany, was partially offset by lower net commission and fee income from cards, payments and postal services this quarter. Growth in Personal Banking was mainly driven by higher investment and deposit revenues. Lending revenues were up slightly, helped by the absence of an episodic item in the prior year. The continued expansion in Wealth Management and Private Banking was supported by solid momentum in discretionary portfolio mandates. Sustained cost efficiency underpinned by transformation benefits led to a 9 percentage point improvement in the cost/income ratio to 68%. Personal Banking continued its transformation with 24 additional branch closures in the quarter, bringing the total to 109 this year. These actions contributed to workforce reductions of 1,000 in the first 9 months, demonstrating continued strategy execution. Business momentum remains strong with significant net inflows of EUR 13 billion, supported by successful deposit campaigns. Underlying credit trends showed improvements with provision for credit losses benefiting from model updates. Turning to Slide 17. My usual reminder, the Asset Management segment includes certain items that are not part of the DWS stand-alone financials. Profit before tax improved significantly by 42% from the prior year period, driven by higher revenues and resulting in an increase in return on tangible equity of 9 percentage points to 28% for this quarter. Revenues increased by 11% versus the prior year. Growth in average assets under management, both from markets and net inflows resulted in higher management fees of EUR 655 million. In addition, performance fees saw a significant increase from the prior year period, primarily due to the recognition of fees from an infrastructure fund. Noninterest expenses and adjusted costs were essentially flat, resulting in a decline in the cost/income ratio to below 60% for the quarter. Quarterly net inflows totaled EUR 12 billion with EUR 10 billion into passive products, including Xtrackers, which also recorded its best day ever this quarter in terms of net new assets. SQI, advisory services and cash contributed a further EUR 3 billion of net inflows, which more than offset EUR 2 billion in net outflows from multi-asset and active equity products. Assets under management increased to EUR 1.05 trillion in the quarter, driven by positive market impact and the aforementioned net inflows. During the quarter, DWS received the necessary licenses to open a new office in Abu Dhabi, strengthening its regional presence and client engagement in the Middle East, reinforcing its position as the preferred gateway to Europe for global investors. For further details, please have a look at DWS’s disclosure on their Investor Relations website. Turning to the outlook on Slide 18. We are on track to meet our full year 2025 targets and remain confident in our trajectory to deliver a return on tangible equity of above 10% and a cost/income ratio of below 65%. Our year-to-date performance supports our revenue and expense objectives. Our asset quality remains solid. And despite uncertainty from developments around CRE as well as the macroeconomic environment, we continue to anticipate lower provisioning levels in the second half. Our strong capital position and third quarter profit growth provide a solid foundation as we head into 2026. We also completed our second buyback, taking total buybacks in 2025 to EUR 1 billion, and we reiterate our commitment to outperforming our EUR 8 billion distribution target. And we look forward to providing you with an update on our forward-looking strategy and financial trajectory at our next Investor Deep Dive on November 17. With that, let me hand back to Ioana, and we look forward to your questions. Ioana Patriniche: Thank you, James. Operator, we're now ready to take questions. Operator: [Operator Instructions] And the first question comes from Tarik El Mejjad from Bank of America. Tarik El Mejjad: Two from my side, please. First, I mean, you printed a strong Q3 results, which put you well on track to deliver on your '25 targets being revenues, cost, RoTE or capital. Can you run us through your thoughts on achieving your '25 targets and whether more importantly, Q4 would see similar or better trend than Q3 or on the flip side, we should expect some -- or could be some negative surprises. I'm always asking this because it's very important and it sets the tone for the trajectory and credibility of your medium-term targets to be released in 3 weeks' time. The second question, longer term, can you please discuss how a bank like yours would benefit from the German fiscal stimulus? I mean, how important is it as a lever, sorry, to your medium-term profitability? And maybe you can take an opportunity to update us on how the implementation of fiscal stimulus is going and the merits of it. Christian Sewing: Thank you for your question. Let me start on both questions. First of all, we agree with you. It's unbelievably important that we achieve our targets for 2025 to further build up the credibility. But to be honest, we are highly confident in doing so. First of all, let me reiterate again also what James said at the end of his comments. A, we are really happy with the first 9 months performance. I think it really shows our strength. And it also actually shows the continuous improvement, the momentum, the validity of the strategy and in particular, in the times where we are with these geopolitical uncertainties, this concept of the Global Hausbank is actually gathering more and more momentum and clients want our advice, be it private clients, corporate clients, institutional clients. And therefore, to be honest, I'm really confident that we see this momentum also going into Q4. On the revenue side, look, we had a robust, actually, I would say, a very good start in October on the investment banking side. We have a good visibility when it comes to the pipeline on the O&A side for Q4. And the predictable or more predictable businesses are looking very solid for the fourth quarter, in particular, Private Bank and Asset Management. On the Asset Management side, it's not yet over the year, but I can -- actually, I would expect higher performance fees even coming in. So there is even some upside to the already quite positive outlook. So from a revenue point of view, while Q4 is always seasonally a bit weaker than the others, but it's actually in line with our plan, even potentially higher than the plan, and that makes me absolutely confident that we can achieve the EUR 32 billion. I think we know how to manage costs. We have shown that quarter-by-quarter. The same discipline will be applied to the cost line in Q4. And therefore, I think simply from an operating performance, I'm confident that we show another good quarter. From a risk point of view, look, we are there what we told you at the end of Q2 that the second half of 2025 will show lower provisions than the first half. We have started to see that in Q3. And from a credit portfolio point of view, I'm confident. I feel comfortable. We haven't been involved in those cases, which were quite heavy in the media, shows actually the underwriting criteria we have, the discipline we have. And therefore, I'm confident there. And that shows me overall, while there is always obviously some seasonal issues, but looking actually at Q4, it all adds to my high confidence that we will meet and potentially even exceed our targets when it comes to return on equity, when it comes to the cost/income ratio. And also as important actually to our target to shareholder distributions well above EUR 8 billion. And therefore, I think we also have actually a very, very good capital story, and I'm sure James will talk about that. With regards to Germany and how we build this into our plan, now I don't want to be defensive when I refer to our IDD in 2.5 weeks' time because obviously, we will talk about that far more in detail. But also, again, for -- or as an answer to your question, look, first of all, I have not changed my view on Germany and the stimulus program and what Germany will do, so to say, over the next 2 to 3 years. The government is clearly reiterating that growth and competitiveness is at the core of their agenda. And while there is noise about the speed of implementation, which I understand, we all wish even for a speedier implementation, we should also actually think about what has been done next to the, so to say, adjustment of the dead break. And actually, there are very concrete discussions between the government and other institutions, including ours, how to deploy now the EUR 500 billion, be it on infrastructure or be it on defense. But we have seen other reforms on the tax side, the investment booster, initial changes to social and pension reforms. And look, when we discuss with the government, there is clearly more to come. And therefore, we are very optimistic that Germany is able to grow by 1.5% in 2026. I can also see actually that, again, while the private corporates are calling for even speedier implementation, actually, on Monday, it came out that the ifo Business Climate Index was at the highest level since 2022. Now this is also much needed, but you can see that it's going into the right direction. You know about this Made for Germany initiative since the start end of July, when I reported here for the first time, we have almost doubled the number of companies which are participating. We are now at a committed number of more than EUR 730 billion of revenues -- of investments -- I'm sorry, not revenues of investments committed for the next 3 years. So of course, we need to keep the pressure on the government, and that is obviously needed. But I'm actually very optimistic that Germany will leave this flat growth scenario, which we have seen for too long and is coming back to growth. And that obviously helps us and more details on the IDD. Operator: And the next question comes from Joseph Dickerson from Jefferies. Joseph Dickerson: I've got a question first on private credit in a couple of areas. So I've seen your disclosure on Slide 28. And it seems to me that people tend to conflate private credit with other aspects of asset-backed finance and sponsor lending. So I guess, could you just give us your perspective on private credit and the outlook? What are the areas of risk you're looking at? And what are the areas of opportunity that you are also assessing because it seems like only months ago, this was a big area of opportunity for banks. So it would be interesting to have your opinion on the opportunity. And then just on nonbank financial institutions because I know the disclosure in the U.S. is different from Europe, where I don't think there's a precise definition, but how do you assess NBFIs and counterparties in that regard? So that's, I guess, the first question around private credit. And then secondly, on the CET1 ratio with the OCI filter and the op risk, which I think was pulled forward in the Q4. Can you confirm that going forward, you'll distribute capital down to the 14% threshold sustainably? Because I think that's an important point for investors. James Von Moltke: Thanks, Joseph, for your questions. It's James. I'll -- let me start with the capital item you mentioned. So the short answer is yes. And we feel -- we wanted to indicate with the pro forma we gave even greater confidence about our distribution path from here. And let me just make sure that our comments were understood. The 2 items that we called out in the commentary are ones that we've talked about before. But we think we're in a position now through the EBA guidance and our own actions to bring both into the year-end ratio. You may recall that we talked about some volatility potentially in the ratio, so a high step off, which would not have given you a clean view of our position going into '26. We think we can now do that. And hence, the guidance of 14%, we think is really encouraging because it puts us in the position to generate excess capital from the start of the year essentially and then potentially distribute that. Now I'd also make the point that with the interim profit recognition that we have, as we sit here today, EUR 2.4 billion of capital is disregarded in the ratio. So the 14.5% excludes EUR 2.4 billion of distributions that are earmarked for distribution next year. And of course, 50% of net income in the fourth quarter would also be ready for distribution based on that 50% payout ratio. And then we would be in a position to exceed that based on earnings above that 14% starting point. So we wanted to send a strong message that we're starting at the top of our range. And that gives us greater confidence even than when we spoke a quarter ago. Just going essentially in reverse order, the NBFI disclosure really isn't very helpful because it captures all sorts of things that investors aren't looking for like clearing houses and insurance exposures and the like. And hence, the additional disclosure that we provided of approximately 5% of the loan book being to private credit. We talked a little bit about the nature of that lending. You asked about the opportunity. Look, we've been in this market for a very long time. So the FIC financing business is not new for us. We've been in structured credit lending for many, many years. And as a consequence, we think we have real capabilities to innovate and take advantage of opportunities in the market as they develop from here. We also have a good track record in terms of underwriting and discipline against our risk appetite. And so while we do see spread compression in the business that's coming from the additional capital going into private credit, whether that's from banks or from private credit industry players, we also see opportunities to innovate and grow the book. We've been very disciplined, as I say, in that business, but it is one that we've successfully and I think, profitably grown in the past. And we think that's continuing notwithstanding the spread compression point I made earlier. Joseph Dickerson: Great. So just to conclude on the Q4 capital position, it sounds like you're creating a position of strength for next year. James Von Moltke: Position of strength, absolutely. We talked about the OCI filter starting in the third quarter of last year. It was a feature of CRR3 that we and other banks availed ourselves of. So a temporary protection of about EUR 800 million in unrealized losses on essentially sovereign debt. And then we've also talked about the fact that in the old regulatory guidance, we would only recognize op risk RWA increases in the standardized approach that refer to the prior year's revenues. Based on new EBA guidance, that's expected to be recognized already in the year. And those are the 2 items we're calling out. And the good news for investors is it will take the volatility out of our disclosure, but the guidance of a 14% endpoint, we think, is encouraging. Operator: And the next question comes from Giulia Miotto from Morgan Stanley. Giulia Miotto: I want to first follow up on the capital distribution point. Is it fair to expect 2 buybacks next year? So one with Q4, of course, and then the second one, I don't know, perhaps towards midyear results given that you start already from 14%, you build excess capital from there and you intend to distribute everything down to 14%. And then -- and to be clear, I'm trying to confirm that there are no potential downgrades to the at least EUR 1.5 billion of buybacks expected in '26 from consensus. And then secondly, thank you for the additional disclosure on private credit. That's helpful. I think you stated that these are exposures to high-quality lenders, investment grade with conservative LTV. Do you disclose the average LTV and also concentration? How big is the largest exposure? Would you be able to give these numbers, which I think could reassure investors even further? James Von Moltke: Sure, Giulia, thank you. So again, going to the distribution piece, yes is the short answer. We're all kind of reacting to the rules as they have evolved in Europe as to how to craft the distribution policies and go through the approval hurdles. But in our case, I think investors should expect that in the, call it, the first half, maybe 7, 8 months of the year, we would be in a position to distribute what is accrued, if you like, on the basis of that 50%. And then assuming there is in our capital plan, excess capital, then it would take a second application and second approval process to do that, actually similar to what we ultimately did this year. But obviously, as net income rises and the forward view comes into focus, those numbers essentially increase with earnings. The other thing just to point out is that we talked about last quarter the sort of sustainably above concept. And what I want to make clear is that it means that in our capital plan, that amount of capital above 14% isn't just a flash in the pan goes away. But it also means that opportunities that we see in the capital plan as they materialize also can produce excess capital. To give you an example, FRTB is still in our capital plan and were that to be pushed out or amended that then our capital plan would potentially show additional excess capital. Equally, good news or in the sense of slower demand for capital in the businesses can also create excess capital. So I want to be clear that, that's how it works. But -- and therefore, Giulia, in your framing of it, that's what the second application would then take into account with the passage of time. On private credit, we do disclose on Page 28, the LTV associated with the -- with that 75% block that we refer to as lender finance. So that's the diversified pools of credit that have back leverage against them, and that is below 60% with an LTV maintenance covenant in, I think, most or all of the facilities. And that's actually reasonably typical of the type of lending here. In fact, when you go into other types of private capital lending, say, subscription finance or NAV financing, you find LTVs even lower in the case of NAV financing, significantly lower than that 60%. So we take it to be -- except in the case of fraud and fraud only really hurts you when you're in a single lender facility or single asset facility. And we have a very small exposure to that type of nonrecourse single asset as a percentage, again, of that 5% of the loan book. So hopefully, that gives you some color for what the exposures look like. Giulia Miotto: This was super clear. Just if I can follow-up, can you quantify the exposure to this single lender facility that you just mentioned? James Von Moltke: I think it's less than 5% of the 5% by memory. So it's a very small exposure. And actually, I would add to that, Giulia, that in those cases, given that it's single asset, the oversight that we put and the LTVs we're willing to lend at are even more conservative than when it's a pool. So we -- again, no one is ever going to be perfect in lending, but we feel that these portfolios are very robust in terms of their protection attachment points and oversight. Giulia Miotto: Great. And the last follow-up. The 60% LTV is on 75% of this private credit exposure. On the remaining 25%, what sort of LTVs do you have? James Von Moltke: Average would be lower than the given the composition that I mentioned of what is otherwise there. Operator: Then the next question comes from Flora Bocahut from Barclays. Flora Benhakoun Bocahut: I wanted to ask you a first question on the op risk comment you made regarding the annual update that is coming at year-end. I just want to understand how much of a one-off this is because you mentioned annual event when you comment on it. So is this something that's going to hit again every year? And if so, do you have an idea of the magnitude? So just to assess how recurring an event this could be? And the second question is on the Corporate Bank revenues. The fee growth is clearly positive, but has been slowing a bit this quarter. The NII declined slightly sequentially, which you commented on. For you to make the guidance for the full year, it would imply a boost suddenly sequentially in that revenues for Q4. So anything you can give us on how confident you are that there is going to be a rebound Q-on-Q in the Corporate Bank revenues in Q4? James Von Moltke: Thanks, Flora. Yes, the op risk item is now a permanent feature in the standardized approach to operational risk RWA. It also, by the way, removes the volatility intra-year. So we will record a number in December, and that will be flat through the balance of the year. I think it runs off a 3-year average. So each year, you have to update for that year's new revenue number in the 3-year. On CB, I do think we're looking at a, what I'll call a trough in revenues. Now I think we want to be a little bit cautious about that prediction. But to us, NII should be passing through a trough, a sort of a mild increase going into Q4. But beyond that fee and commission income, there's always -- remember, a little bit of sequential seasonality. Q2 tends to be the highest quarter of the year because of dividend season and what happens in the trust and agency business. So Q3 is always a little bit softer. But this steady build of the fee and commission income streams in the Corporate Bank, we expect to continue in the years ahead. Obviously, we'll talk more about that on November 17. But it has a -- so I would expect to see Q4 continue to show momentum, perhaps accelerating momentum against where we've been very recently. And again, it's a business where you compete for business with RFPs and put on the business. So you have some visibility into, if you like, a pipeline of new activity coming through in Corporate Bank. Christian Sewing: Let me just add to the last point. I think this is a really good point James is making. Just take, for instance, the example of Miles & More in Lufthansa, where for the last 2 years, actually, we have invested in the transition now to the Corporate Bank. And that we actually can see on various fronts, in particular, on the payment platforms with supplying new technology. So I would -- as James is saying, I would expect a slightly increasing number in Q4 in the Corporate Bank. But in particular, the investments we are doing for the fee and commission business are building up and building up. So it's actually quite a nice story. Now even more important is that if you -- despite the Q3 number, which was slightly lower than the consensus was, look at the profitability of the Corporate Bank. It again increased, and that also shows that more and more we apply technology, and that means that our process is getting more efficient and cost/income ratio is going into the right direction. So overall, despite potentially a non-beat on the consensus of revenues, the overall development in the Corporate Bank makes me actually very confident. James Von Moltke: Actually, probably one thing just to add. I think, Flora, you may have asked for the op risk, the RWA number that we're assuming in Q4, it's about EUR 4.5 billion that would, we think, mechanically come into the denominator for the ratio, just to close that gap. Operator: And the next question comes from Andrew Coombs from Citi. Andrew Coombs: If I could ask one on the Investment Bank and then one on the Private Bank. So on the Investment Bank, if you take the provisions, you talked about model effects driving higher Stage 1 and 2. But perhaps you could elaborate on that and confirm that that's a one-off model change, you wouldn't expect it to repeat. And then secondly, on the Private Bank, very, very good broad-based strength across both personal and wealth management. It looks like the margin trends you're seeing there, particularly around the deposit book are very different to the corporate bank. So perhaps you could touch upon that. And also the operating leverage in that business. You've managed to grow revenues and still strip out costs at the same time. So where do you think the operating leverage could move to? James Von Moltke: So Andrew, I'll briefly take the first item. The -- so look, it was about EUR 100 million of it was in total in Stages 1 and 2. And that was almost entirely driven, I think, by model changes. And it was a probability of default model that we changed this quarter. Last quarter was an LGD model. And Look, we've been updating the models to reflect where we are today in the interest rate cycle, new data that's come in. But to your question, that we're done for the year. The model adjustments that lie ahead are negligible. And actually, over the full year full firm, the model impact will be -- will also be relatively immaterial. So that's what it is in there. So EUR 100 million of the EUR 300 million was model items, EUR 100 million or thereabouts was CRE. Christian Sewing: And Andrew, on the second question. Look, if you compare the Private Bank and the Corporate Bank, we have to be fair because the starting point for the Private Bank, obviously, from a cost/income ratio profitability is a completely different one than the Corporate Bank, and we had to expect these improvements. Now the good thing is that Claudio is really running a very, very clear strategy in doing 2 things. On the one hand, continuous growth on the top line, in particular, when it comes to asset gathering. If you look at the assets under management in Wealth Management, but also in the Private Bank with the deposit campaign and strategy, it's really looking well. And I told you in my initial remarks to the first question that I expect actually that the private bankers will also show a very solid Q4. And on the other hand, all the investments we have done over the last years are actually finally paying off in terms of cost saves. And that makes me most confident that next to the nice continuous top line growth, we will see a continued flow of cost reduction because we are going more and more into straight-through processes, in particular, in Personal Banking. You have seen, so to say, month-by-month new items when it comes to digital technologies, whether it's a new mobile app. And you can see that these investments are paying off and that costs are coming down. We are continuously reducing our branches and move into more digital setup. So that momentum, which you see is obviously forecasted and expected to hold also into the next years. But when you compare to the Corporate Bank, we need to be fair. It was a different starting point. Operator: Then the next question comes from Stefan Stalmann from Autonomous. Stefan-Michael Stalmann: I would like to follow up on the point that you made, Christian, regarding the Lufthansa credit card portfolio. I think that's now coming basically on board. Could you maybe remind us roughly of what kind of revenue impact we should expect there? And the second question relates to your very helpful disclosure of the daily trading P&L, Slide 26. You have now had a couple of quarters where you have very strong trading days very much at the end of the quarter or maybe one of the last 1 or 2 days of the quarter, around EUR 100 million often. Can you provide any color of what exactly is causing this kind of spike towards quarter end? Or is it a pure random walk? Christian Sewing: Stefan, thank you. So I won't give you the detailed numbers because it's a one-to-one relationship, and we shouldn't do this. But a, we are in the middle of the transition from an IT point of view, I think this is very important because we talk about a large transition from one bank to the other. It's going actually very, very smoothly. We started with the pilot at the end of Q2. We have increased the volume then over Q3, and now we are in the middle of moving all clients actually to our offering and very, very encouraging start in October. And overall, it is clearly a revenue increment to the Corporate Bank, which is well in the double digits per year. And in my view, with more upside. And the more upside is actually the cross-selling, which we are able to do in our Global Hausbank from corporate to private clients. I mean this is the strength of Deutsche Bank that we can now actually apply that to 19 million private clients, and that's what we are going to do. Secondly, this is a signal to other operators with similar loyal cards and similar systems that Deutsche Bank can handle that, and that makes this business so attractive you think also when you think about other corporate clients. So on the individual clients, clearly value enhancing and good revenues, but I expect far more actually from cross-selling and with other corporates. James Von Moltke: And Stefan, it's a good observation that the markets revenues will often have a strong sort of quarter close. It depends on the quarters. But very often, it is essentially as we evaluate reserves, so day 1 P&L and illiquidity reserves and the like in the business that those determinations are made towards the end of a month or a quarter. That is kind of one of the reasons why guidance in the business isn't always perfect to do. But there's also events during those last, say, 10 trading dates that can influence the result that are part of the, as you say, the actual ebb and flow of the markets. And then there are also some quarters in which we have specific transactions that are taking place and through our systems. that are, if you like, just happening to take place or designed to take place at the quarter end. This is a quarter where, in fact, we had all 3 of those things. So it was a very strong finish. But to your question, it's not entirely accidental that the quarter can finish strong, especially with the reserve releases. And some of this is difficult to predict precisely. Operator: And the next question comes from Nicolas Payen from Kepler Cheuvreux. Nicolas Payen: I have 2 questions, please. The first one will be on your structural hedging actually. Could you tell us how you think about your structural hedge supporting your NII trajectory for the next few years? Because at the end of the day, it's supposed to become a strengthening tailwind. So if you just could discuss how you think about it and also maybe with your strong deposit performance, especially in PB, could we see further notional increase supporting further your NII trajectory? And the second one would be on your loan development, especially on the investment bank has actually been very strong. And just wondering what drove that strong increase sequentially. James Von Moltke: Nicolas, thank you. So yes, and I would point you to the disclosure on Page 24 of the deck, where we show you the hedge amount and the future benefits we expect from the hedge. The answer is we are relatively programmatic about our Caterpillar. So the assessed duration of the deposit books and rolling over the hedges of that. And you can see in the disclosure. And of course, that increases as the deposit books grow and particularly as the Private Bank deposit book grow because it's longer -- it's deemed to be longer tenured or modeled as longer tenured, and it is more euro-based than the corporate bank book. So that -- what we're showing you is essentially what that -- just the model or the hedge revenues will be in the future, and they do benefit from growth. Think of it as a static portfolio here, but growth in deposits will increase that going forward further. I want to make one other point here. I think we asked -- we've talked to this in one of the previous calls, but we also take positions to anticipate deposit growth or protect ourselves from specific market environments that we see. So it is a little bit more dynamic than simply this one 10-year Caterpillar. But in essence, it produces the revenues that you see here. What's driven the loan growth in the Investment Bank? Over the course of the year, it's principally been in the private credit portfolio that we talked about. So we have seen good opportunities to deploy the balance sheet there. But also O&A has seen some growth essentially as the business grows and we see more activity, you've also seen some deployment there. Operator: And the next question comes from Tom Hallett from KBW. Thomas Hallett: So firstly, I'm just wondering if there are any underperforming assets on your books, which may be deemed noncore? Because I can see some articles on the DWS data center sale in the pipes. There's previously been talked about India and possibly Poland. And then secondly, maybe thinking a little bit ahead and possibly to the Investor Day, but will you look to run the business on a cost/income basis or an operating leverage basis or absolute basis? And what are the hurdle rates for allocating capital out to the businesses? And I kind of say that because I see the allocations continue to increase towards the Investment Bank. James Von Moltke: So Tom, I'll take that, and Christian may want to add. Let me just, first of all, say that I don't want to speak to specific actions or events in terms of things we might exit until we're done with that. And -- but certainly, we're looking at the businesses, and we've talked about this since Q4 with this SVA shareholder value-add lens with a real focus on driving more of the balance sheet to being above hurdle and showing real discipline there. Now, there are a number of ways to do that. It can be pricing. It can be, again, reallocation of capital internally. But we do have that discipline, and we'll talk more about that on November 17 when we come together for the Investor Deep Dive. Christian Sewing: I think you said it all. And the only thing is, Tom, I think we already started to implement that step by step. You have seen some action already in the German mortgage book where Claudio decided to exit sub businesses exactly for that reason. I think we are now in the position to do this, whether it's on the pricing side, whether it's on the more consequent capital allocation. So as James is saying, you will hear far more on that in November 17, but I can also tell you that we started to do that, and it shows the first very positive impacts like you see in the Private Bank. Operator: The next question comes from Anke Reingen from RBC. Anke Reingen: The first is just coming back on private credit. I mean, I guess you gave quite a lot of detail on the credit side. But can you sort of like give us an indication on how much the business has sort of like contributed to the top line business of private credit and driven the growth just in terms of is there could potentially be a risk if that area is becoming under more scrutiny? And then secondly, I know we have your Investor Day coming up in November, but just looking backwards and acknowledging 2025 isn't quite completed. But if you look back on the 2022, 2025 plan, what are sort of like the lessons learned in terms of good and bad when you embark on your new plan? James Von Moltke: Goodness. The second is a long open-ended question that I might give to Christian, but we'll both have, I think, lessons learned to share from the last several years. Look, I would simply point to the financing, the FIC financing revenues you see on Page 15. And obviously, it's not all private credit. There are other activities than private credit in there, including incidentally commission and fee income that typically is earned from distribution of assets. So whether it's asset-backed facilities or warehousing of, say, CMBS before issuance. So there's a bunch of things going on. To your point about risk, look, it's a banking book business, which we think is attractive in terms of its stability in the revenues, its predictability in terms of the spread that we can earn and its risk profile. I mean we've been -- as we're preparing for today, we've been racking our brains as to whether we have had a risk event, sort of a loss event, at least in the portfolios we've been talking about today. And I said earlier that we think we've got some really good intellectual property. So is there a risk to the business in terms of a difficulty in the cycle potentially. But to be honest, given the nature of the business, we don't really see that or our own appetite, acknowledging that our appetite has been disciplined and consistent over the years as we've been in the business. So the short version is we like the business. We think we can continue to grow, but we'll grow in a measured and sort of risk-appropriate way. Christian Sewing: Look, Anke, really good question. And I actually need to think a little bit longer about that. But let me start with 2 or 3 lessons learned from a good point of view, from a good side, and then I'll give you also one where I think we could have done better. Number one, remember when we did this, that was 10 days after Russia invaded Ukraine. And a lot of people told us, don't go for an IDD, and we did it. And that shows our underlying confidence in this bank, the strength of this bank, that the Global Hausbank is exactly the right strategy and that we continue with that IDD. And to be honest, I'm really proud of this organization, what they have delivered in those years, which were full of uncertainties, but they kept to the plan. The team worked very, very hard. And I think it was at the end of the day, exactly the right decision to go out. And that was the first thing that if you are convinced with something, you should also be courageous, and we did this, and it was the right thing. Number two, lesson learned whenever you do an IDD, you need to take your team on a journey. And it's not only, so to say, for the market and for you, but it's also something where you need to motivate 90,000 people. And I think we did this. Can we do even that in a better way? Yes. And we learned some lessons, and you will see it then on November 17 when we talk about how we carry that out internally because it's a story not only for the market, but for our people because our people are driving this bank. Number three, I think the Global Hausbank strategy in itself, huge success. And as I said, we can see that it's developing better and better from quarter-to-quarter because people want to have their anchor in times of uncertainty, and that's actually we are that European answer to that. Number four, with certain, so to say, portfolio decisions, we could have been more consequential, I would say. And that is certainly a lesson which we have learned. And you know what, there is now time to correct that. And therefore, I'm looking forward to the next IDD. Operator: And the next question comes from Chris Hallam from Goldman Sachs. Chris Hallam: So 2 for me. And the first one, once again, on capital. So 14.5% headline CET1, 14% pro forma for Article 468 and the op risk headwinds that you flagged. So you should see around 20 or 25 basis points of cap gen via retained earnings in Q4. So I guess, finishing the year 14.2%, 14.3%. You've mentioned you want to finish around 14% -- so I guess just anything else to flag in Q4, maybe on the RWA side or on an accrual rate above 50%? And then anything you can already see coming early next year? I'm just trying to think about what sort of position you're going to be in by the time we get to Q4 numbers in the AGM. And then the second, which is a slight follow-up to the points you made earlier, Christian. In the Private Bank, you've kind of had this story so far this year of growing deposits but declining loans. And so what's your best sense of how that evolves in the coming few quarters or through the balance of next year because rates are coming down, borrowing is becoming more affordable. The economy is doing a bit better. You've been investing in the digital setup, as you mentioned. But then against that, you've got this capital discipline focus. So I'm just trying to get the balance of perspective there. James Von Moltke: Thanks, Chris. It's James. I'll take the first, and I think Christian will do the second. Look, the only thing that is at this point now seasonal, given the adjustments we walked you through is really the share repurchases we do for equity comp delivery in the first quarter. Now the first quarter tends to be seasonally from an earnings perspective, also among the strongest. But otherwise, it is simply the math of organic or net income less the 50% payout assumption and then offset by growth or demand in the businesses. Now sometimes we overestimate demand. And that can, as I said earlier, produce excess capital, but we, of course, wish to support the businesses, support clients with the capital deployment. So we want to be reasonably conservative in our capital planning to ensure that we have that room to grow. You have had lots of changes in rules and methodology and so on over the years. I would see that slowing down now that we're in CRR. That should become more-rare. Now, I want to be careful about a forward-looking statement given how much is built into this. But internal capital generation, all of that considered in a range of about 25 to 30 basis points has been -- if you peel through it all, kind of a norm. And the question is going to be where all of the ingredients fall out going forward. But short version is we do feel we're in a strong position to generate excess capital and do so kind of on an accelerating basis in the years ahead. Christian Sewing: Look, Chris, on the Private Bank, we clearly have our plans to continue to grow deposits and use that kind of attractive funding to replace more expensive sources. On the business overall, I would say we expect a flattish loan growth in Private Bank overall. Now clearly, some growth to see in Wealth Management. I think it's an attractive area where we can actually grow, and we have plans to do so. In other areas in the Private Bank when it comes to mortgages, I would say it's rather flattish because, again, we are absolutely measuring that portfolio via SVA. And if it's not value accretive, we won't grow that. And overall, in the Private Bank, like I said before, Chris, if you look out longer for the next 3, 4, 5 years, the real big upside in the Private Bank is on the asset gathering business and on the investment business. And not only with our market position in wealth management, but in particular, when it comes to retail and personal banking. And that's all tied to the plans of the German government because you will see that next to the state pension, there is a necessity that on the private side, people need to do more, and this is where we are looking into. There, we are working on a digital offer. There, we are working on offers for retail clients to grow that business. And if you think about our Postbank clients, which are the majority of the retail clients and their access to those products, it's actually, for the time being, not very much used, and that shows the opportunities we have in that business. So our focus when it comes to the Private Bank is clearly on the asset gathering side. Operator: And the next question comes from Jeremy Sigee from BNP Paribas Exane. Jeremy Sigee: Just a couple of follow-ups, please, on the Private Bank and the Corporate Bank. On the Private Bank, you talked about further cost savings. Are there any step change cost saves still to come through in the Private Bank, particularly from integration-related or system takeout? Any step change? Or is it just incremental process efficiency kind of bit by bit from here? And then second question on the Corporate Bank. You mentioned growth in trade finance year-on-year. And I just wondered what areas that was coming from? Is it Germany, Rest of World, any particular industry sectors? Christian Sewing: Jeremy, on the Private Bank, to be honest, let's also wait for the IDD because you get a quite good outlook for the next 3 years, what we are doing there. But it's a continuous improvement. Continuous improvement from actions which we have started to implement. If you think about the plan how to reduce branches and make that business more digital for our clients, then this is something which you plan in '23, '24. And we now see the effects. And therefore, I'm so happy actually with the quarter-over-quarter cost takeout Claudio can do in particular in the personal bank, but that is going to continue because we know already now how many branches we close in '26 and later on. Secondly, we are working constantly on straight-through processing, and that is with regard to payments, that is with regard to the lending process, that is with regard to the investment process. And that is the reason why we have changed the bank initiatives and investments, and you will see that as obviously then cost efficiencies going forward. So I would expect a continuous improvement on that side, but more details in the IDD. James Von Moltke: And Jeremy, I'm not aware on the trade finance question, I'm not aware of any particular sort of trend or concentration that we're seeing in terms of where the growth is coming from. You'll recall that we've been sort of waiting for the growth from the balances. We kind of were stuck at that kind of 115 level. We do now begin to see some growth. And the place where our emphasis is in structured trade finance. And so that's really the business that we're seeking to grow. Operator: And the next question comes from Mate Nimtz from UBS. Julius Nimtz: Yes. Just 3 shorter questions, please. The first one would be on the IB. In the cost base, G&A expenses show about a EUR 100 million increase quarter-on-quarter. I'm aware that some of that is some pickup in nonoperating items, litigation. But any further explanation on that step-up? And how should we think about the year-end from this perspective? Then the second question is still mainly staying with the IB commercial real estate. Could you give us an update on that asset class on that part of the book? Provisions are still at a high level, particularly Stage 3. I think in the commentary, you called out on the slides, West Coast defaulted assets still. Any thoughts you can share on the outlook in Q4 and next year would be helpful. And just the last one on the Private Bank, and I'm cognizant this is something you'll talk about, hopefully, in 2.5 weeks. But we are seeing a return on tangible equity now firmly above 10% for the second quarter in a row, 12.6% in Q3, impressive step-up from a mid-single-digit level in the previous couple of quarters, and that's without much movement, obviously, on lending. Is this the bare minimum level we should be having in mind as a base going into 2026? And any further improvement on the cost side or coming from investment products will offer the upside. Is that the right way to think about it? Christian Sewing: Thank you for your question. I take the last one. Look, we clearly expect further operating leverage in the Private Bank, and we will talk about that in 2.5 weeks' time. But very happy that we are above 10%. That's what we promised you. That's what we delivered. And from here, the way is up. James Von Moltke: And then, Mate, on the 2 items you said on IB cost base, nothing noteworthy there. There was a bank levy that we booked in Q3 that gets mostly allocated to IB and then some odds and ends in terms of professional services, market data going up and the like, but nothing that I would call out. On CRE, we talked about this going on, I think, 2 years plus. And there's obviously been a cycle and that cycle has taken us close to the severe stress that we initially called out on a -- for the stress tested portfolio. I do -- while I'm cautious about calling an end to this, and I don't think we're there. There's still going to be some provisions, we think that will come in time. But as I've said before, they tend to be valuation adjustments on existing defaulted positions. And in a sense, they're becoming more and more concentrated, as we called out last quarter in the West Coast of the United States in the office portfolio. So as that sort of bleeds out and comes to a steadier level, I would expect to see this begin to fall off in the next several quarters. And you've seen, again, some signs of strength as cautious as I'd like to be on East Coast, I think office has significantly recovered and other aspects of commercial real estate outside of office have been strong. So we're looking at it as we think in a healing process. Operator: And the next question comes from Kian Abouhossein from JPMorgan. Kian Abouhossein: Just coming back to CRE. On Page 29, if I look at the Stage 3 loans in the IB, I guess that's where the -- some of the CRE issues rose. And just trying to understand if you can give a little bit more detail, is the several loans? Is this 1 or 2 loans where you had default issues? And coming back to the outlook question, I mean, if I look at the comment on Page 30, advanced stages on the down cycle reached, but U.S. office headwinds remain, considering most of your book is actually office related. I'm just wondering what gives you the confidence on your previous statement, the last question that actually we're going to see an improvement here considering your low coverage levels? And then the second question is on... James Von Moltke: I'm sorry go ahead. Kian Abouhossein: Apologies. Risk-weighted asset outlook. How should we think about the risk-weighted asset outlook? Should we think about it's going to remain flattish going forward? Or should we think about growth, but then you potentially have further optimizations to do, which leads to the flattish number, i.e., growth with this net is what I'm trying to get to. James Von Moltke: Yes. So Kian, thanks for the follow-up. Look, it's a handful of loans. And I'd say concentrated in this quarter, say, less than 10. So there was a concentration of events that -- where we saw valuation changes. And one thing I've been tracking now for several quarters is the number of loans that is coming up for refinancing or extensions where we see either events or new appraisals coming down the pike. And Kian, the answer to your question is those things are beginning to slow down, what I'd call perhaps the forward-looking indicators on these things. So again, I want to be cautious now having thought we'd found the bottom and discovered false dawns, but it does feel like it's very late cycle at this point on this down cycle in commercial real estate. On RWA, to be honest, we'd like to see healthy growth just of the businesses and client demand. And as I said earlier, we think our capital plans absolutely accommodate that growth. But to your point, we will continue to work on efficiency and also sort of portfolio collect -- sort of concentration, if you like, or optimization as time goes on. And we think that, that can contribute to even further improving revenue to RWA profiles and more efficient capital usage. And that would be an offset to the simple, if you like, unweighted growth in the balance sheet and business. Kian Abouhossein: And just on -- when you say you're coming to the kind of end of the cycle of these kind of readjustments on the loans, the duration must be quite long in the CRE book, more than 2 years at least. So I'm just wondering why we would think about having reached the peak or maturity of the cycle of making adjustments at this point? James Von Moltke: Typically, Kian, 5 year -- the structures typically are 5 years. They tend to be extendable. And so -- and the point to your question is we haven't done a great deal of new lending. So this is a portfolio that's now quite seasoned in terms of either having been extended and refinanced or having gone into default and through sort of a restructuring or into real estate owned. So it's really a question of seasoning of the existing portfolio and a forward look on to loans, as I say, that are coming up to events. But those that are still open are robust properties. And that's other than a handful, and that's really what's giving us a forward view. Operator: So it looks like there are no more questions at this time. And I would like to turn the conference back over to Ioana Patriniche for any closing remarks. Ioana Patriniche: Thank you for joining us and for your questions. For any follow-ups, please come through to the Investor Relations team, and we look forward to speaking to you at our fourth quarter call. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.
Ulla Paajanen-Sainio: Good afternoon, everyone. Welcome to Outokumpu's Third Quarter 2025 Results Webcast. My name is Ulla Paajanen, and I'm currently in charge of Outokumpu's Investor Relations. Our speakers today are CEO, Kati ter Horst; and CFO, Marc-Simon Schaar. Kati will explain us about the highlights of the quarter, progress of our EVOLVE strategy, as well as the fourth quarter outlook. Marc-Simon will concentrate on business areas and financials. Before handing it over to Kati, let me remind you about our disclaimer since we might make forward-looking statements during the presentation. Kati, please go ahead. Kati Horst: Thank you, Ulla, and warmly welcome also from my side to our Q3 results call. So today, we'll be talking about the Q3 results and the outlook for Q4 as usually, but I'll be also making some comments on how are we moving forward with our EVOLVE strategy with an important step. But let's start then with the Q3 results. So our adjusted EBITDA amounted to EUR 34 million during the quarter, and this was very much reflecting the weakness in the European market. If we look at the highlights of the quarter, I could also say that we are really very much now focusing on cost competence on one side and then the transformation on the other side. If we start with the stainless steel deliveries, they decreased by 11% and mainly due to the very continued subdued demand in Europe. If we look at Europe alone, deliveries decreased by 12% and then the decrease in Americas in stainless steel market for our deliveries was 6%, so half of the Europe. Then if we look at our short-term cost-saving measures, we are very well on track. So year-to-date, Q3 end, we have now reached EUR 42 million of savings and will reach the promised EUR 60 million by end of the year. We are also proceeding with our planned restructuring plan for EUR 100 million before the end of 2027. So we have started now collective negotiations in all our key production countries in Europe and are proceeding with those. Hopefully, everything being clear then by the end of the year. And then the exciting news of today, we are investing about USD 45 million in a new pilot plant in the U.S. to scale up our proprietary technology for low-carbon metals, and I will come back to that a bit later. If we look at the market conditions now in Europe and Americas, especially through the lens of imports, you can see here that in quarter 3, in Europe, the imports increased to 29%. And this is very much what we've been commenting in the past quarters as well that the tariffs in the U.S. will put more pressure on the European market, and we will see more Asian imports coming in. And this is exactly what you see on the left side of the chart. Regarding then the Americas imports, we currently don't have the Q3 figures because of the government shutdown. So the only weaker figure from Q3 we have is July, which shows here now an increase to 33%. I would think that the imports probably are bit a similar level in Americas in Q3 as Q2 once we get the numbers. Then commenting on a group level, the overall picture, you can see that our deliveries were at a low level in Q3. This comes really from the weak market conditions in Europe. We have not lost market share. It is really the weakness in the market. And then if you look at what is the bridge from our Q2 result to Q3, you can see that it's very much about deliveries, getting some help from raw material costs. And then in Ferrochrome side, we had a bit higher deliveries, but when you translate the U.S. dollar euro rate, then that was now hitting us on the pricing side. And then we had also maintenance stops in the quarter, which impacted the result. We comment every quarter now on the EBITDA run rate improvement. This is an initiative that started in '23 and we will end the program by the end of '25. So currently, we are at EUR 336 million of cumulative savings and improvements and will reach the EUR 350 million as targeted. Many of these improvements are something that you only will see really coming through in our books when the market conditions improve. But to highlight a bit what did we -- for instance, what kind of improvements we had in Q3, it's very much about Circle Green -- bigger volumes for Circle Green, where we have a clear premium, and then also some good impacts from district heating solutions. And then in Americas, we had further savings through process optimization in Calvert. Then to the more exciting news. So you know that in Capital Markets Day in June, we talked about our new technology, and we said that we are looking at the next phase and the investment for that. So now we have made that decision, and we'll be investing in a new pilot plant in New Hampshire in the U.S. to scale up the technology from this daily 1 kilogram production level to 1 tonne. And here, we are concentrating in the first instance on chromium. So we would be producing enriched Ferrochrome and also chromium metal. And these new production pathways we're looking at for high-purity metals are very much applicable to high-value markets like aerospace, defense and energy sectors. And in the future, then we can also look at other metals, like we said before, for instance, nickel. But now we concentrate with the scale-up on chromium. And then if we look at a bit what we communicated before, what is the phase we're talking about here. So the lab scale, we spent about 4 years to really arrive at the technology. And now we will want to show that we scale it up for industrial feasibility and then also so that we have a competitive production cost with this process. And once we have achieved this, the idea is that this plant would be operational during the first half of '27, then we are in the next step looking at industrialization, probably with a commercial plant with a capacity of about 10,000 tonnes in the first instance and then really taking advantage of the technology in the next step for bigger scale up. But this is the phase where we are. And now it's time to show that this technology can be scaled up and it's feasible in industrial production with a cost competitiveness. So that's our focus right now in the next phase. So very excited about that. Then a couple of comments on sustainability and starting with safety. So the news that I'm not so happy about is our safety performance during the Q3. We were fully on track with our safety targets by the -- until the end of August, but we had a disappointing month of September with 6 incidents that involved 9 people, both our own people and contractors. And now our -- very much our target is to get back on track. So our target level on total recordable incident frequency rate is 1.5, and now year-to-date, we are at 1.9 after the disappointing September, and we have all hands on deck to get back to the performance we are used to. On the positive side then, we continue to have a very high recycled material content, now 3 quarters in a row at a record high level of 97%. This talks to a very high scrap use and also some other raw materials, which is also good for our sustainability result. And we are also continuously progressing towards our SBTi climate target. And then the last item here is, we're developing our portfolio for Circle Green. We're getting more customers for that. And I'm very happy to announce that we now have a collaboration with Parcisa. And Parcisa is a leader in design and manufacture of tankers for liquid transport. So very nice to have new customers for Circle Green. And now I will then hand over to Marc-Simon to go more in detail in our business area results and the finance in overall. So Marc-Simon, the floor is yours. Marc-Simon Schaar: Thank you, Kati. Good afternoon, good morning, everyone, and thank you for joining us today. It is clear that given the current market environment, maintaining strong capital discipline remains one of our key financial priorities. Let's start by taking a closer look at our financial position at the end of the third quarter. During the third quarter, our net debt increased to EUR 230 million. And despite the increase, we maintained our strong liquidity of EUR 1.1 billion, supported by a new 3-year term loan. This clearly demonstrates the continued strong support from our lending partners. And in light of the weak market conditions, we are continuing to emphasize capital discipline, particularly through tight working capital management. With that, let's move on and look at the performance of our business areas during the third quarter, starting with BA Europe. In Europe, the demand from end users remained soft across key sectors, especially in construction and domestic appliances with no real signs yet of any immediate recovery. The European manufacturing PMI showed some improvements in August, but soon fell back to below 50, indicating contraction. The construction PMI dropped even further to around 46. Distributor inventories declined somewhat, particularly in Germany, but still remain at medium to high levels given the weak demand. Added to that, and despite being positive, ongoing uncertainty around the CBAM mechanism, as well as timing and the final definition of the new safeguard measures has created additional caution among buyers. As a result and combined with a typical seasonal slowdown, volumes in business area Europe fell by 12% quarter-on-quarter. The higher share of Asian imports now around 29%, also continued to put pressure on sales prices. According to CRU, standard 304 prices in Europe fell sharply by more than EUR 150 per tonne compared to the previous quarter. The negative volume and price impact was partly offset by lower raw material costs and ongoing cost-saving measures, as well as higher fixed cost absorption due to increased production ahead of the annual maintenance shutdown and the ERP rollout. However, as guided earlier, the planned maintenance activities in business area Europe had a negative impact on our profitability. Let's now move across the Atlantic and take a look at business area Americas. Also in the U.S. and in Mexico, the manufacturing sector remained in contraction during the third quarter with only a slight improvement visible in Mexico. The increase in U.S. tariffs on steel and aluminum imports from 25% to 50% in early June this year continued to support domestic producers. However, underlying demand across North America remained subdued. Only the oil and gas sector is holding up somewhat due to the higher energy demand from the increase in data centers and activities from reshoring manufacturing into the U.S. are not yet visible. With the weak demand, distributor inventory days increased further and above year-to-date averages. Overall, deliveries in business area Americas declined by around 6% quarter-on-quarter, while average prices improved, supported by the tariff changes, as mentioned earlier. The benefit from higher prices was partly offset by increased raw material costs and lower fixed cost absorption due to reduced production, a deliberate move to balance working capital in a weak market. Then next, let's look at the performance of our business area Ferrochrome. Globally, Ferrochrome producers in Southern Africa continued to face capacity shutdowns driven by high electricity costs. This led to higher chrome ore export, especially to Asia, where margins are more favorable. In the U.S., new tariffs on the Brazilian imports strengthened the demand for our Ferrochrome products, which are not subject to U.S. tariffs. In Europe, we have also seen an increasing interest as steel mills are looking for European low-emission alternatives for raw materials, which are subject to CBAM regulation. So the demand for our low-emission Ferrochrome remained solid throughout the quarter with deliveries up by 3% despite the usual seasonal slowdown. On the other hand, sales prices declined, largely due to a weaker U.S. dollar. Our profitability was also affected by timing differences between foreign exchange derivatives and the realization of the weaker U.S. dollar in sales, as well as higher energy costs and lower fixed cost absorption linked to the seasonal lower production. With that, let's turn to the group's overall financial position and working capital development. As mentioned earlier, net debt increased to EUR 230 million during the quarter, mainly reflecting lower profitability in a weak market, a few one-off items and our annual insurance premium payments. Now the one-off items include costs related to the U.S. wage class action settlement as well as foreign exchange impacts from the weaker U.S. dollar. Those stemming from internal currency swaps we use to optimize our cash across the group. Normally, in a soft market, we would expect a reduction in working capital. However, this quarter reductions were limited as we prepared for our annual maintenance shutdown as well as the ERP system and supply chain solution rollout in business area Europe. Nevertheless, we continue to focus on tight working capital management and preserving our strong liquidity position going forward. With that, I will now hand it back to you, Kati. Kati Horst: Thank you, Marc-Simon. So let's then move to look at our outlook and guidance for the Q4. So on the outlook, we said that the group stainless steel deliveries in the fourth quarter are expected to decrease by 5% to 15% compared to the third quarter and mainly due to the market weakness in business area Europe, and the seasonal slowdown in business area Americas that happens in the fourth quarter. Asian imports to Europe still remain high compared to the low demand in the stainless steel market. Then we have maintenance breaks in business area Europe and Americas as well as the rollout of the new ERP system and supply chain solution in business area Europe. And those impacts are expected to have about -- are expected to have an impact of about minus EUR 20 million on our adjusted EBITDA in the fourth quarter compared to the third quarter. And then with the current raw material prices, no major raw material-related inventory or metal derivative gains or losses are forecasted to be realized in the fourth quarter. And therefore, our guidance for Q4 2025 is that the adjusted EBITDA in the fourth quarter of '25 is expected to be lower compared to the third quarter. Moving then forward to discuss and summarize a little bit, what I really want to emphasize that, despite the current challenging market conditions we are now having in Europe and that heavily impact our performance, I'm very confident about our future direction. With the EVOLVE strategy, we take clear steps towards the higher resilience and better performance through cost restructuring and investments in profitable growth that support diversifying both our offering and geographical footprint. And as you know, today, we announced that we are now investing for growth through the pilot plant for innovative proprietary technology in the U.S. So that's the transformative part. And then on improving our competitiveness, we are trying to implement as quickly as we can this EUR 100 million restructuring program to get the structural savings in and to help our competitiveness, especially in Europe. Then in Americas, we see Americas as an interesting growth market, but rather beyond standard stainless steel. And the change I have made in Americas' management is that we have Johann Steiner, who has been also leading our strategy work at Outokumpu now appointed as President in BA Americas, and he will be an excellent support to the team there to work further on the Americas strategy. And our recruitment for Johann's successor is ongoing in final stages. Then there are also some positive news from the market, I would say, a bit of light in the end of the tunnel when you look at the European market. We are very happy and very supportive of the strong proposal that European Commission has made for more effective safeguards. And I think the important items there are that the quotas are halved by nearly half. That the tariffs then on top of the quotas will propose to be in the rates of 50%. And then the principle of melted and poured is planned to be introduced and then we would get these new safeguards latest by the end of -- or by the mid-'26. So I think the package as such is very strong. Now of course, we are very much hoping and supporting decisions on this still this year, and -- so we get clarity on, is it going to be mid next year or is it going to be, hopefully, also a little bit earlier that we get these safeguards in. And then the other item that is important for Outokumpu because we are clearly the sustainability leader in the industry, both in Ferrochrome and stainless steel, that we do get a Carbon Border Adjustment Mechanism in place in Europe to ensure that the green transition in Europe can continue the investments that are needed for that. And those who have invested in that finally start getting some benefit out of that, and we can keep this industry in Europe. So I think own actions, very important, cost competitiveness, investments in growth, and next to that then some of the positive things that we see next year with the safeguards and with the CBAM being implemented. So I will end the presentation there. And I think then it's time for us to move to the questions and answers. Operator: [Operator Instructions] The next question comes from Tristan Gresser from BNP Paribas Exane. Tristan Gresser: First, maybe on the quotas. Can you share a little bit more your view on the implementation of those new quotas as they are? And also, are you optimistic about the new quota that could be implemented before July next year? And on their own, are those quotas enough? I mean it seems to me that the issue is more about the prices than volumes. In the past, we've seen imports falling and plunging a lot, but not really helping the market. So would love to have your view there. Kati Horst: So maybe I'll start, and if Marc-Simon you have something to add then you can do that. I think the total package not only that the quota levels will be halved, but then also the tariffs above the quotas, the melted and poured principle, that the measures don't have a definite deadline but will be reviewed. I think the whole package as such, and you cannot move quarterly quota from one quarter to another. There are like many elements in this proposal that I think altogether support and give an impression of clearly stronger safeguards. So therefore, I'm quite positive about the proposal. And then if you look at the Asian import level is now almost 30% in Europe, this quotas would have that import level to about 15%. And I think that is what we need in Europe to create a level playing field for European producers so we can utilize the capacity enough, otherwise it's going to be closed. So if we want to keep a steel industry in Europe, it's important that these measures are now taken. Marc-Simon Schaar: And then maybe on the timing, you asked about the timing of the quota here as well. So as Kati was mentioning earlier, the latest being mid of 2026 just before then the current safeguards expire. Now it's very difficult to speculate, and we don't want to speculate really on the timing of it. I think we have seen a very good proposal by the Commission and now we are waiting here, the discussions also within the member states of the -- of Europe and also within the parliament and then seeing whether we have then also the support from the member states basically. Tristan Gresser: Okay. No, that's clear and helpful. My second question is on CBAM. What would you need to see in the text of CBAM, whether provisional or final, to really make a difference for your European business next year, given that most of the carbon intensity differential is on Scope 3 with Asia, how optimistic are you that it's going to be implemented? And also just following up on CBAM, you said that uncertainty around CBAM is putting order activity a bit behind. But what we've seen for carbon steel makers is that CBAM uncertainty is actually pushing more buyers towards domestic producers because of that uncertainty. So I'm just trying to square that out and why this uncertainty that is placed on importers should not benefit you near term? Kati Horst: Yes. I would say -- so first of all, I think it's quite clear, at least from the discussions that we have recently had with the Commission that CBAM will be implemented as of January. What we are, of course, hoping is clarification before the end of the year, what are the reference values and how will it exactly work? What scopes are included. So there are, of course, question marks still, and I think it's also not good this uncertainty for our customers, both on Ferrochrome and stainless steel that there's not more clarity right now. But CBAM will come. And whatever form it comes, I think it will be supportive. But of course, from our perspective, having all the scopes in it would be helpful for us and even better. But I think even a form that is not perfect is better than nothing. That's how I would see it. And then if we look at our customer industries, we have, of course, discussed a lot with our customers as well. There is a discussion with the Commission also that how would you compensate them for export business, if I look at our customer side. But I would also say that we have many customer sectors that also support CBAM and actually would want to be included under CBAM as steel-intensive users, so that for instance, in appliances, you don't then get a situation that products are brought to Europe with a much higher carbon footprint and then they have to face that. So there's definitely still work to be done to make CBAM an effective system. But I think starting it with now is the first step that has to happen in January. Operator: The next question comes from Adahna Ekoku from Morgan Stanley. Adahna Ekoku: I've got 2 questions from my side. So first, just on business area Ferrochrome. Could you help us a little bit here with the outlook into Q4? So we saw higher volumes quarter-over-quarter, but then this was partly offset by the dollar and higher electricity costs. So how are you expecting these factors to trend looking into the next quarter? Kati Horst: So you know that we don't guide the business area. So I will not be very specific. But I think in general, I would say that we see our Ferrochrome business being in a good place and continuing to deliver good result. So quite confident of Q4 on Ferrochrome. Marc-Simon Schaar: Maybe if I can just add 2 further points to it. Certainly, we see a weak market environment and demand situation from the stainless steel sector. But as we pointed out earlier as well, the demand for our Ferrochrome is solid. So while you see some negative impacts on the one hand side in terms of volume, then the offsetting on the other side here as well. But then -- yes, then going forward as well, I mentioned earlier, and that is valid for the group, that we are having strong focus on tighter working capital management that will also impact our production then in the fourth quarter and something to be taken into consideration as well. Adahna Ekoku: Okay. That's clear. And maybe looking to 2026 and on CapEx and whether you could provide any kind of early steer here. At the CMD, you outlined the higher maintenance needs. So I was wondering, is there any flexibility here? And any indication as to how much growth CapEx will be allocated to next year given the kind of continued weak backdrop? Marc-Simon Schaar: Yes. Good question. I think in the Capital Markets Day, I mentioned indeed that our maintenance CapEx going forward at a level of EUR 100 million with some backlog recovery for next year, bringing it to EUR 200 million. But at the same time, also clearly stated that we are observing the market environment, the market situation as well. And we are clearly observing the situation and making the plan for next year. Right now, as we are, certainly, we will adjust our CapEx, what we have communicated to the Capital Markets Day, taking the weak market situation into account, but we'll come back with further guidance then in our next report. Operator: The next question comes from Anssi Raussi from SEB. Anssi Raussi: I have a couple of questions left, and I start with your guidance. So you mentioned that you expect some negative impact on your EBITDA for Q4 quarter-over-quarter due to maintenance break. But I think you guided EUR 10 million negative impacts also for Q2 and Q3, so what's the net impact now? And have you ramped up your maintenance activity all the time during this year? Or how should we think about this? Marc-Simon Schaar: Anssi, good afternoon. We do have had maintenance work in the second quarter, yes, and in line with our guidance. But this maintenance work was towards the end of the quarter. It will also -- or has continued into the fourth quarter as well, number one. We also see maintenance break in the Americas with our annual maintenance shutdown on our melt shop and other assets in the U.S., which having an impact. And I think in our guidance, we were also talking about our rollout of our ERP system and supply chain solution here as well, which will have an impact on volume on the one hand side, which is already covered on the volume side, but certainly also on our production and the cost level. And these both together is then what makes then the EUR 20 million impact quarter-on-quarter. Anssi Raussi: And just to clarify that we are talking about net impact quarter-over-quarter. Marc-Simon Schaar: Yes. So this is a bridge impact, so quarter-on-quarter. Anssi Raussi: Okay. And maybe my second question on these tariffs in the U.S. So if you look at your deliveries in the business area Americas, I guess it's clear that your average selling price has increased less than the so-called list price if we look at the price data from CRU. So what's the mechanism here like? Does it take longer to see the full impact? Or how does it work? Kati Horst: Yes. Maybe if I comment on that, I think the full impact will be seen more in Q4, I would say. But then we need to also take into account that the Americas market as demand as such is not very strong. There's also new capacity coming to the market, and there's also a mix impact always when you look at the pricing. But prices have increased in Q3, and I think the full impact will be visible in Q4. Marc-Simon Schaar: Indeed, the full impact is in Q4, but quarter-on-quarter I would not take any significant improvements into account here just to be more cautious and realistic. And then maybe just to add, when it comes to CRU data, I think also here we need to see what is the -- where is the timing difference between order intake and then also the realization of prices as well. Operator: The next question comes from Dominic O'Kane from JPMorgan. Dominic O'Kane: So I have 2 questions. My first question actually follows on from your last comment. I note you, obviously, practice is not to comment on specific business areas. But given the Q4 guidance for shipments and given the pricing outlook, I think it's reasonable to assume we'll see another negative EBITDA quarter for Europe. So I'm just wondering if you could just help us contextualize maybe what you're seeing in terms of pricing currently for Europe. You've talked to the Q3 CRU comment, which is obviously backward-looking. But have you seen any discernible change in your customer behavior or order book following on from the European Commission safeguarding proposal earlier this month? Has there been any indication that customers are looking to acquire metal sooner than that framework comes into existence? That's my first question. Marc-Simon Schaar: Maybe if I can start and then you can add, if needed. While we're not in a position to guide on prices here, particularly going forward, I think in our outlook for the fourth quarter, we're talking about a volume decrease quarter-on-quarter in the range of 5% to 15%. And I think the split between Europe and Americas is almost 50-50 here to say. And we also talked about the maintenance costs and impact from our ERP rollout here as well. As well, we also mentioned that Asian imports are still on a high level. They actually have increased towards the end of the third quarter. And of course, that is also impacting then our business. This is probably as much I or we can say here on the current situation and outlook. And in line with what we mentioned also earlier is that, yet we do see a wait-and-see attitude still in the market with customers or the industry being cautious around the definition and the mechanism on CBAM and the safeguards here as well in terms of timing. So that needs to be taken into consideration as well, as such no clear signs yet of any improvements, as I mentioned in my part of the presentation. Dominic O'Kane: That's clear. And then my second question, just on net debt stepping into Q4 and the working capital bridge. Given the maintenance, is it reasonable to assume that we would expect to see a higher net debt at the end of Q4 versus Q3? Marc-Simon Schaar: While we're not giving specific guidance on our net debt going forward, there are a couple of elements we need to take into consideration. On the one hand side, we have paid our second tranche of the dividend in October. I think it was the 22nd of October with a cash out of EUR 61 million. And in my part, I also clearly stated that we continue to focus on tight working capital management, and this is what we will have in focus in the fourth quarter. I also mentioned the impact on our profitability as a result thereof. And having said that, so with the current assumptions, we don't expect a major increase in net debt in the fourth quarter. Operator: The next question comes from Joni Sandvall from Nordea. Joni Sandvall: Maybe a bit of follow-up on the quotas that we have been speaking already. I know it's a bit early looking into '26, but is there -- do you see any risks of import surging ahead of potential implementation of these quotas? Kati Horst: Maybe if I answer that. There can be some, but let's remember as well that the delivery times are still quite long also from Asia. I think the most important thing now is that the decision comes this year and the timing is communicated and the decision comes. And I think that will then already be helpful earlier than when actually the quotas come in place. Because you need to take into account then what's the moment that your deliveries would actually be on the European border. So there can be some surge in the Q1 or something, but I would think the most important thing is now we get the decision and clarity and then that will start impacting markets. Marc-Simon Schaar: I think most important is really lead times. Kati Horst: Yes. Marc-Simon Schaar: On the one hand side we do have a quota system still in place. It's not sufficient, I know, I understand, and that's what we are reporting for many quarters and years right now. But the window of opportunity is rather short. Joni Sandvall: Okay. That's clear. Then a question related to the pilot that you announced today. You are speaking already towards end of this century the 10-kilotonne industrial size production. So could you give any indication of what kind of CapEx we could be looking for this kind of industrial facility? Kati Horst: It is very, very premature. Also depends where the investment would be. So no, I cannot give a figure. I can say that it's more than EUR 45 million that I can say for the next phase. But I'm sorry, I can't give a better number right now. So that we will need to really look at then more detailed, because we also learn now in this process about what would that kind of investment look like when it comes to machinery and setup. And where we would invest, would it become kind of being part of our Ferrochrome plant or somewhere else has also influenced. So it's too premature, unfortunately, to comment on that. Joni Sandvall: Yes. That's clear. And then lastly from me, the ERP rollout that you have been mentioned many times and the supply side solutions. So could you give any indication, have you completed this? Or have you faced any interruptions on that front? Marc-Simon Schaar: Well, it's quite a sizable project, I must say, with -- we started basically a couple of years back in Germany and also in Sweden. And now we have our largest site in Tornio, Finland. And with that rollout, we're closing the loop, so to say, and have all of our assets or the majority of our assets on the same platform, which provides certain opportunities and advantage for us. Having said that, we are -- we have started the rollout at the beginning of the quarter, and it has been going in the size and magnitude of these kind of projects relatively well, and we're still in the process of rolling it out. Joni Sandvall: Okay. And lastly, maybe a quick question on the Ferrochrome and the FX impact on the profitability. Now here in Q3 you were speaking about timing impacts there, but could you give any indication how much that was? Marc-Simon Schaar: Yes. I think the impact is around EUR 8 million quarter-on-quarter. So you have a positive impact in the second quarter of EUR 4 million from the derivative and then the realization in the sales price, then the negative EUR 4 million impact in Q3. So the delta is around EUR 8 million. Operator: The next question comes from Maxime Kogge from ODDO BHF. Maxime Kogge: My first question is on Ferrochrome. So we have seen actually quite significant cutbacks in South Africa. I think Merafe talked about a 50% decrease in the own production year-on-year in 2025. So I guess that opens some volume opportunities for you. Do you expect to benefit from that perhaps not in Q4, but further ahead? And do you see room to get back to nameplate capacity in Ferrochrome because you're currently running at below 80% there? Kati Horst: So maybe I start by saying, yes, we do see that we do benefit from that situation. And I think the way it shows currently is that we are getting new customers. We have more trial orders. And even though there may be -- there have been some rumors on the market one of the producers probably coming on stream in February, at least for a short time, I think the customers maybe are not trusting that fully. So I think going forward, we see strong demand for our Ferrochrome. And as you know, there is still capacity to be utilized. So we are somewhat flexible in that, and we'll follow how the market develops. Now Q4, our focus is to make sure that we prioritize cash. So we will also make sure that our inventories come down also in Ferrochrome. But we have opportunities to increase the production when the market needs that. Maxime Kogge: Okay. Second question is on your chrome investment. I was curious to understand why you had chosen the U.S. for this investment actually because the raw material will come from Europe. So isn't there the risk of tariff impact associated with this decision? Kati Horst: So here, we are still in the pilot phase what we are talking about now for the coming 2 years. We are still talking about scaling up the technology. And our scientists that have been working on the technology for 4 years in our lab close to Boston, that's where they are. And in this phase it doesn't really matter to be close to the metal where that comes from. In the next phase that would be different depending on what metal you use. So in this phase, I think it's more important that we can use the capabilities and the knowledge to build the Phase 2 plant, and it's handy for us to have it close to the lab in the U.S. So that's the main reason it's in U.S. Maxime Kogge: Okay. Makes sense. And just the last one is on your U.S. strategy. So you seem to be considering rather the high-end segment of the market and try to get away from the mass market. But I found that curious given that one of your competitors is precisely investing in that segment, plus given the lower import pressure that also opens some opportunities there for lower-end products, yes. So any light on that would be helpful. Kati Horst: No, I think we've been just kind of clarifying it that we are not necessarily looking at increasing our capacity in standard stainless steel in U.S., but looking at how we can develop our portfolio, for instance, in Calvert to the higher-end products or do investments or acquisitions that support our strategy to more -- to advanced materials. So our feasibility study on high-nickel alloys in Avesta is still ongoing and progressing well. And if you, in general, look at that kind of products, they travel quite well in the world. Of course, there are tariffs now in the U.S. Will they be there forever? It's a global market for that kind of product, so I think we definitely have interest for that kind of markets also in the U.S. And then developing our technology, there are probably different paths that could be for Europe, could be for U.S. So we definitely continue exploring the U.S. market and continue with our strategy work. But I think one thing we have defined if we just add capacity in the standard stainless steel, we are not transforming this company. So that's, I think, is a clear sign that we are looking at different kind of products. Operator: The next question comes from Meet Mehta from Barclays. Meet Mehta: So I have one question. So in the presentation on Slide #23 for BA Europe, you are saying that there was a positive raw materials impact. But if I look at your press release, it is saying that there was a raw material related inventory losses of EUR 4 million. So what am I missing here? Marc-Simon Schaar: The raw material impact is -- our raw material costs, the EUR 4 million, EUR 5 million impact, I guess you're referring to is the net of timing and hedging effect of buying alloys basically. So the difference between when you buy and when you sell. This is the timing impact and then netted by your hedging activities. Meet Mehta: So that you are considering under this line item, right, the net timing of hedging, right? Marc-Simon Schaar: This is under net of timing and hedging, yes. Meet Mehta: Yes. And I've -- a second question is on net debt. So I mean, this, I mean, as you have said, right, this was a sudden increase and even if you try for this type raw material -- so is there a chance that we might see a decrease on the net debt side? Or should we consider that it will remain in line with EUR 230 million? Marc-Simon Schaar: I think the latter one, as I was mentioning earlier before. So remaining around the current level. Operator: The next question comes from Bastian Synagowitz from Deutsche Bank. Bastian Synagowitz: My first one is actually also a quick follow-up on the situation around the, I guess, the ERP and the maintenance costs. So do you expect that to possibly drag into the first quarter as there are any other maintenance break coming up? I guess, you had a very high intensity of maintenance costs this year. And clearly, it makes a lot of sense to do those when the market is weak to be ready whenever the market does come back. But I guess, just for our purpose, wherever you've got the visibility, if you could, I think it would be very helpful for you to flag these things a little bit earlier. I guess, the ERP side, at least, would generally have caught you by surprise. But first of all maybe if there anything which comes and drags on into the first quarter, if you could share that with us, that will be great. Marc-Simon Schaar: Sure. Right now, as far as we can see, it does not drag into the third quarter, to answer your question. And then maybe on the ERP rollout, this is also something which I mentioned in the last interim or webcast here as well as part of our working capital development. But now going forward, with maintenance and then also being in the U.S. and Europe and the ERP rollout all in one quarter, clearly know the impact in Q1. So these are really one-off items, so to say, if you compare quarters with each other. Bastian Synagowitz: Okay. Very clear. The second one is on CapEx. So I guess in the release, I guess you stated that the EUR 200 million investment into the annealing line is under review. Now from my understanding, a very large part of the targeted EUR 100 million cost savings was actually tagged to that. So what does this mean for the cost savings? Do you think that you can fully compensate for that somehow and find different areas of savings even if that investment does not happen? Could you maybe just talk about that? And also maybe if you have any visibility already on how much cost savings contribution we can pencil in for 2026? Marc-Simon Schaar: Yes. So the -- Bastian, the EUR 100 million does not include -- is not depending on the AP 1 investment, so the annealing and pickling line investment in Tornio. So that is not included. The EUR 100 million are coming from other measures such as streamlining, delayering layoffs, reduction in positions, other quality and efficiency improvements. Bastian Synagowitz: Got you. Okay. So that stands totally separate and the EUR 100 million target basically is still fully intact. Kati Horst: Yes. Marc-Simon Schaar: Absolutely. Absolutely. Bastian Synagowitz: Perfect. And then just also coming back to, I guess, the most cryptic part here, which is around CBAM. And of course, it does seem like the situation is still vague with regards to the benchmarks, et cetera. But I guess, we're just a couple of weeks away really from, I guess, when it starts. And I guess, you must already be discussing the current order book. So I'm wondering, how do real-life discussions on that front really look like at the moment? So do you start to reflect this in Q1 already with customers? As Tristan said earlier, in carbon steel, we can see that happening. And if the -- if whatever impact comes and even we don't know how much it is, but there will be something, I guess, there must be some increment also on the pricing side. So even without going into any details, I mean, could you just say that you're basically looking a little bit more confident here into Q1 pricing? I guess, you've been always a bit more confident on Ferrochrome than stainless actually. So maybe you can start with Ferrochrome first here. Kati Horst: So maybe I can come back on your question on CBAM and maybe repeat a little bit what I said. So I think there's a lot of confusion and uncertainty among our customers, whether it's Ferrochrome or stainless steel, what it actually means. And what we are missing, we are missing the clear message on the reference values. And that's why we are really hoping that we would get more information now before the end of the year. And based on our latest discussions with the commissioner, for instance, that we are expecting that there would be more information before the end of the year. So I think that would clarify more the situation to our customers. Of course, we try to educate our customers, how does this kind of situation work, but we don't have the reference values from a Commission yet. So that is the uncertainty on the market. I think there's no uncertainty that CBAM wouldn't come, but it's just what does it exactly mean in different products and what scopes are included, so that is still the uncertainty. But we have not seen -- and I think because of this uncertainty, we have not really seen it yet influence buying behavior, for instance, now in the end of the year. And maybe that's also reflected with a weak market, our customers also doing their cash management. But of course, it should support pricing going forward. Marc-Simon Schaar: Yes. Pricing and lead times are very short right now with a weak market environment. Bastian Synagowitz: Okay. So it's not yet in that sense reflected. But how do you -- how will you treat this from your end at the moment, given the uncertainty? Do you just -- would you just, for example, would you just put in the flexible component there in your pricing discussions, whatever the outcome is in the course of the fourth quarter? Kati Horst: I don't think we are in -- we want to discuss our pricing strategy at this moment. So sorry, I can't answer that. Operator: The next question comes from Tristan Gresser from BNP Paribas Exane. Tristan Gresser: Just on the downstream project in Tornio that's been put on hold. Just wanted to confirm with you the status of the 2 lines in Krefeld, they're shut or not. And also in Q2 already, you shared some estimates on the negative impact on the mining tax in Finland and the removal of the state aid on energy. Can you now confirm those negative headwinds for next year? Kati Horst: No, we cannot confirm them yet. The discussion is ongoing. That's a proposal based on which we have commented. And we are, of course, discussing with different instances in Finland. The proposal is now in the parliament, and it's a big issue for the whole mining industry in Finland, not only for Outokumpu. And why the AP 1 investment is on hold is that if this tax impact and electrification removal comes, all that together, of course, impacts also our mining cost, Ferrochrome cost and therefore, also then the stainless steel cost. And then our calculations for the AP 1 investment, comparing it also with Krefeld and the cost position will need to be looked at again. But we don't have clarity yet whether this proposal will hold or not. So that's why the investment decision is on hold. Tristan Gresser: Krefeld Kati Horst: Yes, Krefeld, of course, we have -- it's linked to the investment decision. So we will wait with the investment decision to see what happens. Marc-Simon Schaar: Yes. But again, I think very important to clarify that those -- the impact or the improvements from such investments are not included in the EUR 100 million restructuring measures, which we have. They still hold, and we are very confident to get those also, as communicated earlier. Tristan Gresser: Okay. So the government can still change course and it's still in parliament. And for the stated, on energy, how much of a benefit was it last year, or even this year? Usually, do you receive in Q4, Q1? What was the number? And is it in Europe EBITDA, Ferrochrome EBITDA? How does it work? Kati Horst: In Finland, it's about EUR 20 million, which is divided between Ferrochrome and stainless steel. But on Finland level, on group level, it's about EUR 20 million annual. Marc-Simon Schaar: Yes, from a cash impact and half of that with a P&L impact and the other one then requires investments into decarbonization. Tristan Gresser: Okay, that's very clear. And maybe last question, the Avesta melt shop, is the decision to be made still before year-end? Or can it be pushed to early 2026? Kati Horst: Well, we have progressed really well with our feasibility study. So that starts to be ready. But I think we still are looking at different options. So let's see what it looks like. I would think more probably next year's topic also given the current market environment. Marc-Simon Schaar: Tristan, I need to qualify, I think, not 100% sure in which way I said it. But the P&L impact is EUR 20 million, the cash EUR 10 million because you need to invest into decarbonization, just to make that sure, clear that we're on the same page. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Kati Horst: So thank you very much for joining our Q3 call, and thank you for being so active with very, very good questions. So market conditions in Europe continue to be challenging. That's something we have to deal with. That's why we are driving our cost restructuring plan to improve our competitiveness. At the same time, we are also taking steps with our EVOLVE strategy and investing in the pilot plant in the U.S. to develop our technology in enriched Ferrochrome and chromium metal. So thank you very much for joining and then talk to you again when we have the Q4 result ready. Thank you very much. Marc-Simon Schaar: Thank you.
Silvia Ruiz: Good afternoon, everybody. This is Silvia Ruiz speaking, and I would like to welcome you to Ferrovial's conference call to discuss the financial results for the third quarter of 2025. I'm joined here today by our CFO, Ernesto López Mozo. Just as a reminder, both the results report and the presentation are available on our website since yesterday evening, after the U.S. market was closed. At the end of the presentation, there will be a Q&A session. [Operator Instructions] Before starting, please take a moment to look at the safe harbor statement included in the presentation. And please bear in mind that the presentation contains forward-looking statements and expectations that are subject to certain risks and uncertainties, so actual figures may differ. Other than as required by law, the company assumes no obligation to update forward-looking statements. During this call, we will discuss non-IFRS financial measures, which are defined and reconciled to the most comparable IFRS measures in our results report. With all this, I will hand over to Ernesto. Ernesto, the floor is yours. Ernesto Lopez Mozo: Thank you, Silvia, and hello, everyone. Thank you for joining us today for Ferrovial's Third Quarter 2025 Operating Earnings Conference Call. Starting with the overview. I mean, in the first 9 months of 2025, we saw continued strong momentum across our business divisions. Our highways delivered outstanding revenue and EBITDA growth, fueled by our North American assets. Airports saw continued progress at New Terminal One at JFK. Here, we are now intensely focused on operational readiness. Construction maintained solid profitability with the adjusted EBIT margin reaching 3.7% in the first 9 months. On the financial side, net debt, excluding infrastructure projects, stood at negative net debt or net cash, let's say, EUR 706 million. The main cash inflows included EUR 406 million in dividends collected from projects and proceeds of EUR 534 million from the sale of AGS Airports in the U.K. and EUR 539 million from the sale of a 5.25% stake in AGS Airports. This was closed in July. The main cash outflows related to the acquisition of an additional 5.06% stake in the 407 ETR for the equivalent of EUR 1.3 billion and also equity injections of EUR 239 million in NTO. Shareholder distributions reached EUR 426 million in the first 9 months. We also announced a second scrip dividend and expect to submit the RFQ for the I-77 South Express project in North Carolina in December. As a reminder, we have already been shortlisted for bidding on the I-24, Southeast Choice Lanes in Tennessee and the I-285 East Express Lanes in Georgia. We expect to submit these bids in the first half of 2026. Let's move now into the operations with the slide on highways. And here, the U.S. highway revenue grew 16.4% in like-for-like terms in the first 9 months of the year and compared to last year, and adjusted EBITDA was up nearly 15.1%. 97% of the highways adjusted EBITDA and 88% of the highways' revenue come from the North American assets. Dividends from these North American assets in the first 9 months of 2025 totaled EUR 312 million, versus the EUR 420 million in the same period last year. I mean this reflects the strong growth and the cash generation of these concessions. As a reminder, in the first 9 months of 2024 included the first dividend from the I-77, which was an extraordinary amount of EUR 195 million. Let's move to the specific assets, the 407 ETR that delivered another outstanding performance this quarter. The traffic in the quarter grew strongly, 9.4%, and it grew 6.2% in the first 9 months of the year compared to last year. This growth reflects the success of targeted rush hour driving offers as well as the increase in mobility in the region from return to office mandates. The strong underlying traffic trends was the cost driving 18.6% revenue growth in the third quarter and 19.3% in the first 9 months. EBITDA surged 20.1% in the third quarter and 15.8% in the first 9 months. In terms of Schedule 22, 407 ETR reduced the 2025 Schedule 22 Payment Estimate. Given the new estimate is markedly lower than the previous estimate, the provision for the first 9 months is lower than the one recorded up to June. As a result, the 407 ETR recorded a CAD 9.8 million provision recovery in the third quarter, bringing the accrued provision for the 9 months to CAD 35.4 million. Promotions are working really well in incentivizing more efficient use of the road. Through these targeted offers, we continue to gain valuable insights into customer behavior. We expect our focus on demand segmentation to continue enhancing value for users and maximizing EBITDA growth. In terms of dividends, CAD 450 million has been paid in the first 9 months of the year. This is up 13% compared with the same period last year. And the 407 Board has approved a dividend of CAD 1.05 billion to be distributed in Q4. This is up 50% from last year's fourth quarter dividend. And this would bring the total amount of dividends approved for the 2025 year to CAD 1.5 billion. This is up 36% from 2024. Moving to the Dallas-Fort Worth Managed Lanes, Slide 6. We will start with NTE. And here, well, despite we see traffic impact from capacity improvement construction works, really, there's fewer vehicles in the corridor that has affected traffic declining 3.7% in the third quarter and 4.4% in the first 9 months of the year. The revenue per transaction has increased by a healthy 14.2% in these first 9 months. And this benefits from a favorable traffic mix that means more heavy vehicles in proportion and more mandatory mode events. The asset grew the adjusted EBITDA by 7.4% in the first 9 months, and this includes $1.3 million of revenue share in the third quarter and $4 million in the first 9 months. In LBJ, traffic grew 1.7% in the quarter and 1.5% in the first 9 months of the year. And this despite the impact of continued construction works in the surrounding roads and corridors. The revenue per transaction grew 8.7% in the first 9 months and the adjusted EBITDA grew 11.1%. Now with NTE 35W is the only Dallas-Fort Worth managed lane that is not impacted by construction works. Traffic in the third quarter grew 4.6% and by 4.1% in the first 9 months. This drove outstanding revenue per transaction growth of 12.0% in the third quarter and 10.2% for the first 9 months. The adjusted EBITDA that grew 11.8% in the first 9 months of the year included $4.9 million of revenue share in the third quarter and $14.8 million in the first 9 months of 2025. All the Dallas-Fort Worth assets, as you see, recorded solid revenue per transaction growth, and this is above the soft cap, benefiting from the favorable traffic mix that I mentioned, there's more heavy in proportion. And in the case of NTE and NTE 35 West, they are also benefiting from more mandatory mode events, which occur when tolls are temporarily forced above the soft cap to guarantee a minimum level of service. In terms of dividend distributions for the first 9 months, I mean, the figures at 100% participation would be $108 million for the NTE, $52 million for LBJ and $99 million for the NTE 35 West. There's no changes versus June. Please remember that these projects usually distribute dividends in June and December. Moving to management outside Dallas Fort Worth, we have the I-66 and the I-77. The I-66 saw exceptional traffic growth, 13.2% in the third quarter and 8.5% in the first 9 months of the year. And the revenue per transaction grew 12.1% in the quarter and 18.3% in the first 9 months of the year. This strong growth was driven by robust corridor growth, especially during peak times where we are seeing some benefits from greater enforcement of return to office policies. Really, this is happening across the U.S. and also Canada. This strong underlying traffic trends helped to drive the outstanding growth of 32.5% in adjusted EBITDA in the first 9 months of the year. The I-66 distributed $64 million in dividends in the first 9 months. The I-77 also saw traffic growth here, 1.5% in the third quarter despite adverse weather conditions, particularly in August. Revenue per transaction increased by a strong 25.7% in the quarter and 24.4% in the first 9 months. Adjusted EBITDA grew 21.1% in the first 9 months with $5.4 million of revenue share for Q3 2025, and this includes revenue share from extended vehicles. The revenue sharing, including extended vehicles, totaled $15.7 million for 9 months 2025 compared to $6.9 million in the first 9 months of 2024. And the I-77 distributed $22 million in dividends -- I mean, since the beginning of the year. Now let's move to the Airports division. At New Terminal One, we are making a steady progress towards operational readiness. The project remains on budget. In terms of schedule, we are discussing acceleration measures with the contractor to guarantee that the official opening date of June 2026 is achieved. Construction is 78% complete and we have commitments from 21 airlines. As a reminder from previous quarters, we achieved an important milestone in July, completing the refinancing of Phase A through the issuance of a $1.4 billion long-term bond. In Dalaman, we saw steady performance. Adjusted EBITDA growth in the first 9 months is supported by commercial upgrades and despite softer international traffic during the summer, that was affected by the geopolitical situation in the Middle East. In the first 9 months, traffic declined by 1.5%, yet revenue grew 2.9% and EBITDA 1.8%. Dalaman distributed EUR 7 million in dividends during the third quarter. This is Ferrovial's share. Now let's move to Construction, that keeps showing solid profitability. The division delivered a 3.7% adjusted EBIT margin for the first 9 months of the year, aligned with the long-term target of 3.5%. And it recorded a solid 4.2% adjusted EBIT margin in the third quarter. Budimex and Webber maintained a steady profitability with very healthy adjusted EBIT margins of 7.6% and 3%, respectively, in the first 9 months. Ferrovial Construction's adjusted EBIT margin was 1.7% in the 9 months, and this is down slightly versus the same period last year due to significant design activity in bidding for projects in the U.S. and costs related to digitalization and IT systems, while partially offset by increased margins in projects approaching completion. So these expenses should be for the good growth that we're seeing ahead. Our order book stands at EUR 17.2 billion at the end of September. This is up 9.1% in like-for-like terms from the -- compared to the close of 2024 December. The composition of the order book remains very healthy given the lower weight of large design and build projects with nongroup companies. It does not reflect approximately EUR 2.3 billion in contracts that are pre-awards or are pending financial close. And almost half of our -- half of our backlog is in our core U.S. and Canada market, we expect will continue to support future growth. Now let's move to the next slide, just to have a look at the main figures. You see the strong revenue and profitability performance for the first 9 months of the year. I mean, strong across the board, revenue growing 6.2%, adjusted EBITDA, 4.8% and adjusted EBIT by 6.0% in like-for-like terms. Let's move now into the consolidated net debt position. In the next slide, the net debt, excluding infrastructure project companies, as I mentioned in the introduction, was negative EUR 706 million or net cash of EUR 706 million at the end of the third quarter. This reflects a strong cash generation also disciplined investment and the impact of recent divestments. Here, we have the bridge where we see that we collected a strong dividends. Please remember, this figure does not include the latest dividend announced by the 407 ETR that will be paid in the fourth quarter. The cash flow from construction is affected by the lack of significant advanced payments during the first 9 months. You know that there's usually seasonality in construction. We expect to see a substantial improvement in working capital in the last quarter of the year. Then in this operating section, we also have tax payments that are mainly related to Budimex and to a lesser degree, construction projects in Australia and Canada. We also looking into the investment bucket, we see significant activity in terms of investments for growth. I mean, the main one being the 5.06% acquisition, additional stake in the 407 and also the equity injections in NTO. Just a reminder, NTO has no additional equity injections scheduled for the year. Additionally, in this block, we also reflect the interest received in cash and deposits, right? And also here, we reflect the divestments from the sale of Heathrow and AGS primarily. Then we have the shareholder distributions, including cash and share buybacks amounted to EUR 426 million. Here, we are on track, remember, to deliver across the years 2024 through 2026, EUR 2.2 billion in cash to our shareholders. So we are on that. And then we have the cash flow from financing activities related to external debt repayments, interest and so on and also the FX translation of the cash balances sheet. So it's a very solid net cash position. So let's move to the -- I mean, closing remarks I would like to make before moving into the Q&A session. Really, the performance in the first 9 months of 2025 demonstrates, I mean, shows the strength and resilience of our portfolio, the North American assets continue to drive growth, supported by increased customer segmentation and favorable market dynamics where the assets are located. Looking ahead, we're really looking forward to the attractive pipeline of opportunities in North American highways mainly. I mean, we expect to have bid submissions for the I-24 in Tennessee, I-25 in Georgia in the first half of 2026. And also at the end -- before the end of this year, the submission of the RFQ for the I-77 South in North Carolina. The construction order book remains healthy and the division ready to enable delivery on the growth opportunities that the infrastructure concession pipeline shows. Well, thank you, and let's move into the Q&A session. Silvia Ruiz: Thank you very much, Ernesto. Let's start with the Q&A session. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from Ruairi Cullinane from RBC Capital Markets. Ruairi Cullinane: First question on the NTO. What are the potential financial consequences in a scenario where there is a delay to the launch of Phase A? And secondly, the widening of operating losses in the other segment, was that just driven by the divestment? Ernesto Lopez Mozo: Okay. So well, as I mentioned, we are working with the contractor for the official opening date in June. If there were to be delays below -- I mean, beyond June, then the contractor will have to face liquidated damages. For us, delays in opening would mean that there's delay in the perception of revenues, right? But as I said, we are working on what's needed for the original opening. Regarding the other segments, yes, this plant, Isle of Wight was commissioned some months ago. Usually, when -- I mean, you have just commissioned some of the operations could be affected, right? So basically, we needed to invest to improve the ash removal from the chamber. And also, we delayed a little bit the ramp-up, right? So it's related to this commissioning and start-up of this plant. Remember that when we divested the whole services business. We mentioned that this part of waste treatment in the U.K. needed overhaul of the plants before divesting. So we've been doing that with all the plants. It was the last to be commissioned. And yes, we are now -- we would be exiting this business, let's say. Ruairi Cullinane: Great. Actually, could I just... Ernesto Lopez Mozo: Yes, go ahead. You're on the line. Ruairi Cullinane: Should we expect any impact from the U.S. government shutdown in Q4? Just one more question. Ernesto Lopez Mozo: Thanks. I mean, up to date, I mean, we haven't really seen any significant impact on the I-66. That is the one that is closer to Washington, not really maybe some tweak in traffic, but nothing significant in terms on revenue. So up to date, nothing. We'll have to monitor that, but we haven't seen anything. And regarding all the bidding processes are mainly carried out at the, let's say, state level. So that's not affected. And the only, let's say, federal agency involved here is [indiscernible]. So the process goes on as scheduled so far. Operator: The next question comes from Elodie Rall from JPMorgan. Elodie Rall: My first one is on Schedule 22. The provision reversal in Q3, I think, came a bit as a surprise. Maybe you can come back on what drove this reversal, if it's the fact that underlying traffic was a lot higher, promotions outperformed. And also what that means with regard to how optimistic you are with regard to Schedule 22 penalty decreasing to 0 maybe sooner? And what would be the time frame? And my second question is on the NASDAQ 100 inclusion. I was wondering if you could give us some color what you think about your chances to get in and the latest on that. Ernesto Lopez Mozo: Thanks, Elodie. Yes. So with the Schedule 22, several things. I mean, first of all, there's been more mobility in the area. As I mentioned with the U.S., it's also happening in Toronto. There's a clear mandate of return to the office. And you see in general congestion in the area. I mean one example is the 407 East that was the toll and has seen traffic jumps in the summer every now and then. So clearly, there's more mobility in the area. That's something that has helped. But the main driver has been that we've been positively surprised how accurate promotions have been, right? So all the heavy users remain using it as they were expected or even a little bit more and then the infrequent users are starting to use it, right? So really, the combination of our rush hour preposition being more valuable given what's happening in the area and really this segmentation, it has worked much better. I mean we don't make comments on basically how this could pan out in the future because, I mean, the product has to have all the quality that is needed. So maybe we see in the future Schedule 22. What is sure is that it's performing much better than the assumptions we had when we bought the additional stake. So we are super happy with this situation, but we won't comment on the projections of Schedule 22. And then regarding the NASDAQ 100, well, it's going to be determined at the end of November with all the relative market cap. So it's not for me to talk about chances. It will be performance and relative performance, right? So I won't comment on chances. I mean the good thing about NASDAQ is that all the criteria are very clear. Everybody can have their own bet, but it's not for me to make any, okay. Operator: The next question comes from Cristian Nedelcu from UBS. Cristian Nedelcu: On the ETR, you have the pricing for next year you will announce in November. I don't know if you can offer any color there. It seems that the backdrop is favorable. You have more mandates to the office, more congestion. And also, if we look at your last 5 years price increases in the context of the tariffs being frozen, you've been doing smaller price increases on average than pre-COVID levels. So I guess my question is any reason why the price increase will not be comparable with what you've done over the last 2 years in the ETR for 2026? The second question on the ETR our estimate, and please correct me if I'm wrong, but I think the discounts you're offering, this represents somewhere around $100 million, $150 million per year in discounts. Now we just discussed the S22 provisions are lower than we thought. Can you give us a bit of a directional steer into 2026? How should we think about these discounts? Should they be flat year-over-year? Or do you see reasons to increase them year-over-year or maybe decrease them? And the last one, if you allow me, on the I-66, I mean, we've seen double-digit volume growth in Q3, more returns office mandates. Could you talk a little bit about the development we've seen there on revenue per transaction actually decelerating versus Q2? What caused that? Is it mix or other factors? And to what extent this development in Q3 is sustainable for the next quarters? Ernesto Lopez Mozo: Thank you. Well, let me -- maybe I'll ask you to come back to some because there was a lot of explanation, very well crafted by the way. I mean let me start with the last one. I mean, with the I-66, we have to go back to 2024 to understand that it was in that quarter that we, let's say, insisted more on the dynamic pricing with the algorithms more flexibly looking at the opportunities there. So there was already, let's say, a bump or growth at that time. And then it seems like a deceleration, but really everything kind of started there has been building up throughout the year, right? But the algorithm keeps improving. Let's see how it performs going forward, but we are optimistic there. Then regarding the 407, as you say, discounts or so, we probably view it in a different way, right? And we look at the revenue and EBITDA growth, right? So some of these promotions are helpful to incentivize other trips, right? So yes, it could be seen as a discount or just a kind of loyalty or incentive. I mean what we focus in the end is out of all the noise that we have a solid revenue growth, client satisfaction, and we have proper segmentation, right? So I wouldn't be looking into discounts. I would be looking into the revenue growth. And then, I mean, I cannot comment on all the logic that you expressed, so thoughtful. Yes, I mean, we expect the 407 to have in terms of timing and announcement date similar to last year, the rest of the logic, I cannot tell, okay? So we will have to wait for that to be announced. Operator: The next question comes from Ami Galla from Citi Research. Ami Galla: Just a few questions from me. The first one was on NTO. If you could give us some color based on the agreements that you've had with the 21 airlines as to the broad framework of how should we think about fees and the revenue structure when you start operating? I appreciate it's early days, but if you can give us some ballpark estimates of how should we think about that, that could be helpful. The second question I had was on the managed lanes business. Where you've been operating -- you've had mandatory mode events. Were there any specific events or disruption in Q3 that drove that? Or was that a general increase in traffic that led to that? And last one was on the competitive backdrop. Any color as to how do you see competitive intensity across your markets on the contracting side? Ernesto Lopez Mozo: Okay. Thanks. Let me see if I can address those. If I mean, forget one, I will ask you again, sorry for that. So the first one regarding NTO airlines and ramp-up. I mean, we are really in a commercial sensitive stage, right? Ahead of the opening, you always have airlines coming ahead of some months before the opening. So that's been negotiated now. We cannot comment now. It's true that we -- I mean, we know we have to provide more information to the market that will have to be decided later on right now. As I said, the focus is operational, the first thing and commercial, okay? So we will have to update later on. Regarding the mandatory modes in the managed lanes, really, it's probably an effect of also more peak hour activity. As I mentioned before, across the U.S. in Toronto, we are seeing a very clear mandate to go back to the offices 5 days a week, and that drives traffic and also drives peak performance, right? So that also combined with a higher proportion of heavies, as we mentioned, has brought the demand at remote. Even though, as I said, there's less traffic in the corridor on the NTE, not NTE 35 was that is unaffected, right? So I mean, the explanation we have is what I mentioned, right? And then the last one, sorry, could you say again what was the third question? Ami Galla: It was more on construction and the contracting side. If you -- from a competitive perspective, are you finding it more difficult to win contracts at the margins that you are looking for? I mean, how is that backdrop in the current? Ernesto Lopez Mozo: No, I would say that in contracting, rather the contrary, I mean, there's more activity. I mean, the heavy civil works that is our focus normally remains as active as it has been. You also have on top of that all the data center activity. So the construction sector has more activity and there's no more resources or more competition in that regard, right? So we are not seeing, let's say, tightening in terms of people being super aggressive. It's very -- I think it's a rational market environment, if I may. Operator: The next question comes from Dario Maglione from BNP Paribas Exane. Dario Maglione: Three questions for me. One on the Texas managed lanes. You mentioned in the press release, there was a positive effect due to traffic mix. Can you tell us more about this? Is it both heavy vehicle and light trucks that have a higher share? And if you could tell us why this is happening? Second question, how far is the LBJ from hitting mandatory modes? Third question on the 407 ETR, going back to the incentives working very well. Can you give us some examples of these incentives -- and maybe more color on which ones are working best in your view? Ernesto Lopez Mozo: Well, thanks. Really, in terms of the traffic mix in the managed lanes, that has helped more heavy, that is a combination, probably not of the heaviest, but probably more on the other side, the lighter trucks or commercial vehicles that we can call it. I mean there's more. I mean, I cannot give you like a macro rationale of why this is happening. Maybe they are also keener to basically use our road in peak times given the -- I mean, the more intensity, right, that we are seeing because of the mandate back to the office, right? So I mean, the reality is that there is more. I don't have a cost effect that I can comment now. We keep looking at it. But right now, I cannot give you any specific one. Regarding LPJ, LPJ, really, there's more free lanes. So there's more capacity. And also, you have people that have avoided the corridor because of all the works in the surrounding roads, right? So yes, it's not expected anytime soon because of all these components that I mentioned. We will have to see going forward how much traffic comes back to the corridor and how growth happens. But no, we are not expecting any in the near term to have the mandatory modes. And then regarding incentives, I think that anything that has to do with the rush hour now with more the mandate back to the office is really appreciated. So I think that as always, it works well with people that work or live close to the road, right? So this is where the impact is always more effective. But I mean, I don't have any kind of specific segmentation to comment now, and this will keep evolving a long time. So we will be discussing this in the future. At the moment, what I say is just the value of the peak hour promotion is higher than what it was some time ago. Operator: The next question comes from José Manuel Arroyas from Santander. José Arroyas: Two questions, please. First one is on the potential to deleverage any of the managed lanes. I know there is a limit, which is the need to incur a refinancing gain if you do so, but I wanted to hear from you if you expect any of the managed lanes to pay dividends in excess of their underlying free cash flow anytime soon. And my second question is again on 407 ETR's promotions. I wanted to understand -- I understood a comment you made earlier, Ernesto. I think you said that the promotions are helping to increase customer segmentation. And I'm not sure how that's happening. And I was wondering if you are just alluding to the fact that the current tariff in 407 ETR has more segments than before. I wanted to understand your comment earlier about this. Ernesto Lopez Mozo: Okay. I will start with the -- I mean, yes, well, the first one, right, the leverage on the managed lanes. Yes, there's a possibility of relevering some of them, namely the I-66. Not short term, but also not far away, right? So clearly, in the coming years, there could be an opportunity there. In the 407 -- well, not much about 407 clearly, and that's very obvious. And in the rest of the Express Lanes, not at the project level. Maybe there could be some tweaking just outside the project level that we are exploring. But I mean, we will be commenting to the market when they are closer. I don't expect any short-term news there. Yes, the 407 has more headroom there. And then when I'm talking about segmentation, no, it's more than the current time frame and so on. I mean you have some people that have been infrequent users and you end up maybe providing some teasers, some promotions that make them travel more. So yes, you can do that and it's working, right? So if someone that you have understood that won't make more trips than a certain given amount, then the promotions are different for them, right, than for someone that can maybe increase some usage, right? So that's when we talk about segmentation helping is more in that regard. Yes, I think that was it, right? Operator: The last question comes from Marcin Wojtal from Bank of America. Marcin Wojtal: So I have a couple of questions. One is on the share buyback. I mean, you committed to return EUR 500 million through the buyback. I believe based on the last weekly disclosure, EUR 142 million has been spent. So should we still assume that this buyback is on track to be completed in full by the end of the mandate, which I believe is May 2026? And can you explain why is this buyback only being done through the U.S. line? Originally, I believe you were buying both through the European listing and the U.S. listing and now it's only going through the U.S. And my second question is regarding your business plan, which goes from 2024 to 2026. Should we expect a new business plan to be presented at some point in the next, let's say, 18 months? Ernesto Lopez Mozo: Yes. Thanks, Marcin. Absolutely, we are committed to the EUR 2.2 billion. You mentioned May 2026 is the end of 2026 that we will be delivering on the EUR 2.2 billion. We have some catch-up to do. We've also been wondering the mix of distributions and buybacks because we have to also help that liquidity is not, let's say, drained from the market, and you see that the U.S. needs a lot of liquidity. So yes, buybacks have been tiny. We need to catch up. So point taken. And it has been small and has been in the U.S., but it could be done elsewhere. So short answer is yes, we'll deliver. We have to catch up. It's not May, it's the end of 2026, but we are on it. Marcin Wojtal: I'm sorry, what about your business plan targets... Ernesto Lopez Mozo: I forgot about that. I mean Silvia was pointing that you're missing about the business plan. Well, we'll -- I mean, there's no decision yet, but yes, we will have to update the market. Also bear in mind that we have important bids that will be awarded next year. So yes, definitely, we will have to be getting in touch with you guys. There's no official date, nothing just in the calendar yet, but yes, we will have to update. Operator: We have a new question, and the question comes from Alvaro Lenze from Alantra Equities. Alvaro Lenze Julia: Yes. Just one quick question. We saw last week, I believe, a small acquisition in data centers. Just if you could run us again just to catch up on what's your strategy in data centers? I think you have been not very enthusiastic in the space compared to some of your peers. But I don't know if this acquisition signals that you see more opportunity? Or is there any change to your strategy in data centers? Ernesto Lopez Mozo: Yes. Thanks. Well, really, the acquisition is tiny. It adds capabilities, let's say, for the Construction division in data centers because it has capabilities -- the company acquired has capabilities in installation, data center maintenance management. So all these kind of works and capabilities are in general scarce in the market, and we are being demanded by our clients to deliver on this. So this is more related to the Construction division. Data centers, we remain opportunistic. It could be a good business. We go on a piecemeal approach so far. So no change there. Operator: There are no further questions at the conference call. I will now hand back to the Silvia Ruiz. Silvia Ruiz: Thank you, operator. So I have one question here from the webcast. This is from Miguel González from JB Capital. The question is, could you please explain the reasons behind the acceleration in highways headquarters and other costs? And do you expect this trend to continue in the coming quarters? Ernesto Lopez Mozo: Yes. And maybe I should have covered this in the presentation because I've seen some notes from analysts really highlighting this. Two things. I mean, one of them is comparing to last year, last year, we got the ST spend of roughly EUR 12 million from the SR 400 that we lost. So we got the ST spend and that was reflected in the Q3 of '24 overheads from Cintra. And now really, what we are doing is 2 things that are adding. We are spending or investing, you may call it that way, on the engineering for the bidding of the pipeline that is about to come and for bid. And then the other part is also IT that, of course, there's developments with all the evolution that we have in systems with AI and so that is really helping in revenues. But yes, it has this expenditure. So it's IT and bidding costs. And I think that both of them are for the good reason. Yes, I should have picked us in the speech, okay? So thanks for bringing this up. Okay. I think there's no further questions. So thanks for being with us. I think that the results are excellent. We're looking forward to meeting you and to the new developments in the business coming up. Thank you, and bye-bye.
Operator: Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Allison Hosak, Senior Vice President of Global Communications. Ms. Hosak, you may begin the conference. Allison Hosak: Good morning, and thank you for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer; and Brent Jones, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our Investor Relations website at ir.avantorsciences.com. A replay of this webcast will also be made available on our website after the call. Following our prepared remarks, we will open the line for questions. During this call, we will be making forward-looking statements within the meaning of the U.S. federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of the non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website. With that, I will now turn the call over to Emmanuel. Emmanuel Ligner: Thank you, Ali, and good morning, everyone. I appreciate you joining us today. As you know, I joined Avantor a little more than 2 months ago. I came on board because I believe this company has a tremendous potential. I have spent my entire career in pharma and life science industries, spending meaningful time on 3 different continents. I was fortunate to spend 2 decades at GE Life Sciences and Danaher, where I build out the Cytiva business significantly accelerated the growth trajectory of the platform and led its integration with Pall Life Sciences. During that time, I had a front-row seat to Avantor trajectories as a customer and supplier. I believe this experience enabled me to step into this role 10 weeks ago with a unique perspective on the company's strength and area for improvement. Throughout my career, the primary lessons I've learned is that there is no substitute for going to Gemba. This concept literally means visiting the place where work is done and value is created to learn and determine how to best improve our organization. And for the past 2 months, this is exactly what I have been doing. I have dedicated my time towards visiting our sites, meeting our people, speaking with dozen of our customers and suppliers across Asia, Europe and North America. This not only sharpened my initial instincts but also provided invaluable insights as we map out our strategy moving forward. I want to personally thank all the stakeholders for the warm welcome, open dialogue and trust that demonstrated for my first day in the role. Here are some of the important learnings. First, this is a great industry with strong secular tailwinds. Scientific collaboration is more important than ever. If you talk to any pharma or biotech company right now, you will hear about the multitude of ways in which they are harnessing the power of technology and AI to accelerate the next breakthrough discovery. That gives us a tremendous amount of confidence in the long-term trajectory of the end markets we serve and reinforces the importance of our positioning within the industry. Our recent announcement with BlueWhale Bio is a perfect demonstration of how Avantor is advancing innovation through collaboration, and we are committed to continue to do our part to facilitate the research, development, manufacturing and delivery of next-generation therapies. Second, Avantor has a solid portfolio, a committed global team and an incredible customer reach, serving more than 300,000 customers locations across approximately 180 countries. As someone that has spent considerable time in recent years working to scale life science businesses, those attributes will be the envy of most companies. We have significant untapped potential and numerous opportunity in front of us, and we need to capitalize on those opportunities. Third and most importantly, there are many things we can and should do better, and we are taking immediate action to turn the business around and hold ourselves accountable for rewarding the trust our investors place in Avantor. Starting from a commercial perspective, I believe our business is overly complex with unnecessary centralization, which inhibits frontline staff from most effectively meeting our customers and supplier needs and expectations. Customers buy from Avantor because of the quality and service heritage of our incredible brands, VWR, J.T.Baker, Masterflex, NuSil. Those are some of the best-known names in the industry, and our commercial team are not being sufficiently empowered to leverage the equity of those brands. On the operation and supply chain side, I believe we need to make some investment and process enhancement to improve our ability to consistently serve our customers. Overall, I believe those challenges are generally self-inflicted. And the good news is that they are fixable with determination, focus and time. At the conclusion of this call, I will share my preliminary thoughts on our plan for doing just that, which we are calling Avantor revival. With those initial finding in mind, we strongly believe that our current share price does not reflect the long-term value of our platform. To demonstrate our long-term conviction in the prospect of this business, our Board of Directors has authorized a $500 million share repurchase program with immediate effect, which we will pursue opportunistically moving forward, while also delivering on our commitment to decrease net leverage. Now I would like to turn over to Brent for a more detailed overview of our third quarter financial results and our updated full year guidance. Brent? R. Jones: Thank you, Emmanuel, and good morning, everyone. I'm starting with Slide 4. For the quarter, reported revenue was $1.62 billion, which was down 5% year-over-year on an organic basis. This reflects weaker-than-expected top line performance, primarily in lab. Adjusted EBITDA margin was 16.5% and adjusted EPS for the quarter was $0.22. Free cash flow was $172 million with adjusted conversion at 124%. Turning to Slide 5. Adjusted gross profit for the quarter was $527 million, representing a 32.4% adjusted gross margin. This is a decline of 100 basis points year-over-year, driven mainly by price actions in lab to protect and grow market share. We had another quarter of solid cost control with adjusted SG&A expense better than planned and prior year. Our results also benefit from reductions in incentive compensation accruals. We remain on track with our cost transformation program and continue to expect $400 million in run rate savings by the end of 2027. Adjusted EBITDA was $268 million in the quarter, representing a 16.5% margin, better than our expectations. Adjusted operating income was $237 million at a 14.6% margin. Interest and tax expense were in line with our expectations. As a result, adjusted earnings per share were $0.22 for the quarter, a $0.04 year-over-year decline. Our adjusted EPS performance in the quarter reflects the flow-through of our adjusted EBITDA results. Our cash generation was particularly strong with $172 million in free cash flow in the quarter. When adjusted for transformation-related payments, our free cash flow conversion was 124% of adjusted net income for the quarter. In terms of our GAAP results, we took a $785 million impairment to the goodwill associated with our lab distribution business. This noncash charge was necessitated in large part by the continued weakness in our share price as well as the margin headwinds this business is facing. Our adjusted net leverage ended the quarter at 3.1x adjusted EBITDA, down 0.1x from Q2 as our strong cash generation enabled us to reduce net debt. Finally, we recently affected a very attractive refinancing of our near-term maturities and upsized our revolving credit facility to $1.4 billion and extended its maturity to 2030. Other than modest required term loan amortization, we now do not have any debt maturities before 2028 and all of our debt is either prepayable at par or at very modest call premium. Our debt is approximately 75% fixed rate and our current weighted average cost of debt is just over 4%. Let's now take a closer look at each of our segments on Slide 6. In Laboratory Solutions, revenue was $1.1 billion. On an organic basis, we declined 5% versus prior year, below our expectations of negative 2% to negative 4%. The market backdrop in lab is largely stable, and Corey Walker and his team have done a great job defending and expanding business at our largest accounts. The share losses we mentioned on our Q1 call have been phasing in over the past several quarters. The good news is that since Corey joined us in late March, we haven't lost any key customer accounts. And in fact, we have won about $100 million in business at 2 top 15 global pharma customers, which will start phasing in, in 2026. With that said, customer activity continues to be at lower levels than our original expectations for the year, driven by ongoing end market uncertainty related to basic research funding. Each of our lab businesses faced similar mid-single-digit headwinds on a year-over-year basis. Our distribution channel, which accounts for approximately 2/3 of segment revenue was primarily impacted by weakness in consumables and equipment and instrumentation, while our chemicals and reagents were essentially flat. Our services business, approximately 20% of segment revenue saw greater-than-expected headwinds due to the aforementioned share loss. And our proprietary business, the balance of labs revenue was significantly impacted by our science education business. However, our attractive proprietary lab chemicals grew mid-single digits in the quarter and similarly year-to-date. The primary drivers of our miss to expectations were headwinds in services and higher education and K-12. While market softness is a key factor in the quarter's performance, we also continue to navigate competitive pressures. These need to be better mitigated by improved commercial and operational execution, which, as Emmanuel noted at the outset, is one of our key priorities as part of Avantor revival. Adjusted operating income for Lab Solutions was $124 million for the quarter with an 11.3% margin. The softer demand environment has pressured our ability to get price, which has meaningfully impacted margins year-over-year. On a sequential basis, the primary driver of the margin decline was lower volumes and related absorption. Turning to Bioscience Production. Revenue was $527 million in Q3, down 4% organically on a year-over-year basis and at the low end of expectations. Bioprocessing was down low single digits year-over-year versus our expectation of flat. Within bioprocessing, process chemicals was up low single digits but was lower than expectations. The planned maintenance downtime that impacted Q2 was remedied during the quarter. But as Emmanuel mentioned, we continue to face other operational headwinds that are impacting our throughput, including raw material availability and equipment uptime. As an example, downtime at several of our plants prevented us from shipping several orders that were due for delivery in Q3. Absent these issues, we would have delivered our bioprocessing guide for the quarter. Single-use largely performed as expected and CEC was somewhat weaker than expected, down mid-single digits due to commercial execution and competitive dynamics. Year-to-date and in Q3, our book-to-bill is 1.0 for bioprocessing with particularly strong performance in process chemicals, where order rates were up high single digits in Q3 and year-to-date, while billings are only up low single digits, indicating a solid trend. Our bioprocessing order backlog reduced modestly from Q2 to Q3, but still is too high. The team is working hard to reduce this as much as possible by the end of the year. For the balance of the segment, silicones performed as expected and Applied Solutions had a stronger-than-expected quarter, up low single digits on significant strength in electronic materials that we expect to continue in Q4. Adjusted operating income for Bioscience Production was $128 million for the quarter, representing a 24.2% margin. Margin was down year-over-year, largely due to lower volumes and related under-absorption as well as higher expense related to our operational challenges. On a sequential basis, volume was the primary headwind, only partially offset by price and lower operating expense. Slide 7 shows our full year 2025 guidance. This has been updated to reflect Q3 performance as well as our best assessment of the current environment. We now expect full year organic revenue growth of negative 3.5% to negative 2.5%. Based on current FX rates, we expect a modest tailwind from FX of approximately 1.5%. Along with the 2% headwind from the Clinical Services divestiture, this leads to reported revenue growth of negative 4% to negative 3%. On a segment basis, we expect Laboratory Solutions full year revenue growth to be minus mid-single digits to minus low single digits organically, down modestly from previous expectations of minus low single digits. This implies Q4 organic performance of down mid-single digits. This change is due to the impact of Q3 performance as well as expectations for continued softness in consumables and in our lab services business. We also expect additional headwinds due to the impact of the U.S. federal government shutdown. We expect Bioscience Production's full year revenue growth to be minus low single digits organically, down from previous expectations of approximately flat. This implies Q4 organic performance of down mid-single digits to down high single digits. This change is largely due to reductions in our outlook for bioprocessing as well as customer pushouts in our silicones business. Bioprocessing is expected to be down low single digits for the year organically, down from previous expectations of flat to plus low single digits. This implies Q4 organic performance of down high single digits to low double digits. Recognizing this is a meaningful change, I want to break down our expectations across bioprocessing in a bit more detail. We believe process chemicals in Q4 will be flat sequentially versus Q3 and down double digits year-over-year despite solid year-to-date order book performance. We previously expected a mid-single-digit contraction in Q4 for process chemicals. This change is largely due to higher-than-expected backlogs as a result of the ongoing challenges previously discussed. Q4 is also a particularly tough comparable as process chemicals grew meaningfully in the double digits in Q4 last year. We anticipate single-use to be up low single digits, both sequentially and year-over-year in the fourth quarter. We previously anticipated high single-digit growth in Q4 for single-use. Controlled environment consumables are expected to be flat sequentially and down low single digits year-over-year. We previously anticipated this business to grow modestly in Q4. This business is being impacted by the competitive pressures and the general demand weakness we are seeing in consumables. Moving to profitability. We expect our strong cost controls and favorable compensation accrual impact to continue into Q4. As such, we expect full year adjusted EBITDA margins in the mid-16s. We have reduced our adjusted EPS guidance range to between $0.88 and $0.92. We still expect free cash flow performance of $550 million to $600 million before any onetime cash expenses associated with our cost savings initiative. The reduction in earnings from our previous guidance should be offset with strong working capital performance, and we now expect about half of the prebate payments anticipated for the fourth quarter to push into fiscal year '26. I also want to address near-term capital allocation. Much of our debt complex is prepayable at par, and we will continue to reduce outstanding debt as we generate cash. At the same time, with our new share repurchase authorization, we intend to buy shares opportunistically without increasing leverage. We ended the quarter at 3.1x adjusted net leverage, and we'll continue to move towards our leverage target of sustainably below 3x. With that, I will turn the call back to Emmanuel. Emmanuel Ligner: Thank you, Brent. Clearly, we are disappointed with those results, and I am not here to make excuses of our underperformance. My focus is on addressing the root cause of those persisting challenges and implementing appropriate cost correction quickly. At the beginning of this call, I introduced the concept of Avantor Revival. Our Board and management team are fully aligned with this effort, which will initially focus on 5 key pillars. First, our go-to-market strategy. We need to evolve our approach to ensure customers and suppliers clearly understand our value proposition and complete product and servicing offering. As I mentioned in my opening remarks, we have an incredible roster of brands. Embracing VWR heritage as a leading distributor and a company heritage as a leading provider of fine chemicals and specialty materials, for example, is essential to drive growth. So we are carefully evaluating our brand architecture, and we are going to give more prominence to key product and channel brands moving forward. We also intend to refocus attention to our distribution business and our value proposition to supplier and customers. We also have work underway to analyze our and evolve our customer service and commercial organization. This work is really focused on empowering our sales representative to better serve our customers, however and wherever they want to be served. This includes enhancing our e-commerce platform. Second, we need to invest strategically in our manufacturing and supply chain organization. Brent noted the operational issue we are having. In bioprocessing chemicals, the demand is there, and we need to be better positioned to meet that demand at all times. The current state of our manufacturing and supply chain organization varies with some facility that are world-class, while others are in need of investment. Third, we will be carefully scrutinizing our portfolio to ensure a focus on our core business. We are going to hold each of our businesses accountable for delivering clear growth, profitability and return on investment targets. We are approaching this process with an open mind, but if any of those businesses are not capable of delivering those targets in a reasonable time frame, we are going to scrutinize whether we are the right owner for them. Fourth, we need to drive net cost savings and simplify processes across the organization. We are committed to being a business that generates strong operating leverage even as we invest in accelerating growth. And our ongoing EUR 400 million cost transformation program is an important step in that direction. However, we recognize that those savings today are not adequately falling through to the bottom line. Part of this is because we are still operating with far too much complexity today. We need to simplify our operating processes to remove barriers that prevent us from executing efficiently. Gaps in certain operating processes are contributed to inventory and forecasting challenges, preventing us from serving our customers at the on-time rates they expect. To address this, we are focused on improving leadership accountability across the businesses. We are establishing new operating norms and cadence that will ensure the leaders across our organization are aligned and focused on top business priorities. Finally, to help to do this, we must strengthen our talent and improve accountability in a few key areas. Very encouragingly, most of the associates I've met are deeply engaged and passionate about the work they do each day. They want the company to succeed. They are prepared to work hard and be part of the solution. They are looking for leadership and guidance on how to do that. To support those efforts and accelerate improvement, we will be bringing on new talent in a few key areas. A new Chief Operating Officer, a critical role that will report to me and help reinforce consistent manufacturing, supply chain excellence and lean operations across the organization. A new executive leadership position dedicated to the quality and regulatory function reporting directly to me, a strategic move, reflecting the critical role quality and regulatory play in safeguarding patient safety, ensuring regulatory compliance and driving operational integrity across our global business. We are also hiring a new Chief Digital Officer to help strengthen digital commerce capabilities with our Laboratory Solutions segment. Avantor revival will initially be targeted towards addressing each of those focus areas. Those important actions will help us drive meaningful changes and improvement across our organization over the next several quarters, but we are not stopping here. It is important to stress that those initial steps are based on my observation following about 2 months in the role. I'm committed to continue to meet with and learn from all our stakeholders. And as I do, rest reassured those plans will continue to evolve with a renewed focus on getting our performance back on track and creating value for our shareholders. Clearly, turning business performance around will take some time, but we are confident the actions we are taking will have an impact that will continue to grow over time. It's about driving simplification, process improvement and accountability across the organization. As I noted a moment ago, our Board and management team are 100% behind this effort. The recently announced addition of Greg Lucier to our Board and the elevation of Greg Summe as our next Board Chairman are demonstrative of our Board active oversight and engagement in this project. I know we must rebuild our credibility with the investment community and accountability will be my North Star. You can expect regular updates on our progress against those objectives. With that, I will now turn the call over to the operator to begin the Q&A session. Operator: [Operator Instructions] Our first question today comes from Vijay Kumar with Evercore ISI. Vijay Kumar: Emmanuel, welcome to your inaugural earnings call. Maybe high level, as you've reviewed the business, right, and you come with bioprocessing background, when you look at these declines, right, what is your confidence that these are fixable, solvable issues? And I'm curious on how the quarter played out, right, relative to your prior expectations was the quarter -- did progress in line? And did things worsen in September, October? I'm curious when did these issues crop up? Emmanuel Ligner: Thanks, Vijay. Thanks for the kind welcoming word. Look, first of all, I'm confident that it's fixable. Over the last 2 months, I really spent a lot of time on the field with the people, with our customers, dozen of customers and suppliers. And I think the first thing which I was really, really super pleased about is the conviction by the people that they have the passion about the brand. They have the passion about the product, they have the passion about the customers. What the team needs is really leadership. And I think on the quarter, look, it is a very disappointed numbers. There's absolutely no doubt about this. And there's no excuses about the fact that we just dropped the ball on a couple of areas. And again, I think I shared that around the S&OP it's really about a better communication. It's about visibility. It's about execution. It's about accountability. And that's why Brent and myself are putting new norms, new cadence to make sure that the team is really working together. I think, again, it is fixable. Those are just the 5 pillars that I just identified in my first 8 weeks. Then of course, we'll continue to learn. We'll continue to speak with the key shareholder, and we -- this plan will evolve without any doubt. Vijay Kumar: Understood. And then, Brent, maybe one for you on -- when you look at '26, some of your peers have given outlooks right in the low single-digit range. Is -- can the business grow in 2026? You mentioned $100 million of lab contribution. On paper, it looks like lab should grow in bioprocessing, it feels like some of these were unique customer situations that was largely tied to fiscal '25, and it should grow. But can the business grow at a high level in '26? Emmanuel Ligner: Vijay, Emmanuel again. Look, I'm taking a fresh look at all the numbers, right, because I want accuracy. And so let me look at those numbers again, and then we'll come back to you when we have a good understanding of 2026. Operator: Our next question comes from Michael Ryskin with Bank of America. Michael Ryskin: I appreciate all the candid color during the prepared remarks. You touched on share losses and competitive dynamics briefly in the prepared remarks, but just talking about 1Q, 2Q dynamics. Can you talk about that a little bit deeper? I mean, I think it's pretty evident based on the results over the last couple of years, especially in the Lab Solutions segment, but also in Bioscience, there's been pretty deep share losses to your competitors. I appreciate all your color on operational steps to fix that. But given the portfolio and given the markets you play in, how do you plan to stem that tide of share loss? And just -- could you just give us some confidence in visibility to correct that because that seems to be sort of the biggest structural challenge you're facing. Emmanuel Ligner: Yes, Michael. Look, it's my understanding, I think we've lost some share without any doubt in the lab services business. Here's why I'm super encouraged is we have Corey that took the lead of this business 6, 7 months ago. And what is -- what him and the team is doing is really having, I will say, a fighting spirit back. And what we have observed over the last 6 to 7 months is that we have not lost any new renewal of any large key account contracts. And I think this is really important for us. And on the contrary, we have the opportunity to grow our share of wallet in those accounts. Now we have some barrier that we need to fix and some challenges. I mean, e-commerce is one of them, and this is why we're taking really a quick action to recruit Digital Officer to help us to really get this e-commerce platform to engage with our customers in a much more leaner way to provide not only product but really workflow, which is so important for the customers. On bioprocessing, my view is the following. Really, our key product line in the bioprocessing is our bioprocessing chemicals. And when we look at our order intake year-to-date, our order intake is on a high single-digit level. So we're there. I met customers that clearly said to us, we want to work with you. We want to do better. We can give you more businesses. We need to fix a couple of things like our service level, in particular, our on-time delivery. And this is why it's so important to work on the S&OP to look on the different plants that need upgrade, and that's what we're doing, and we are doing as fast as possible on this. Michael Ryskin: Okay. And if I can have a follow-up. On the Avantor revival dynamic, I mean, I think that's certainly resonates. You called out a couple of times that you believe the business is overly complex, unnecessary centralization. We've heard that from a number of our channel checks as well. What are the steps to fixing that, right? I mean it's a huge organization. There's a lot of levels. It seems like there's going to be some deep changes there. But from an operational perspective, that seems to be the easiest 6. But could you talk us through the process to get there and how long that could take? Emmanuel Ligner: It's really early days for me. I remember. So look, we are going to start to really work on the go-to-market, really understand how we can decentralize more of the decision-making closer to the customers. And as you know, there's different regions with different dynamics. And so we really need to empower the local team to really drive the decision. I think the other thing is, look, we have 2 really important business. One is our lab services. It's VWR. It's a distribution business. We have a very strong brand there. And then the other one is about science business with brands like J.T.Baker. I think we need to make sure that those brands are more, I would say, front at the customer's level to make sure that we engage with the customers with the brand they want to work with. The observation that I have, Michael, is many customers told me, we love VWR. We want to continue to work with VWR. Some even say, well, we didn't know that VWR was part of Avantor. And that's why I'm talking about brand revival and really making sure that we are improving our engagement with the customers. Service level is very, very important, okay? And this is why we are looking at what do we need to do in the plant which are need of investment to make sure that we raise our service level on the bioprocessing. Again, as we said earlier, the demand is there. It's for us to really make sure we operate better. Operator: Our next question comes from Dan Brennan with TD Cowen. Daniel Brennan: Maybe just to start on the lab side of the business. Could you just describe -- I know you discussed pricing in the opening remarks. Just give us a sense in 3Q and kind of 4Q, how we think about that price volume mix, if you will? And then kind of any thoughts? I know you're not ready to talk about '26, but is the assumption that price gets better? Just any visibility on that? And then maybe the second part would just be more strategically, as you've looked at -- since you've been on board, you've looked at the lab market. Obviously, you've talked about share loss, but you studied that now recently. Any way to characterize in that context, like how much share you think VWR has lost over the last 2 or 3 years? Just to give us a framework for if you're able to kind of regain that sort of stabilize it, what the opportunity might be? R. Jones: Okay. So on the price volume dynamic, I mean, certainly, in connection with the comments and share on that, there is some down volume. We are getting price, not exactly the levels we'd like to see, but we're certainly seeing price coming through. And we expect a similar dynamic in Q4 on that. So -- and when you look at Q3 performance sequentially to Q4, the main dynamic in lab is a modest increase really related to number of days and seasonality in Europe there. So what you're really hearing from us is stability through Q4, and that dynamic will continue on the pricing side as well. Emmanuel Ligner: On the market share, look, I think we've lost a couple of large accounts, and we know them, and that's something which is tracking. And I think what is important to understand is when you lose a key account contract -- the time that it takes to lose this account as there is many, many different sites around the world, it takes time. And the same way when you renew a contract and then you have an opportunity to grow your share of wallet, it also takes time to ramp up. This is where the commercial effectiveness is very important because you go at every single lab, convert the customers. So either from a loss standpoint or from a gain standpoint, the dynamic drag on several quarters. And I think that's where we are. So this is sometimes where it's difficult to really evaluate the amount of market share that we've lost. But we know the contract that we've lost in the past. Daniel Brennan: And then maybe just on bioprocess, Emmanuel, since you've got such significant domain experience there. Just kind of how would you characterize the Avantor portfolio today? I mean, when you think about this market recovering, consumables, I think, have been growing double digits, equipment is still under pressure from a market basis. How do you think Avantor is positioned with their current portfolio as we look ahead into, say, the next 12 to 24 months? Can they get back to market growth above or below? Just what are the key variables there? Emmanuel Ligner: It's a great question. Look, I'm super excited about the portfolio we have, in particular, around the chemicals, acid base, we have adjuvants. So we have also viral inactivation products, which are proprietary. So we have really good portfolio, and I think we have a good commercial team. And again, as I said, our order intake year-to-date is high single digits. So basically, it gives me the confidence that the demand is there. It's for us to make sure that we serve the customers better and all the customers that I've met are super satisfied with that part of the portfolio. So I'm confident that the portfolio is good. And also the recent announcement we've made like BlueWhale is very encouraging about the fact that we will continue to collaborate with strategic innovation that will give us a differentiated portfolio in the future. So quite exciting about the bioprocessing portfolio. Operator: Our next question comes from Luke Sergott with Barclays. Luke Sergott: I appreciate all the updates and everything you're thinking about. But as you think about when you're looking at '26 and the overall market rate, just relation to how you guys are going to grow, what's your outlook for the market, I guess, given that the underlying demand that you've seen, especially across what your peers have said, too. Emmanuel Ligner: I think on the peers comment, we need to look at apples-to-apples. And again, I think what is important for me is to make sure that I remind everybody that our portfolio on bioprocessing is really primarily around chemicals, okay? So it's a unique differentiated portfolio, especially from the company that I'm coming from. And so I think it's very important that we think that it -- as of today, year-to-day, the direction is order intake, high single digits. What I need to do is I really need to take a fresh look at the 2026 numbers, the market, what we think we can do, what's going to be the impact of the 5 pillar of revival plan, how fast we can get some impact on this. Some will have an impact quickly. Some will take more time, and I'll come back to you as soon as I have a better view. Luke Sergott: Okay. I was just trying to figure out what your overall outlook for the -- for your particular market looks like. And then we can kind of make the assumption there on what you guys can do from a growth perspective -- that's fine. I guess just from a follow-up here, you talked about the bioprocessing plant, the downtime there. Is this -- what is this due to? Is this just like a planned regular maintenance downtime that you guys had? And do you need -- you talked a little bit about kind of building some redundancy. Is this what you're kind of referring to so that you don't like miss out on the quality and the reliability that, that market completely relies on is number one. Emmanuel Ligner: Look, I visited several of our chemicals plants. We have really world-class plant. super modern, very well run with a very, I would say, dedicated team. Some are just in need of upgrade, okay? And so some of the tools are a bit old, and so therefore, they break down. So they give us a bit an unreliability of on-time delivery. So service level for some plants are excellent. Some are not where we should be. And this is what I'm talking about strategic investment. There is some investments that are needed. We need to be very surgical about this. And that's just, I will say, on the plant themselves. The second thing is about the processes. It's about how do we give visibility to the plant of what's going to be the demand, having a good understanding that the plant are putting in place, the planning to make sure that the product will be delivered as the customers requested and then, of course, at the quality, which is requested. So it's really around the processes that today are not as simple as they should be, not as smooth as they should be and with a bit also of lack of accountability. So strategic investment on one side. And I think it's also about talent. One of my remarks was about the fact that the team is super passionate and want to do well and they want to fix the issue and they want to do better, they need direction. They need someone which is going to help them to focus and they need leadership. And this is also why we are far advanced into a recruit of a Chief Operating Officer, someone which have a global experience, a long-term experience of leading different type of plants, including chemistry plant, someone which is a black belt, someone that have a lean mindset, a productivity mindset. And we are in the final stage of that recruitment. That will really help as well the team to drive and improve plant performance. Operator: Our next question comes from Tycho Peterson with Jefferies. Tycho Peterson: I want to go back to the pricing question earlier because I think it's an important point. I think the message coming out of last quarter and admittedly, Emmanuel, was before you started was that Avantor was willing to trade price to hold share. That's not what we heard from Brent a minute ago. So I guess, are you committing to actually taking price in the lab market next year? And can you maybe quantify what you're expecting there? Because I think that was a very different message than we heard coming out of 2Q. R. Jones: Yes, Tycho, just to be clear, I mean, we -- I mean, there are raw materials and there are -- there's inflation in the channel. We are getting priced against that. The margin pressure you're seeing is the differential from the price to the COGS. I mean there -- so when we've talked about also giving price to drive share in that, it's relative to the inflation against the products we're selling. So it actually is the same message, but I take your point on the nuance. And look, it's -- in the lab, we've continued to say that we're about accreting operating income there. And we absolutely are doing the actions to drive volume, to drive share in that connection, the new contracts, which, as Emmanuel made the comments, we're seeing the impact of the contract losses on share there. It will take time, both on the defense and the new contract wins to see those come in there. But we absolutely are looking to accrete operating income and then obviously, over time, margin. Tycho Peterson: Okay. And then a capital deployment question. I mean, given everything going on and it's still early days, Emmanuel, why is this the right time to be buying back stock? That's a little bit confusing given that you're just kind of stepping in here. There's a lot of moving pieces. It's still a volatile backdrop. Maybe talk through the rationale of the buyback right now. Emmanuel Ligner: Well, look, Tycho, we believe our current share price really does not reflect the long-term value of the company, especially in the turnaround. So the program is just basically to make sure that we demonstrate our commitment to the long-term value of the company, okay? And with our confidence to the business, confidence about the fact that we can turn around the performance with revival plan. We -- look, in terms of capital allocation, M&A is always an opportunity. But when you bring M&A, you need to make sure that you're going to bring the company into a company which is operating really, really well, all right? Integration of an acquisition needs to be done with the team which have simple processes, which have really great talent in that are going to be able to execute the acquisitions and the integration super well. And so I think right now, it's just a conviction that the business is going to do better, that we are going to turn it around. And I think it was the right message and the right things to do. Tycho Peterson: Okay. And then last one on Bioscience. You quoted a number of kind of shipping timing issues. Are you assuming those come back in the fourth quarter? It was a little bit unclear what's actually baked in the guidance from a kind of timing and recapture perspective. Emmanuel Ligner: Yes. I think the team has already started to do some good job in Q3, but not enough, and we'll continue to do so. So yes, we're going to see some improvement in Q4. But as I said as well, some of the plants need some equipment investment, and those things sometimes take some time. So we're working as fast as possible. You have my commitment to really focus on executing the demand as much as possible and as fast as possible. Operator: Our next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Brent, maybe a follow-up on the pricing side. You certainly understand some of the cadence there. Can you just talk about, I guess, the moving pieces on margins, just high level as we get into next year in terms of what pricing rolls through next year and has to annualize and pressures margins versus some of the offsets? What levers do you guys have to pull? Obviously, you've done some cost-out initiatives over the last couple of years. How much more room is there on that front versus some of the pricing pressures? Maybe just the high-level moving pieces on margins would be helpful. R. Jones: Well, we'll -- important question, Patrick. And per our other comments here, probably won't make a significant comment into '26. But when you think about our margin dynamics broadly here, gross margin down year-over-year, largely driven and following on the Tycho question, we are getting modest price against it, but we're absorbing more inflation. So that's been the primary driver of the lab pricing into the gross margin. Now on a sequential basis, you saw pressure in gross margin. That was more just mix of the relative businesses because we didn't have the same level of growth in Bioscience as well as -- look, primarily there on the business basis and continuing on that. Look, Emmanuel made the comments that we need to continue to drive at cost broadly and get that cost out rather than offset inflation and offset FX. And the -- but when you think about key drivers here, obviously, getting price and getting price against COGS are really important in the business. The differential segment mix is really, really important. And that hurt us in Q3. And then finally, productivity, which to project revive to -- Avantor revival, Chief Operating Officer, driving better productivity at plants. Those will be key parts of it. And when we come with the views on '26, that will certainly be wrapped in our commentary. Emmanuel Ligner: Can I just add something, Patrick? Yes, go ahead. I'm absolutely committed to really improve not only the top line but also the bottom line, right? We need to be an operation which is leveraged. And so this is what we're going to do. So part of the revival of course, we talked about simplification processes. It also means productivity gain. That is going to be very, very important. And I think that we will make sure that the entire leadership is really focused behind this. Luke Sergott: Understood. And maybe just a quick one on the academic government side. You touched a little bit on it in the prepared remarks. What are the expectations there? Obviously, you have the government shutdown. You guys have some exposure there. Maybe just talk about what you're seeing on that front and what the expectations are going forward for that market, a lot of noise there. I appreciate it. R. Jones: Yes, Patrick, you saw we were down in academic and government in Q1. We had a nice up mid-single digits in Q2 and then down double digits in Q3. And I think, frankly, we saw some of the pent-up concerns come through in Q3. Significant impact was K-12 before the school season started there as well as other softness that we saw through consumables in the form of higher ed there. We -- the U.S. government shutdown is certainly going to exacerbate that. That is really a key driver of the reduction of the lab guidance for Q4 and for the year down to the mid-single digits, that differential as well as the headwinds to consumables. But we're certainly forecasting that to continue to be somewhat challenged. Operator: Our next question comes from Doug Schenkel with Wolfe Research. Douglas Schenkel: A few questions. Emmanuel, it's only been 8 weeks. There's a lot going on here. Is it reasonable to expect you to outline your full assessment and strategic framework by early Q1? Or is that too aggressive? So that's my first question. My second is really for Brent. Emmanuel talked a lot about new hires and investments. Revenue growth is likely to remain challenging for the next several quarters. Margin comparisons are notably tough in the first half of next year. So when I just look at that fact pattern, my words not yours, given you don't want to talk too much about 2026, but it just seems hard to see a scenario where we would get meaningful EBITDA expansion in 2026, maybe no expansion at all given those 3 observations. Is there anything you think I'm missing? And then really, the last one is for both of you. Recognizing it's been a tough period for tools in terms of downward estimate revisions. I think the challenges, to be fair, have lingered a bit more for Avantor than for most of the group. Clearly, visibility and forecasting has been a challenge for you guys in the past few quarters. Do you think this is systems and requires more investment? Or is this more a function of just competitive dynamics maybe evolving in a way that you didn't anticipate? Emmanuel Ligner: Doug, thanks for your question. Look, I think in terms of timing, when I came, I spoke with the Board, I spoke with the team and I say I needed 100 days to really learn the business, meet everybody that I could, all the stakeholders, our people, the customers and a few main investors. And look, after 60 days, I already need to be in action because, first of all, there are some few things which are absolutely obvious, some challenges that we need to fix, and that's what I shared with you. And indeed, in Q1, I'll come back with you with further thoughts and with further strategic vision, absolutely. I'll let Brent answer the question, then we'll come back to the other part. R. Jones: Yes. Look, you're -- I mean, you're absolutely there on the facts, and those are the harder comparators if you look at the trend of this year. I would just go back to one -- we don't want to signal a lot about '26 now because there's more work to do there. But again, it's about driving revival and not just how it impacts operations, but also purely on the cost to serve and getting to the top line and the conversion. And beyond that, we'll update you when we talk about '26. Emmanuel Ligner: And Doug, on the market, my sense is the following. I think production is solid. I think in the R&D aspect from an academy standpoint and even from a pharma, there is some uncertainty and uncertainty is never good. But so I would say it's a mixed market dynamic. Operator: Our next question comes from Dan Leonard with UBS. Daniel Leonard: My first question is on the revival program. Emmanuel, can you frame the cost impacts of that program? It seems like there's a lot of extra money to be spent on e-commerce, on investment needs in manufacturing, on new hires. And I'm just trying to think about how to balance that with margin objectives. Emmanuel Ligner: Dan, thanks for your question. Look, I think it's early days for me to really put a number to it. We are really pushing the program as soon as possible and making sure we make our plan. I don't want also to rush on giving you a number, which is not accurate. Look, I really want to gain accuracy about numbers, any numbers that we're going to put in front of you. So let us put the plan together, let's say, review the plant let's make sure that the plan will have an impact. And I think it's back to a further question earlier, I really want to give you answers about how much, when, what we will see by when. It will take several quarters without any doubt, but it's early days for me. So let me come back to you when we have a precise plan and accurate number. Daniel Leonard: Understood. And then a follow-up. You referenced a couple of large clients you lost from a share loss perspective. How would you characterize the risk of further big share loss? I can't imagine you have large contracts that turn over every year. Are we in a period of stability now for some time? Or are there further just big opportunities ahead in either direction? Emmanuel Ligner: That's a great question, Dan. Look, what I've discussed with Corey and what we've discussed with the team is that most of our very large key account contract has been renewed. We've kept them. And on the contrary, we have opportunity to gain share of wallet in those accounts. So I think we are in a much more stable position right now. However, as I explained earlier, the loss that we've seen in the past, they're still having an impact on us, okay? It takes time for those large contracts to switch over the same way that it takes time for us to ramp up the share of wallet gain. So I think we are in a much more stable area. I think Corey is a very good leader that is bringing a lot of rigor in the business. And from that standpoint, I'm confident about the future of the lab business. Operator: Those are all the questions we have time for today. And so I'll now turn the call back over to Emmanuel for closing remarks. Emmanuel Ligner: Thank you, Emily, and thank you, everybody, for joining us. Today, we just outlined the beginning of our, I will say, next chapter called Avantor Revival. I want you guys to remember and to know that we are moving with urgency to improve our performance. I want to regain your trust. I want to be accurate. I want us to be accurate, and I'm looking forward to give you further updates on our progress in the next quarter. Be well, everybody. Thank you. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Fibra UNO's Third Quarter 2025 Results Conference Call on the 29th of October 2025. [Operator Instructions] So without further ado, I'd like to pass the line to the CEO of Fibra UNO, Mr. Andre El-Mann. Please go ahead, sir. André Arazi: Thank you, Luis. Thank you, everybody. Good morning. We are very pleased to deliver the results of the third quarter 2025. And I would like to make a few comments about that before I pass the mic to Jorge to go in depth of the numbers. We are focusing on the year-on-year results. We expect and we projected last year to be in the double-digit area of growth in our top lines, our most important lines, which are, in our view, total revenue, NOI and effective payout per share. All of those, we think we will be in the double-digit area by the end of the year, comparing year-on-year. Although it's a very predictable business, ours, it has seasonality also and especially seasonality quarter-over-quarter. We have seen throughout the year that the fourth quarter is the strongest of them all, and we expect to close the year in the double-digit area in the top line that we -- that I referred earlier. As the year-end approaches, we also are looking at the projection that will be released by our company by year-end for 2026. And we expect more resilience, more stability, even brighter number for next year. The top line is important for us to have a little bit of context. In order to achieve double digit in the top line, as you have seen, we have been posting a very interesting leasing spread in all of our sectors. Let's say that we have achieved double digits overall in our portfolio. The double digits, it is only in the revisions of the contracts. And as you know, we revise only 1/4 of the contracts every year. So if we achieve, let's say, 10%, it only impacts on the whole portfolio 250 basis points. So for us, this 250 basis points plus the 400 points, let's say, of inflation will only bring us to 650 basis. And we are projecting as we projected last year, double digits. In order to get -- to fill that gap, we need to have a lot of efficiencies, cost efficiencies, cost of debt efficiencies that we are now in the verge of obtaining because of the decreasing of the rates, both in the U.S. and in Mexico. And -- but what I want to say is it's difficult for a company like this to achieve the double-digit area. We are committed, and we will project for the next year. You will see our projection by year-end. But I want to stress that it has to take all the effort of the team in order to get to that area of double-digit growth in the top line, the 3 main lines that I relayed earlier. For this year, I think we will -- I mean, for 2026, we will rely on this year's achievement, the positive impact on the internalization of the management, the execution of the joint investment with Fibra NEXT, which is due in the next coming months. To achieve these goals, we will need yet again all hands on board. Proudly, I can't stress enough that these results will never be possible without the help of each and every one of FUNO's collaborators. To all of them, my most sincere and deepest gratitude. In the ESG front, Again, we are setting the bar very high for the rest of the sector. We are absolute leaders in equality, which with our highest -- our higher than market goals and stronger and more aggressive than market, policies in our hiring staff, our staff hiring. In sustainability, I will relate to what I described earlier about stability in the economic because we need to have stability in our economic lines in order to have stability in the environmental lines of our business. More than ever, environmental policies that have placed our company in the outstanding place that we have as the best-in-class across the board. Finally, in governance. Governance is the line in which we have invested more economically and intellectually, starting with a long time awaited internalization of our management, but following with the outstanding job on reshuffling our Boards and the Board of FUNO and also the installment of the Board of our partner sister company, Fibra NEXT. All these decisions have placed our company in higher ground. And we absolutely lead the sector, and we champ the industry, which makes me personally very, very proud. In recap, I am very happy to have delivered yet again a very attractive third quarter and even more to have a clear view of the fantastic numbers ahead and with the transformational steps taken, that we will be having great times ahead for our company. Thank you for your trust. And again, the best is yet to come. I will now pass the mic to Jorge for the numbers in depth. Jorge Pigeon Solórzano: Thank you very much, Andre. Thanks, everybody, for joining us in our quarterly results call. I will now go into the quarterly MD&A, as usual, and then open up the floor for questions and answers. Starting with the revenue line. Total revenues increased by MXN 20 million quarter-over-quarter or 0.3% to reach MXN 7.5 billion. This is a 5.1% increment on a year-over-year basis, we consider that this against the third quarter of 2024. This change was mainly driven by inflation indexation in our active contracts. Rent increases on lease renewals, as Andre has mentioned, only a fraction of our contracts expire each year, and those are the ones in which you are seeing the leasing spreads that add basically about 100 or 200 basis points on top of inflation on a quarterly basis. And these were offset by the peso-dollar exchange rate appreciation that we saw during this quarter. And the effect it has on our U.S.-denominated rents as well as U.S.-denominated interest expense lines, which I'll discuss a little bit later. In terms of occupancy, the operating portfolio's occupancy stood at 95%, which, as you know, has been the long-term goal of the company to have a 95% occupancy stable compared to the previous quarter. Industrial portfolio recorded 97.4% occupancy, stable versus the second quarter of '25. We're happy to see that we are having a very high retention rate of our tenants and strong leasing spreads, as I will describe shortly. In the retail portfolio, we saw a 93.6% occupancy rate, basically 10 basis points below the previous quarter. The office portfolio recorded an 83% occupancy, 80 basis points above the previous quarter. The Others segment reported 99.3%, occupancy stable versus the second quarter of '25, and the In Service portfolio recorded an 84.4% occupancy or 400 basis points above the previous quarterly primarily due to improved occupancy in the retail segments of the Samara Satelite property, which is on its way to stabilization after we delivered the project a little bit earlier this year. Very happy with the performance of that asset. In terms of the operating expenses, property taxes and insurance, total operating expenses increased by MXN 36 million or 3.7% versus the second quarter of '25, mainly due to increases in the cost of some suppliers and services above inflation. As you know, this is something that we have been working on to contain over the course of a couple of the last couple of years, and we are making good progress in containing those expense growth. In terms of property taxes, they decreased by MXN 4.6 million, mainly due to updates that were reflected in the second quarter that did not happen during the third quarter of '25. Insurance expenses increased by MXN 7.9 million or 6.4% compared to the second quarter, mainly due to the biennial update of our insurance policies. In terms of net operating income, the effect of the above resulted in increase of MXN 2.9 million or 0.1%, basically flat versus the second quarter to reach MXN 5.58 billion. NOI margin calculated over rental revenues was 82.2% and 74.2% compared to total revenues. This compares to an NOI increase of MXN 167 million or 3.1% year-over-year. In terms of interest expense and interest income, net interest expense decreased by MXN 45.8 million or 1.5% compared to the second quarter of '25. This was mainly due to a combination of factors, which includes the interest rate reduction in pesos and its effect on a variable-rate of debt. The appreciation of the exchange rate, which went from MXN 18.89 to MXN 18.38 and its effect on interest payments in dollars during the quarter. This was offset by a decrease in interest capitalization and the impact of pricing of our derivative financial instruments as well. Compared to the third quarter of 2024, net interest expense decreased by MXN 150 million or minus 5.4% year-over-year. So we're starting to see that effect in our numbers. Funds from operation as a result of the above, controlled by FUNO increased by MXN 46.7 million or 2% compared to the second quarter, reaching MXN 2.4 billion. When compared to the third quarter of 2024, FFO increased by MXN 112 million or almost 5% year-over-year. Adjusted funds from operations increased by MXN 90.8 million or 3.9% compared to the second quarter of '25, reaching a total MXN 2.435 billion as a result of gains from the sale of a plot of land in Altamira, Tamaulipas for MXN 44 million. When compared to the third quarter of '24, the AFFO increased by MXN 156.5 million or almost 7% year-over-year. FFO and AFFO per CBFI. During the quarter of 2025, FUNO did not issue or repurchase CBFIs, closing the quarter with 3.805 billion CBFIs outstanding. The FFO and AFFO per average CBFI were MXN 0.6285 and MXN 0.64, respectively with variations of 2% and 3.9% compared to the second quarter of '25. When compared to the third quarter of '24, the average FFO and AFFO per CBFI increased 5.2% and 7.1%, respectively, on a year-over-year basis. Lastly, on the P&L, speaking about the distribution. The net distribution, which is one of the important lines that we focus on. The third quarter distribution amounted to MXN 2.305 billion or MXN 0.605 per CBFI, 100% attributable to fiscal result, which represents a 94.7% quarterly AFFO payout. After the end of the quarter, FUNO issued 5. 330 billion CBFIs related to the employee compensation plan leaving the final CBFI count at 3.810 billion CBFIs outstanding eligible for distribution going forward. Moving to the balance sheet in terms of accounts receivable. Accounts receivable for the quarter totaled MXN 2.309 billion (sic) [ MXN 2.390 ] billion a decrease of MXN 17.2 million or 0.7% compared to the previous quarter, basically normal course of business operation. In terms of investment property value -- the value of our properties, including financial assets and investments in associates increased by MXN 567.1 million or 0.2% versus the second quarter of 2025 as a result of CapEx invested in our portfolio as well as the fair value adjustment of our investment properties, including financial assets and investments in associates. In terms of debt, the total debt as of the third quarter of '25 stood at MXN 147.99 billion or MXN 148 billion compared to MXN 143 billion in the previous quarter. This variation was primarily due to the final disbursement of the Mitikah mortgage loan for MXN 2.3 billion. This is the last installment of the prepayments that we had for Mitikah. A net increase of MXN 393 million in bilateral lines of credit and the exchange rate effect of the peso, which appreciated from MXN 18.89, as I mentioned, to MXN 18.38 per U.S. dollar. The net effect of the above on our total equity meant an increase of MXN 2 billion or 1.1%, including the participation of controlling and non-controlling interest in the third quarter '25 compared to the previous quarter, was primarily due, as I mentioned, net income generated from the quarter, derivatives valuation, shareholders' distribution or CBFI distribution, sorry, and the executive compensation plan provision. Moving to the operating results. We are very pleased to see that leasing spreads continued to show a very solid performance with growth in peso terms for our Industrial segment of 16.8% or 1,680 basis points, 610 basis points or 6% for the Retail Segment, 530 basis points for the Others segment and 130 basis points for the office segment. So we're pleased to see that even in the office segment where we don't see a lot of pricing tension we have been able to increase rents a little bit. Leasing spreads in dollar terms for these renewals were 10.4% in dollar terms for the Industrial segment, almost 9% or 890 basis points in the retail segment, and we saw a slight decrease of 2.5% in the office segment. In terms of constant property performance, the rental per square meter in constant properties increased 5% compared to the annual weighted inflation of 3.75%. So we recorded a 1.2% increase in constant properties in real terms, mainly due to rent increases above inflation, the above-mentioned leasing spreads, rent renewals, the natural lag that we see in inflation indexation in our contracts, which were also partially offset by the appreciation of U.S. dollar-denominated rents. On a subsegment level, the portfolio's total annual rent per square foot went from $12.7 to $13 or a 2.2% increase compared to the previous quarter, mainly due to increases in both contracts as well as renewals offset by the peso appreciation and its effect on U.S. dollar-denominated rents. NOI at a property level for the quarter remained stable compared to the previous quarter. This is mainly due to the following: for the Industrial segments, Logistics decreased 1.4%; Light Manufacturing decreased 9.7%; Business Parks decreased 24.1%, latter mainly due to appreciation of a credit note to one specific tenant. The decrease in NOI in the segment was mainly driven by exchange rate appreciation, its effect on U.S. dollar-denominated rents. The office segment NOI decreased 4.5% on a quarterly basis, mainly due to exchange rate appreciation and the effect of U.S. dollar-denominated rents. In the retail segment, Fashion Mall subsegment increased 11.6%; Regional Center subsegment decreased 0.8%, almost flat; and the Stand-alone subsegment decreased 2.5%. The decrease (sic) [ increase ] in Fashion Mall segment was mainly due to the contribution of variable income. The Others segment's NOI increased by 11.3%, mainly due to hotel's variable income seasonality. And for more detail on this, we can move to Page 24. With this, I conclude the commentary on the MD&A for the quarter. And Luis, I would like to ask if you can poll for questions and open the mic for the Q&A session. Thank you very much. Operator: [Operator Instructions] Okay, our first question is from André Mazini from Citi. André Mazini: So 2 questions, and thanks for the color on the internalization. So the first one is when will Samara, Midtown Jalisco, Montes Urales stock contributing revenues to FUNO as they're going to be used for the internalization, if it's going to be January 1 or some other date? This is the first one. And the second one, the office occupancy has been increasing but at a slow pace, right, currently at 83%. So maybe looking further ahead at the end of 2026, say, what do you think it's fair occupancy for us to have in the models, say, 1 year, 2 years down the road for the office space? And what needs to happen for occupancy in office to increase more rapidly? Jorge Pigeon Solórzano: Thanks, André. On the internalization, January 1 is the date that we expect to have the transaction effectively hit our financials. So basically, we will stop paying the fees, and we will stop receiving the revenues from the 3 properties and have those properties outside of our balance sheet as of January 1, 2026. Regarding the office space, we expect to continue to see gains in our portfolio as well as the market in general. I don't know Gonzalo, if you want to comment a little bit further on more or less what targets -- occupancy you expect going forward. Gonzalo Pedro Robina Ibarra: Actually, as you may be aware, there are some core results that are already above 90% occupancy as Reforma, [Lerma], Torre Cuarzo are already above 90%. The ones that are struggling more are [Periférico Sur] [indiscernible] area. And I think that in order to bring the whole portfolio up to 90% occupancy will take us all 2026 and 2027. Operator: Our next question is from Jorel Guilloty from Goldman Sachs. Wilfredo Jorel Guilloty: I have a question about Mitikah. Just wanted to make sure. So one, is there no more payments going into Mitikah going forward? And two, what are next steps? Because if I remember correctly, there were supposed to be some divestments, some lease-ups in terms of apartment buildings there. So if you could just provide us an update on how that is going? Yes, that would be it. Jorge Pigeon Solórzano: As of Mitikah, yes, that was the last payment. We don't have anything pending with Mitikah. And the second part of your question, I didn't understand what divestments you were referring to, Jorel. Wilfredo Jorel Guilloty: No. I was just -- basically if there is anything else that we should be looking forward to happening in Mitikah. So in order -- in terms of lease-up, in terms of anything else that for -- related to the asset? Jorge Pigeon Solórzano: Just the good performance that the asset is having. We expect it to continue to perform very well. Our tenants are selling very well. We're starting to get some variable rent component on that. It's definitely on, I would say, on the stabilization and fully leased for Mitikah. For the time being, that's the expectation on that asset. Wilfredo Jorel Guilloty: And another question, if I may. So just thinking about your leverage, I mean, you did have to do a payment there and that had a bit of an impact on leverage. But how do you see your leverage trajectory going forward? Jorge Pigeon Solórzano: Definitely, this is a good question. Thanks, Jorel. This is a business that since everything is inflation indexed. And as Andre mentioned, we're seeing positive leasing spreads and occupancy gains, in particular, in the office sector. The expectation we have is to have double-digit growth on our top line, NOI, et cetera, which will lead to a deleveraging -- naturally deleveraging of the portfolio from 2 pieces of the equation, let me say. One is, obviously, as we generate more cash flow, the properties are worth more. So the value of the company goes up on the asset side and debt remains stable. So that means that we delever on an LTV basis. And since the cash flows grow with inflation and interest expense remains flat on the fixed component of our leverage and is going down on the variable rent on the variable expense portion of our debt. The leverage on a net debt-to-EBITDA basis is also going down. So we have both of those figures going down, let's say, on an accelerated basis going forward, given where we're standing today. Operator: Our next question is from Gordon Lee from BTG Pactual. Gordon Lee: Congratulations on the results. Just a quick question, Jorge, I guess it's a little bit more on the technical side. But with the FX where it is now, I would assume that you'll be booking FX gains. And as a result of that, find out yourself in a situation where you were in previous years where you have to maybe pay an extraordinary a dividend above AFFO. One, just to confirm whether that's the case? And two, if it is the case, can you -- would you pay for it in cash? Can you pay for it in CBFIs? And for the portion that would be related to the debt that's going to go with the industrial assets to NEXT, who would pay that extraordinary? Would it be FUNO or would it be NEXT? Jorge Pigeon Solórzano: Okay. On the overall FX situation, that's something obviously that we are monitoring closely. But we had a different scenario the last time that we saw this, which was a combination of appreciating FX and high inflation, which we don't have today. We have low inflation and an appreciating currency. So we don't anticipate at this point to having the same situation we have in previous years, in which the fiscal result was higher than the FFO and we had to pay extra. Our policy in the past was not to pay in CBFIs. As you may recall, we basically paid with a little bit of the money from the first quarter of the following year, given that the fiscal year-end deadline for payment of the fiscal result is [ March 31 ]. So we use some of the first quarter cash flows to pay that. And we are basically catching up to that. In the last couple of years, we have been catching up. So if we were in the scenario, which we don't anticipate, but if we were in the scenario where the fiscal result is higher than the FFO, we would expect to make that payment in cash and not with CBFIs and utilize the cash flows of the first quarter given that we have, again, the first quarter of the following year to catch up with that result. I don't know if I explained myself? Gordon Lee: Yes. It was clear. Fernando Toca: To answer the rest of your question, Gordon, this is Fernando. You have to calculate the FX gain for FUNO from the period where the properties were at FUNO. And then you will have to calculate the gain or loss in NEXT when the properties were contributed to NEXT. So if the FX moves significantly from the drop-down of the properties to the end of the year, then NEXT could have a significant FX gain or loss. But at least myself, I'm not expecting that. Operator: Our next question is from Pablo Ricalde from Itaú. Pablo Ricalde Martinez: I have one question on the contribution from Fibra UNO assets into NEXT. That has already been approved by you, and you're waiting for the antitrust authority to approve that. So I don't know if there's an update on that front or no? Jorge Pigeon Solórzano: Well, we are expecting that to happen imminently, meaning the approval from the antitrust authorities. Hopefully, as soon as today, we may get a publication of the items that are going to be discussed in the plenary session of the Antitrust Commission. We have a favorable technical recommendation going into the plenary session. So we don't anticipate any issues and expect that to occur imminently, literally between, let's say, today and hopefully, this Friday, we should have a resolution from the Antitrust Commission. And once we do that, obviously, the Antitrust Commission will make it public, and we will publish ourselves the information that, that has gone through. And as for the drop-down, obviously, that is something that we have been looking into carrying it out. And as you know, it has market transaction components associated to it. So we're looking at market conditions to determine what the best timing for that is to happen. And I would say that this is as soon as immediately and no later than next year, but we're monitoring the market closely. Operator: Our next question is from Adrian Huerta from JPMorgan. Adrian Huerta: I have just 2 follow-up questions on prior ones. The first one on the internalization. Is there anything pending that you guys need in order to go ahead with the internalization in January 1? Or is everything set and there's no risk of this taking place on January 1? That's my first question. The second one, it's regarding Mitikah. When -- I remember about the Phase 2, is there any plans to launch the Phase 2 of Mitikah anytime soon? Jorge Pigeon Solórzano: First question first, signed, sealed and delivered. There's nothing to wait other than for the time to happen, and it happens January 1, which is how the documents are set. January 1, 2026, is when you will see the swap of asset fees and everything. So -- nothing else to be done. That's basically a done deal. Gonzalo Pedro Robina Ibarra: Just to be clear, up to December 31, the assets will be on the balance of Fibra UNO. As of January 1, they won't be any more on the balance of Fibra UNO. Jorge Pigeon Solórzano: Correct. Exactly. And regarding Mitikah Phase 2, obviously, we do have a license available. We have space to work with it. We have several ideas. As you know, there's been a live project that has evolved. If you recall from the very early stages, we had the Condo Tower -- wasn't a Condo Tower, it had a hotel in there. And then we had a hotel somewhere else in the shopping mall. And now we have about -- I don't remember if it's 80,000 or 100,000 square meters of additional space available to be constructed there, but we have to wait and see a little bit market conditions to decide what we do. Shopping mall is working fantastically well. So we want to make sure that whatever we do adds to the success of what Mitikah is today, but we don't have any specific plans as of right now to execute on Phase 2. We do have the availability, but not right now. Operator: [Operator Instructions] Our next question is from David Soto from Scotiabank. Okay. It looks like David does not have a question anymore. We'll give a few more moments for any further questions to come in. Okay. It looks like we have no further questions. Prior to the closing remarks, a friendly reminder that the Fibra UNO will be hosting the FUNO Day on November 13 in New York. I will now pass it back to the Fibra UNO team for the closing remarks. André Arazi: Thank you, Luis. Thank you. As Luis just reminded you, we have our Investor Day on November 13. We are -- you are very welcome to join. And also, we are approaching March of 2026, which will be our 15th anniversary. We are very happy and very proud about that. Thank you for your attention to this call. And I hope I'll see -- you'll hear from us again with the full year or fourth quarter 2025 numbers shortly. Thank you very much. Operator: That concludes the call for today. Thank you, and have a nice day.
Operator: Good morning, ladies and gentlemen, and welcome to the Modine Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Powers, Vice President, Treasurer and Investor Relations. Please go ahead. Kathy Powers: Good morning, and welcome to our conference call to discuss Modine's second quarter fiscal 2026 results. I'm joined by Neil Brinker, our President and Chief Executive Officer; and Mick Lucareli, our Executive Vice President and Chief Financial Officer. The slides that we will be using for today's presentation are available on the Investor Relations section of our website, modine.com. On Slide 3 of that deck is our notice regarding forward-looking statements. This call will contain forward-looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission. With that, I'll turn the call over to Neil. Neil Brinker: Thank you, Kathy, and good morning, everyone. Last quarter, we announced plans to significantly expand our U.S. manufacturing capacity for data center products. We are continuing to invest in our fastest-growing businesses and are actively advancing the strategy. In fact, we are accelerating other planned investments to meet the unprecedented demand for our products. Our Climate Solutions segment continues to deliver, posting a 24% increase in revenue. This includes contributions from our 3 acquisitions earlier this year: AbsolutAire, L.B. White and Climate by Design International. As we integrate these businesses, we are applying 80-20 principles to drive value by improving margins, increasing capacity utilization and unlocking commercial opportunities to cross-sell into new markets. Bringing these respected brands into the Modine portfolio not only broadens our product offerings but also brings scale to HVAC Technologies. Excluding these acquisitions, organic sales increased 15% from prior year, driven primarily by a 42% increase in data center sales. Over this past quarter, we've made substantial progress on our capacity expansion. I'm pleased to report that we have officially launched chiller production in our Grenada, Mississippi facility. In total, we plan to have 5 chiller lines in Grenada and are currently producing on 2 of these lines. We are working on getting the incremental production lines in place and are on schedule to launch full production by the end of this fiscal year. We've also made good progress in Franklin, Wisconsin and Jefferson City, Missouri. Franklin is scheduled to launch initial production of data center products this quarter, with volumes ramping through Q4. We will have 4 chiller lines in Jeff City, with the first 2 launching the fourth quarter and the remainder planned for later next fiscal year. The final site for our expansion has been secured in Grand Prairie, Texas just outside of Dallas. This facility is planned to fully come online early next fiscal year and will have 5 chiller lines. Both the Franklin and the Dallas locations are being designed for flexible manufacturing with the ability to produce multiple products that can be flexed based on demand. Both facilities will be able to produce modular data centers, which we see as a great opportunity. We've made initial shipments to 1 customer and are currently working through some design modifications. In addition, we are in early stages of discussions with others, including both hyperscaler and neocloud customers. We are excited to be able to support our strategic customers with innovative products that offers rapid deployment and scalability. We are making good progress overall, but current hurdles include the hiring and training of the workforce, which is a heavy lift for the organization. In total, we've hired 1,200 employees to support data centers so far this year, including temporary and contract workers, and talent we've strategically redeployed from our Performance Technologies segment. This added significant additional cost this quarter, with little incremental revenue, resulting in temporary margin erosion in Climate Solutions. We expect this to continue in Q3 and then improve in Q4 when volumes begin to ramp. We expect a significant jump in revenue between Q3 and Q4 driven by new capacity coming online. Outside the U.S., we successfully launched production of data center products at our new Chennai, India facility. This strengthens our ability to serve customers in the APAC region with locally manufactured product. Furthermore, we are planning to expand chiller capacity in the U.K. to support demand for both hyperscaler and colocation customers in Europe. This incremental capacity is anticipated to come online early next fiscal year. I currently see a path to deliver more than 60% revenue growth in data center this year on our way to achieve over $2 billion in revenues in fiscal 2028. This year marks a period of major investment in our data center businesses, driven by strong market demand. This is hard work for our organization, and we are addressing challenges and making adjustments along the way. In addition, this represents a major transition for the business, evolving from a low-volume, high-mix manufacturing operation to a high-volume producer. This is not a shift in strategy as we remain committed to serving as a premium, highly customizable provider. However, we will now be able to deliver these specialized products at scale to meet the needs of our largest customers. This is important as large data centers, especially those specializing in AI applications, require our products to be delivered at a much greater rate than we have historically provided. Fortunately, Modine is highly capable of ramping scale production on highly engineered product designs. A competency, we have honed over many years with our Performance Technologies business. This expertise is also why we have been successful in leveraging internal resources to support these critical projects. We have the right team in place, and we are hyper focused on execution to deliver these innovative products our customers require. I want to stress again, this is a very heavy lift for the data center team, but I remain confident in our ability to execute, meeting our targets and customer commitments. Please turn to Page 5. Our end markets and Performance Technologies segment continues to be challenged, but actions we've taken in response to these conditions are having a positive impact. Although revenues this quarter were down 4% from the prior year, adjusted EBITDA was up 3%. The segment adjusted EBITDA margins increased by 90 basis points, primarily due to the cost control measures we've taken out over the past few quarters, including actively reallocating resources to the Climate Solutions segment. We are monitoring market conditions closely, and we will continue to make adjustments as necessary. I'm pleased to announce that the segment is now being led by Jeremy Patten, who joined our team as the President of Performance Technologies segment last month. Jeremy's previous experience with transformational change with an 80/20 mindset makes him uniquely qualified to take on the challenges and opportunities ahead. I'm happy to welcome Jeremy to the team and have confidence that he will continue the momentum created over these past quarters to drive margin improvement as we transform this portfolio. I'm extremely proud of the hard work being done in both segments to drive towards our vision of evolving our portfolio in pursuit of highly engineered mission-critical thermal solutions. This is creating a great deal of organizational change and a heightened level of complexity. This includes integrating 3 acquisitions, expanding capacity across multiple locations around the globe to support data center growth and exploring strategic divestiture opportunities in Performance Technologies. We are moving people into new roles in support of these plans and are incurring temporary cost increases to support future growth. Although we will encounter obstacles along the way, this team is up for the challenge, giving me further confidence in our ability to reach our long-term targets. With that, I'll turn the call over to Mick. Michael Lucareli: Thanks, Neil, and good morning, everyone. Please turn to Slide 6 to begin reviewing the Q2 segment results. Climate Solutions delivered another quarter of strong revenue growth with a 24% increase in sales. Driving this growth was data centers, which grew $67 million or 42%. HVAC Technologies increased $17 million or 25%, driven by inorganic sales from our recent acquisitions. This was partially offset by lower indoor air quality sales and lighter preseason stocking orders for heating products. Heat Transfer Solutions grew 2% or $3 million due to higher volume with commercial refrigeration and coatings customers. Climate Solutions second quarter profit margins were lower than normal and adjusted EBITDA declined 4%. I want to review a few temporary factors that contributed to the decline this quarter. The largest impact was due to significant investments relating to the data center capacity expansion, including direct and indirect labor and overhead expenses needed to build out new production lines and facilities. As Neil previously covered, we're expanding production lines at several existing locations while also preparing to launch a few new facilities. These actions are required to meet the growing customer demand for Modine products and more than double our revenue. While we expect to see sequential revenue growth in Q3, we won't begin to realize significant volumes in the new production facilities until our Q4. We also had a lower margin in HVAC Technologies, which was mostly due to a negative mix impact. This was driven by lower preseason heating sales, combined with the early integration steps for the 3 most recent acquisitions. Heating represents some of our highest margin products and the acquisitions are very early in the integration 80/20 phases. Within this product group, we anticipate a sequential margin improvement as we enter the heating season and began to implement 80/20 across the acquisitions. And finally, in HTS, the prior year included several million dollars of commercial pricing settlements from heat pump customers. As we implement a major step function change in our data center production capabilities, we anticipated that there would be significant unabsorbed costs as we launch the expansion plans. Looking to the second half of the year, we currently expect sequential margin improvement in Q3, but the margin will remain below normal operating levels until Q4. Then in Q4, we should begin to see more significant volumes from our new production lines, which will allow us to more fully absorb the fixed incremental costs and exit the year at more normalized profit margins. Before moving on to Performance Technologies, I want to highlight that the demand for Modine data center solutions continues to grow, and we're increasing our revenue outlook for the current fiscal year. In order to support this growth and achieve our $2 billion goal, we need to make significant capacity investments while still delivering on our earnings targets. And this will set the stage for further revenue growth and margin improvement with the ability to move well above historical profit margins. Please turn to Slide 7. Performance Technologies revenue declined 4% from the prior year. Heavy-duty equipment revenue was relatively flat with stronger sales to construction and mining customers, offset by lower GenSet sales. On-highway applications decreased 3% or $7 million, driven by lower commercial vehicle demand, including specialty vehicle and bus customers. Despite the tough market conditions, adjusted EBITDA improved 3% from the prior year and the adjusted EBITDA margin increased by 90 basis points to 14.7%. The margin increase was mostly driven by significant cost reductions and improved operating efficiencies. Tariffs remain a significant challenge for all market participants, but our team is working hard to recover these increases through surcharges, along with our normal pass-through mechanisms. In addition, we're reorganizing this business and reducing costs wherever possible, which resulted in a nearly $7 million reduction in SG&A expenses this quarter. The team remains focused on margin improvement despite ongoing challenges with the end market demand. As we look ahead, Q3 typically represents the lowest volume quarter due to seasonal patterns and holiday shutdowns by our OE customers. As a result, we expect that the Q3 margin will be down sequentially from Q2, but should be above the prior year, then stepping back up sequentially in Q4 as we've done in previous years. Until the markets turn around, we'll stay focused on costs and operating efficiencies, which will allow us to drive higher operating leverage and margins when volumes improve. Now let's review total company results. Please turn to Slide 8. Second quarter sales increased 12%, driven by the revenue growth in Climate Solutions. The gross margin declined 290 basis points to 22.3%, driven primarily by the factors I covered on the Climate Solutions slide. SG&A expenses declined in the quarter, driven by Performance Technologies cost savings initiatives, partially offset by incremental SG&A and the acquisitions in Climate Solutions. The net result was a 4% improvement in adjusted EBITDA from the prior year with a margin of 14%. With regards to EPS, the adjusted earnings per share was $1.06 or 9% higher than the prior year. I want to again summarize the key items that impacted the Q2 margin and how we currently see our consolidated results for the balance of the year. For Q2 consolidated results, the adjusted EBITDA margin benefited from the year-over-year improvement in Performance Technologies. This was offset by the lower margin in Climate Solutions, as I reviewed on that segment slide. As we look to Q3, we anticipate the adjusted EBITDA margin will remain below normal levels in this quarter. Then based on the sequential improvements by both segments in Q4, we expect a significant increase in the sequential margin, which should be more in line with the prior year. Based on this second half outlook, we would exit the fiscal year at the highest quarterly margin rate, and we would fully expect additional margin expansion in the new fiscal year, consistent with our fiscal '27 goals. Now moving on to cash flow metrics. Please turn to Slide 9. Free cash flow was a negative $31 (sic) [ $30 ] million in the second quarter. We anticipated lower cash flow primarily due to higher inventory builds and CapEx in Climate Solutions. We continue building significant data center inventory to support customer demand and delivery schedules in the second half of the year. And second quarter free cash flow also included $9 million of cash payments, primarily related to restructuring and acquisition-related costs. Net debt of $498 million was $219 million higher than the prior fiscal year-end directly related to the acquisitions of AbsolutAire, L.B. White and Climate by Design. With the investments in acquisitions and capital during the first half of the year and the associated earnings, our balance sheet remains quite strong with a leverage ratio of 1.2. Based on our earnings and cash flow outlook, we expect that the leverage ratio will decline further by fiscal year-end. Now let's turn to Slide 10 for our fiscal 2026 outlook. As we cross the midpoint of our fiscal year, we're raising our revenue outlook and reaffirming our earnings outlook. For fiscal '26, we now expect total company sales to grow in the range of 15% to 20%. For Climate Solutions, we're raising our outlook for the full year sales to grow 35% to 40% with data center sales now expected to grow in excess of 60% this year. With regards to data center sales growth, we anticipate sequential increases in Q3 and in Q4 with the second half year-over-year sales growth exceeding 90%. During the next quarter, the team will be further preparing numerous production lines, both in existing and new facilities to support the strong orders. In Q4, we anticipate our first full quarter of significant production volume from these new production lines. For Performance Technologies, we're raising our sales outlook with revenue now anticipated to be flat to down 7%, improving from the prior range of down 2% to 12%. We expect that the end markets will remain depressed with the ongoing trade conflicts and cautious market sentiment having a negative impact on market recoveries. However, last quarter, I explained that revenue was trending more favorable due to foreign exchange rates and the large amount of material cost recoveries. While the underlying market volumes have not recovered, we expect higher revenue as these trends have continued, and we're adjusting the outlook accordingly. I want to point out that while the large cost recoveries helped to protect our absolute level of earnings, they don't have a positive impact on our profit margins. With regards to our full year earnings, we're balancing the higher revenue outlook with margins running temporarily below normal levels. Based on this, we're holding our fiscal '26 adjusted EBITDA outlook to be in the range of $440 million to $470 million. For cash flow, we anticipate generating free cash flow in the second half of the year, but lower as a percentage of sales compared to the prior year. For the full year, we expect free cash flow to be in the range of 2.5% to 3% of sales. This is directly related to the significant investment in data center capacity that we're making this year, along with higher working capital to support this rapidly growing business. This also includes cash required to fully fund our U.S. pension plan prior to our planned annuitization in the third quarter. With the conclusion of this large project, we'll be able to remove a very large liability from the balance sheet along with the time and cost to manage it. And consistent with our previous outlook, we're not including any cash proceeds from potential divestitures this year. Looking ahead to next year, we anticipate that our free cash flow margin will return to previous levels and be in line with our fiscal '27 targets. To wrap up, we have a lot of moving pieces this quarter, including significant cost reductions in Performance Technologies combined with large investments in Climate Solutions for the 3 acquisitions and the data center expansion. This represents a lot of change, and the team will continue to execute as we've done throughout our transformation. These activities are critical elements of our strategic transformation and capital allocation strategy. We remain confident that these actions are setting the stage for long-term sustainable growth for Modine shareholders. With that, Neil and I will take your questions. Operator: [Operator Instructions] And our first question will come from Matt Summerville with D.A. Davidson. Matt Summerville: Can you maybe first -- on the Climate side of the business, can you maybe first parse out year-over-year margin contraction on sort of what was data center driven, what was mix driven and what those headwinds were maybe providing a bridge in basis points? And then sort of more of a definitive sort of layout in terms of how you get back to "normal" in fiscal fourth quarter, which I would assume implies 21%-ish at the segment level. And then, Mick, in your prepared remarks, you also added color on a comment that Climate has the potential going forward to punch well above historical profitability. So maybe if you could frame that? And then I have a follow-up. Michael Lucareli: Yes. Neil, do you want me to take it first? Yes. Matt, thanks for the question. So if we start first with your Q2 question, as we break down the margin, if we want to talk about basis points, the biggest portion of the margin in the quarter was on the data center expansion side, about 225 to 250 basis points on the data center side, and that was about $10 million to $12 million of higher costs really split between labor and overhead, a little bit of material in there, and Neil can talk a little bit more about that. And then on the HTS side, last year, we had some really large heat pump settlements, if everyone would recall after the market downturn, that was about 125 basis points. And then on the HVAC Technologies and kind of other, it was about 100 basis points. HVAC Technologies was mostly a mix issue and some start-up integration costs on the acquisitions. So that's the breakdown of Q2. Neil and I can give you a walk to -- as we get to Q3 and Q4, before I turn it back to Neil, the thing I would -- you asked at the end about beyond. So when we give you the walk, we are building capacity to not only get to our goal of the $2 billion, but we'll have capacity to produce more than that. That's not running every plant 3 shifts, 7 days a week. Obviously, once we get to normal production levels and you move -- start moving towards full capacity, the incremental margins are quite high. So that's why I said once we get to normalized levels -- production levels, we'll get to more normal EBITDA margins for CS and then beyond very high incremental or variable contribution rates. Neil, maybe I'll turn it back to you on how we're looking at Q3 and Q4. Neil Brinker: Yes. The piece that I'll add to that is that we expected some level of launch costs. I mean that's to be expected. We added over 1,200 people into the organization over the last few months. Those are a little -- it turned out to be a little bit more -- a little higher than what we anticipated, but we have to understand root cause and what that is, and we do understand that. Essentially, we had such high demand and expectations for our customers to pull in dates and ship product early that we had to divide our resources, and we went with multiple launches at once. So we recognize the impact of that. We recognize the cost of that. And we have now reverted back to the standard launch process, which is more controlled. We have the right amount of specialists on the job in terms of how we do it. We're leveraging 80/20 for scheduling and lead times, and we've got better alignment around our customer expectations and schedules. So we try to do something a little bit different to meet the demand. We try to do something a little bit different to launch faster to help support our customer schedules, and it was costly to do that. Matt Summerville: Appreciate that color. If I can stay in -- yes. Michael Lucareli: Just quick to -- you asked about the ramp too. The step-up, we talked about some improvement in Q3 and then you had asked -- I want to make sure we address. You asked about getting back to a 20-plus percent type level in Q4. For us, implied guidance, about 90% in the second half, we do see sequential growth. So the growth rate continuing to improve. And for us to get to our Q3 targets, we probably need $40 million to $50 million of incremental capacity coming online. And that's -- if we have 2-plus chiller lines, we're good there. To get to Q4 another $75 million to $100 million of volume revenue capacity, and that would be roughly a minimum another 5 chiller lines. And we can cover that with you guys online or offline. A lot of you know those plans. We're on track. And that doesn't include sales of any other products, air handlers or on the modular side. But if you're thinking about that ramp up, it's really bringing on fully producing at least 2 lines in Q3 and then another 5 lines, talking chillers only in Q4. Matt Summerville: Super helpful, I appreciate all that detail. I want to stay inside the data center business for my follow-up, 90 days ago, you mentioned establishing a data center sort of goal approaching $2 billion in fiscal '28. Now you're talking about a number over $2 billion just 90 days later. Did something change with order activity, funnel, customer acquisition? And ultimately, as you get to the tail end of this capacitation journey, both in North America and now in the U.K., where will your capacity actually be? And should we be thinking about maybe something a bit materially higher than $2 billion in '28 based on what I'm describing there? Neil Brinker: Yes. Thanks, Matt. What's changed in the last 90 days is definitely. The order and the funnel rates. And we're seeing more demand. We're seeing our relationships with our customers continue to evolve in a great way and the aperture in terms of the scheduling and the outlook has widened to where we can see more, and it gives us more confidence to continue to deploy CapEx. So that's what has changed. We've seen it with not only expanding our product lines and what we have today, but also new products that we're going to market with and launching. One example of those would be our modular data centers. So that -- the market looks pretty promising, and we feel that we have the right technology to support it, and we feel we have the right time lines to meet the customer demands, and it's just confidence, giving us more confidence in terms of where we're at. Operator: And our next question comes from David Tarantino with KeyBanc Capital Markets. David Tarantino: So I just want to follow up on the margin commentary. Just what gives you the confidence that margins should normalize going into 4Q beyond just the accelerated capacity just given investments should continue? And I know it's further out, but how should we think about margins as it relates to the longer-term targets that you laid out as you accelerate the rate of production here? Is the 4Q implied run rate a sustainable way to think about kind of the longer-term margins? Neil Brinker: Yes. So thank you, David. A few things, right? We're doing a lot of -- there's a lot of new, new products, new process, new plant, new people. And that's not efficient most of the time in these launches, and we recognize that. But every time we do this for every product that we ship, we learn from it. And when we learn from it, that's going to make us better. So as we work through the Grenada launch, we work through our Rockbridge launch in data centers, we learned a lot that we know that we can apply those lessons learned as we continue to roll out more chiller lines, for example, or more modular lines in different facilities in different factories. So it's the learning. It's the ability to get more efficient. It's our expertise in terms of design, design for manufacturability, design for quality, all those things that we're getting better at as we launch gives us the confidence that we'll improve the margins as we move out later in the calendar year. Michael Lucareli: Yes, David, the only thing I would add is that margin improvement is twofold, building what Neil said. So if you think about the challenges of starting a new facility or a new line. So one, I'd say our mature data center regions and plants are operating at margins at or above the segment. And we knew as we hold more volume into existing stable facilities, we could get the margin higher. Then as we launch a new greenfield, there's fixed cost absorption issues just to get to a scale to cover the incremental fixed cost. And then what Neil also covered in some of these cases where we've had extra labor or training, you have inefficiencies. So the message and how the ramp will work is we are -- as the new lines come on, we are now bringing on more volume to leverage our fixed costs. And as we get better at it, the negative on a normal conversion is inefficiency. We're also shipping away it and improving our processes. So it's a volume and a lean initiative, if you want to think about it that way. David Tarantino: And I want to follow up on Matt's second question, just given the acceleration in investments here, how are we thinking about this as it relates to the shape of the growth longer term to get to the targeted above $2 billion in sales by fiscal 2028. And I just want to clarify that, that is kind of a slight raise versus prior expectations? And if so, where -- what is the new target in terms of sales capacity in terms of the investments you're making? Neil Brinker: Yes. We -- I mean, we haven't come out with a specific number. We're always going to give ranges. But again, the order profiles, the new product launches, the new product development that we're working on, new regions that we see that are timed perfectly for our execution in terms of how we launch these facilities and factories and deploy the CapEx. So we just have a lot of visibility, and there's a lot of interest and there's a lot of desire for our products because of the technologies. We've put ourselves in a really good position over the last few years where we've acquired the right technologies. We've developed the right technologies. We've built the relationships with all the major hypers, neocloud providers, colocation providers. They're generally growing at pretty good rates. So we have -- our funnel continues to grow, which gives us the further confidence to deploy capital and to hire people to launch products. Operator: And moving next to Chris Moore with CJS Securities. Christopher Moore: Let's stay with data centers. So when you've talked about data centers in the past in terms of Modine's positioning, expected growth, one of the consistent themes has been you're focused on providing a relatively small subset of the market, exceptional products and services. So when you think about, just for example, $2 billion data center target in fiscal '28, just trying to get a sense as to how you view the total addressable market in calendar '27. I mean is $2 billion, is that 10% of the available HVAC market? Is it a bigger percentage of that? Just trying to understand kind of where that puts Modine in the overall kind of structure of the HVAC market on the data center side. Neil Brinker: Sure. Thank you for that. Around $2 billion -- and remember, the TAM is going to continue to grow as we've seen the amount of CapEx that's being deployed in the data center market across the board. So your TAM is expanding. And are we expanding at a similar rate. We're growing above the market. We're growing faster than the market. So we're gaining share. So we were single digit, low single digit when we started this journey. Last year, we got into double digit, low double digits. And if we get into the $2 billion range with some assumptions that we've made on market size and what that available market is that we can address, it probably puts us anywhere between 15% and 20% at that point, Chris. Christopher Moore: And maybe just my follow-up. Recognizing you don't necessarily look at your data center solutions discretely, air cooled versus liquid cooled. When you talk again about the $2 billion target, how do you view the relative contribution of air versus liquid at that level? Neil Brinker: Well, you need both in this space today. It requires both. They complement one another. But where we're seeing a lot of the growth and where we're seeing a lot of the demand with our closest customers is with the deployment of AI. So it's going to require a great chiller product, which we have. It's going to require the air cooling products that we have to help augment it and CDUs as well. So we're seeing the growth, and a lot of the growth is coming from AI expansion. Michael Lucareli: And on the margin, there's a relatively consistent margin profile across the product suite. Obviously, service is at the highest end, and we get a lot of questions on that. That will grow as our installed base grows over time, but the contribution margin is relatively consistent across our product suite. Operator: Our next question comes from Noah Kaye with Oppenheimer. Noah Kaye: I mean so much focus today on these margins and the incrementals, certainly for good reason. I may want to ask a different way. Is the right way to think about what's going on here that you've largely front-loaded a lot of the investments associated with the multiyear capacity ramp and that perhaps starting with 4Q, we started to see more normal incrementals in CS and specifically in data center. If that's the case, even though you're opening more plants over the coming years, again, what gives you confidence that we can see that kind of level of normal incrementals based off of the specific products that you're making and the configuration of the lines that you're setting up? Michael Lucareli: Do you want me to take that? Yes. Noah, it's Mick. Well, probably the best example we can give if we look at the last year, where 1.5 years ago or before that, we moved and we launched production of chillers in North America for the first time. And last year on the data center side, we were able to generate margins that were in line with the rest of the segment or the rest of our data center business. And if I recall, we had a quarter or 2 a really high margin on leveraging that volume, and we had a nice improvement last year. It really is about -- and Neil is talking about this, it's a rinse and repeat of products, existing products that we know how to make and doing that in a disciplined manner. Challenges can become when you're making a new product in a new location. But we're basically -- it's a copy paste of what we've been doing in the U.K. and in North America. So the bigger -- again, the bigger issue, like you said, for the first 6 months, it's literally getting the building, the equipment and then bringing in everyone and training them and bringing in all the materials. And then there's still a practice and an improvement as you launch. That to me is the biggest hurdle. And then once that's done, then we've been doing this for 10 years. We know what the profit margins will be. Noah Kaye: Yes. So then to put a finer point on it, what should incrementals look like as we get into '27? Michael Lucareli: Early to say in '27, but what I would say on incrementals is typically at a gross profit line, we'd be looking at a 30% type incremental gross profit to each dollar of sales when we're running at existing facilities, and we're adding more volume. Noah Kaye: And then just to ask one question on PT, bringing Jeremy and getting some traction on margin improvement. Maybe just talk a little bit about current focus areas for the business and any update on the divestiture process? Neil Brinker: Yes. Certainly, it's a great resource to have having Jeremy on board, and he's going to continue to drive the same playbook that we've been driving, continue stabilizing the business, making sure that we are running the business as efficiently as possible, stay close to our customers, continue to build out the order funnel -- the order and the funnel. So when we start to see some market recovery, we're put in a really good position that we can execute on platforms and programs that we've won through our innovation and technology. So it's the same playbook, and he's going to be able to accelerate that and bring some more structure around it. Noah Kaye: And any update on the divestitures or we save that for another call? Neil Brinker: Business as usual there. I mean we're always looking strategically in terms of what our best options are. I think we've got a pretty good history and a trend that through product line strategies that we can execute on those year-over-year. You've seen that over the last few years, and I'm pleased with where we're at in terms of the progress of that today. Operator: We'll go next to Brian Drab with William Blair. Brian Drab: Just given that we just touched on the Performance Technologies there, what are you seeing, Neil, in those end markets, off-road, on-road, demand for your components in those end markets over the next 12 months? Neil Brinker: Yes. We've been in this cycle for quite some time. I mean it's been 1.5 years. These cycles typically can last anywhere from 1.5 years to 2 years. And really following the trends and the announcements of the large OEMs to position ourselves for when there is a rebound in the market. So we're tracking that closely with our customers, the largest OEMs. We're looking at their inventory levels. We understand what programs we're on and where we can facilitate and turn on manufacturing faster, but it's -- we're reading the end markets through our OEMs at this point. Brian Drab: Okay. And my sense there is that it's stabilizing. I mean, would you agree with that? Or do you think there's another way... Neil Brinker: Yes. I think there's some recent reports, as of today that suggest there could be some stabilization and that the inventory levels are right. Those are early indicators. I'd like to see a trend first. But yes, that's fair. Brian Drab: Okay. There's -- no surprise, I'm going to ask a question on data center. So there's some massive projects, obviously, happening all around the world. And I'm just wondering, specifically in the U.S., some of these massive projects, I assume you'll be part of. Is there -- are you seeing any -- in some different regions where you don't have manufacturing capacity, maybe close enough to the site or service capability close enough to the site that have come up in the last several months where you're saying, okay, we're going to be -- we won this business, we're probably going to have to set up some new capabilities closer to one of these massive sites kind of like -- I think you're doing in Texas. Neil Brinker: Yes, it's a fair question. And yes, you're correct. There's opportunity to expand globally. Priority one is the United States. I mean that is where our biggest customers are. That is the biggest market, that's half the global market. We've got to make sure that we're executing and we're delivering on the products that are desired in this industry today, which we provide that improve total cost of ownership, improve power use effectiveness, improve water use effectiveness. We need to do that in the U.S. We need to do that well. And that's what we're working on. We've also launched in India recently. So we did our first pilot build there, and that new India facility will help us with our customers as they grow and not only in India, but in Southeast Asia as well. So that's another area that we have a disparate team that's focused on that, that is going to launch and follow our customers per their request. And then we're also seeing demand in Europe as well. We have our facilities there. We can support Europe. We're adding another chiller line there. We added a facility there last year, another 400,000 square foot facility to help expand and grow in Europe. And then lastly, we're seeing large opportunities, and we're communicating with potential customers with large -- in large region, particularly in the Middle East. So we have won some orders there. We've been able to service those orders out of our Spanish -- out of our Spain facility. And at some point in time, would we make some investments there, potentially. But with the current capacity that we have, we can serve the Middle East through India as well as Spain, and we're pretty comfortable with that. But definitely, we're global. Definitely, we see the reach. We see expansion, probably the biggest programs and projects outside the United States and Europe, we're seeing is in the Middle East. Brian Drab: Okay. And then just one more on that topic. Inside the U.S., when you won this opportunity in Texas, it came -- my impression was that it came kind of suddenly and was just this incredible opportunity that presented itself. Have you had any other situations like that or maybe as a result of that one, where there's -- you've had another giant project come your way over the last -- I guess, since we talked to you last on the 1Q call. Neil Brinker: Yes, yes. I mean we see -- for sure. And we're seeing these things, and it's -- we're on earlier stages. We're in earlier stages, and we have more ability to have influence as well. Operator: [Operator Instructions] And we'll go next to Jeff Van Sinderen with B. Riley Securities. Jeff Van Sinderen: Just since we're on the topic, in the data center area, is there any more color you can provide on maybe how customer concentration is evolving? You mentioned some other new customers you might pick up. I think at one point; you spoke to one -- there was one hyperscaler that you maybe didn't have yet as a customer. Has that converted to a customer? Are there still major new customers pending that could further increase demand? And then also just curious on the modular product demand, how that's progressing? Neil Brinker: Yes. Thanks for that question. We have great relationships with the hyperscalers, and we're building relationships with -- we're building further along with some of our new hyperscalers. We're advancing our products. We're advancing our discussions that gives us confidence that we can grow those. So if we think about the 5 major hypers today, 2 of them are the majority of what we do today. So there's a lot of expanding and expansion that can happen now that we have the networks inside the other 3 and now that we have the technical specs and capabilities that we've been able to prove and meet with them. So there's a lot of expansion just within the hypers today. And then you can expand outside of that with the neocloud providers. I think we've been very successful with one neocloud provider that gives us the ability to -- it's proven our capabilities that driven genuine interest with the others. And then geographically, we talked about some other areas that there are going to be some large players where we can expand. So certainly, there's the ability to do that. And the only reason why we have that ability is because we have the products and now, we have the relationships with the biggest -- with some of the biggest data center providers in the world. Jeff Van Sinderen: And then I think you mentioned in some of your earlier comments about having a wider aperture and generally improving visibility for the data center product demand. How far out can you see in the data center business at this point? And I know sometimes maybe customers pull sooner than you think. I think you spoke to that a little bit. What does demand for the data center solutions look like if you go out a year or 2 years or as far as you can see? Neil Brinker: Well, you're right. So some of these things are pretty urgent and sudden and they can be -- we want to do the best we can to please our customers, especially our largest ones. So those are things that we have a pretty quick reaction and we're very quick to react in terms of being able to produce and get that product out, albeit inefficiently, we can at least drive the revenue growth and satisfy the customers' demand. But when that's not the case, and you have -- it's more strategic and you're working with customers that are thinking about where they're going to advance and where they want to move and deploy capital. We can see anywhere from 3 to 5 years out. And I would say with the majority of our largest customers, we have that visibility. And that's really helpful in terms of allowing us to make sure that we're strategically deploying capital in the right places and that we're adding the facilities and factories in the right regions. Jeff Van Sinderen: And then... Neil Brinker: I mean one example of that is what we did in India, right? I mean that was in place. We talked about that a year ago, and we want -- the major driver to move and have facilities and capacity in India was because our customers ask for it. They specifically said, hey, we're going to be here in a couple of years, and we need your help and support. Are you guys willing to invest in that region? So that's a good example of the outcome of having these conversations years in advance so that we can have the facility up in time. Jeff Van Sinderen: Right. So in other words, you're not going someplace with a new facility where there might not be demand, you're really -- you're building to demand. Neil Brinker: Correct. For the -- yes, we're building to demand and the demand is high. There's great demand for our products. There's the technology and the solutions are premium in the marketplace, and we see it. And that's why we're deploying the amount of CapEx that we are. Jeff Van Sinderen: Okay. And then if I could just squeeze in one more. Just on the CDU part of your business, I guess, how do you see the liquid cooling business evolving? Maybe does that become a concentration business for you? How much of the business do you think liquid cooling could comprise, I don't know, a couple of years out? Neil Brinker: Yes, that's specific direct-to-chip liquid cooling. All of our products can apply in the liquid cooling space. You need our products for that. The air cooling solutions will apply in the liquid cooling space. If you get direct-to-chip, CDUs are certainly beneficial and helpful. I continue to see that market evolve. I think there's been some new technologies in that space. I think there's some interesting areas that we've helped our customers in terms of providing different ways of doing that. And you can see some of those announcements out there. So we'll have a product. There will be customers that need it, but not everybody in order to do liquid cooling. And it's just one more -- it's one more product in an ever-evolving suite of products that we have. And we'll always try to do it in a way to differentiate. So it's not a me-too product. So we'll do it a unique custom bespoke CDU for our customers tied to our firmware and software. So it does things that others can't do, and it's differentiated. But again, it's just one more product in a series of products that we have that continue to evolve. Operator: And we have a follow-up question from David Tarantino with KeyBanc Capital Markets. David Tarantino: Could you just give us some color on the range of outcomes you embedded within the ramp implied in the second half? Just kind of what's inside and outside of your control in terms of hitting both the sales and margin targets this year. Michael Lucareli: Yes. We really tried to take it, as we always do, David, down the middle. We've got, as Neil said, one of the challenges we're trying to balance is the demand has increased. Neil has said this before multiple times, but the more we can make, the more we can sell. So we've aligned to internal targets that we're stretching to get to from a manufacturing, and we've pulled those back and both with customers, so we don't disappoint them and with guidance where we've tried to kind of strike down the middle. On the other side, you always have risk that you have a hiccup with a line or some more inefficiencies. But I would say, as we look at it now, we try to go right down the middle. In addition, we talked a lot about the chiller ramps. The other areas where we're getting equal right opportunities for more [indiscernible] on the air side. And certainly, a lot of customers are interested on the modular side, even though those are early days. And those are things we've tried to balance -- keep to balance out the chiller launch risk as well. David Tarantino: And then maybe one more, if I may. Just on HVAC technology and the weakness there. Could you break out kind of the underlying trends between the core business and the recent deals and how we should expect this to progress through the balance of the year on both the top and margin lines? Neil Brinker: Yes. I think generally, the acquisitions are on target. They're doing what we would expect them to do. The indoor air quality business is performing well. It's in line with what we expect at market rate. And what we're entering now is what we call our heat season. This is -- the next couple of quarters for the heat business is going to be big for us. So that's the traditional Modine heaters as well as the L.B. White acquisition. This is the time of year where we start to see our customers and distributors really start to draw on our inventory levels. Michael Lucareli: Yes. And just a quick couple of numbers on that to help you out in, as we look at the total segment for CS in there with the acquisitions, we would assume HVAC Technologies would have growth -- total growth well over 40%, 45%. And organically, that would be mid- to high single-digit organic with the balance being from the acquisition. Operator: And that does conclude our question-and-answer session. I would now like to turn the conference back to Kathy Powers. Kathy Powers: Thank you, and thanks to everybody for joining us this morning. The replay will be available through our website in about 2 hours. Thanks. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Daniel Schneider: All right. Well, welcome to Photocure's Third Quarter 2025 Results. I'm Dan Schneider, President and CEO. And with me today is Erik Dahl, our CFO. A reminder that the usual disclaimers are in effect for today's presentation.  So I'd like to start with this slide, the strategic priorities and initiatives. It's our guide to how we execute and allocate resources across the company. At a high level, our strategy is centered around 3 key pillars: strengthening the core Hexvix/Cysview business, advancing blue light cystoscopy as a definitive standard of care in bladder cancer, and expanding our reach into the broader uro-oncology and precision diagnostics space.  The first pillar, accelerate and expand, is about delivering on our financial guidance for disciplined growth in revenue and EBITDA in our core business, and to continue generating operating leverage, which we continue to do so. It's also about driving the blue light cystoscopy mobile strategy, ForTec, in the U.S., and increasing penetration in EU, particularly in the priority growth markets, France, Italy, U.K. through blue light expansion and the image upgrades, most recently, Visera III, by Olympus. And thirdly, expanding our geographic footprint and leveraging our distribution partnerships across the globe.  In the second pillar, positioning and access, we're building on the foundations of BLC as a primary precision diagnostic, and you watch throughout today's presentation, I talk often about precision diagnostics in this space that's exploding as a tool to facilitate early and appropriate use of non-muscle invasive bladder cancer, the detection, the surveillance, and the therapeutic monitoring. Inclusive of life cycle management is demonstrated by our recent strategic collaboration to develop the world's first and only Blue Light AI system, which we'll discuss more later today.  We also want to support high-def Blue Light Cystoscopy technologies entering the market. Upgrades of the 3 big OEMs, so the big Wolf, Olympus, Karl Storz, support the efforts of other manufacturers who want to enter into the U.S. market via the reclass process that's still ongoing or other methods. And also the partnership with Richard Wolf on building an adoption in Europe for the flexible Blue Light Cystoscopy interim solution, while we continue to advance the development of the high-definition 4K state-of-the-art and world's only Blue Light flexible system for global use. These efforts will not only drive near-term growth, but will also solidify our long-term competitive positioning.  And finally, third pillar, acquire and transform. We are looking ahead and actively assessing opportunities within non-muscle invasive bladder cancer and the uro-oncology indications, which focus on rapidly growing interest in precision diagnostic indications, biomarkers, artificial intelligence, new technologies, digital pathologies, all about diversifying our portfolio and building on our commercial footprint and bladder cancer expertise.  The real-time examples would be Richard Wolf's collaboration on the blue light flexible high-def system and the ForTec mobile strategy employed in the U.S., both leveraging our existing commercial infrastructure in the broader uro-oncology segment. M&A is a focus this year in an effort to expand our footprint, grow faster, increase our ability to generate a strong cash flow into the future.  So I'm pleased with third quarter results, and the highlights are very evident. Overall, we had 12% product growth. That's 14% minus FX impacts. In North America, we delivered 14% unit growth and 12% product revenue growth. That would have been 19% without foreign exchange impacts, offsetting the continued Flex decline, which was measured at about minus 52% versus third quarter last year. I will remind everyone that Flex now has reached a level of below 5% of our total sales. There are several accounts that still use Flex sparingly, and we intend to keep them alive as long as we can to continue to generate data in anticipation of our future launch of the Richard Wolf collaboration.  The installed base of Saphira Blue Light equipment continued to increase with 7 tower placements and 7 upgrades in the U.S. In July, Karl Storz implemented a promotional program that does take time to take hold. So we expect this development and momentum to continue to build into Q4. We had a fantastic 20% unit growth in the rigid surgical market, inclusive of ForTec medical mobile solution. And actually excitingly, ForTec added 6 more rigid Saphira systems to their national fleet of rentals and began deploying them in September, underscoring the growing demand for Blue Light Cystoscopy in the U.S.  The number of active accounts increased by 23% year-over-year to 373 accounts, and this sets the stage for continued momentum into the future. In Europe, revenue was up 11% and units up 4%. We continue to execute in Europe with strong growth in the Nordics and DACH, driven by Olympus upgrades of the Visera III, and that continues to be a focus throughout Europe. Approximately 30% to 40% of the accounts in Europe use Olympus equipment and particularly strong, as we've talked in the past, in the Nordics, Germany, and France.  The launch early this year of the Olympus Visera III BLC-equipped system continues to gain momentum with 49 Visera installs in the field. The funnel is very strong. Our strongest country to date with conversions is actually Austria. So we're looking forward to the future of these continued upgrades and their impact because every upgrade has an impact of double-digit growth.  We generated positive EBITDA of NOK 10.2 million BD expenses of NOK 14.1 million. So when we look at our EBITDA, we look at an adjusted EBITDA, and that growth was to NOK 14.1 million positive. It's a 10th quarter in a row of positive EBITDA, continue building operational leverage throughout 2025, strong balance sheet of NOK 247.8 million in cash, and no term debt. And we completed the 500,000 share buyback program. On the news flow, on September 22, a new publication from the Italian Society of Urology, the first national recommendations on Blue Light Cystoscopy. Blue Light is recommended for the first TRBT, the second resection, and the recurrence of non-muscle invasive bladder cancer in populations of high risk, very strong recommendation in the Italian Society of Urology, and we expect that will start impacting the Italian market.  On September 16, a publication came out that was derived from the EU roundtable on bladder cancer. The recommendations published were based on an important meeting of experts in April of 2025 by the International Center for Parliamentary Studies, ICPS, that organized senior-level roundtable on bladder cancer with leading clinicians, industry experts, the EAU, and the World Bladder Cancer Patient Coalitions. The objective of the collaboration was to establish a set of recommendations for the EU and member state policymakers to enhance awareness, prevention, and optimizing early diagnosis and treatment of bladder cancer in Europe.  The resulting recommendations were published, and they basically stated about -- talked about equal access to advanced technologies, identifying tumors in bladder cancer that reduce the burden on patients and health care systems. Bladder cancer is one of the most costliest cancers to treat, and precision medicine and precision diagnostics are exactly the future, and that's exact positioning for Blue Light Cystoscopy.  On partner news, and we'll talk a little bit about this as well. I know many are questioning what's going on. Asieris announced that Cevira advanced to the second round of technical review, and anticipating an approval that would trigger an $11 million milestone. They are in active conversation with the NMPA, and there has been no pause in the process; they're moving forward. On October 15, we announced our strategic partnership with Intelligent Scopes Corporation, agreeing to develop the first and only blue light cystoscopy artificial intelligence, and more about that on my next slide.  So Intelligent Scopes Corporation, the U.S. subsidiary of Claritas HealthTech, is set up to develop an AI software for real-time tumor detection using Blue Light Cystoscopy.  The overview through this collaboration, Photocure and ISC are combining complementary strengths, Photocure's leadership in bladder cancer detection and ISC's deep AI expertise, to build an intelligent diagnostic platform designed to improve accuracy and consistency in tumor detection. The pilot program analyzed over 200 cystoscopy procedures with over 80,000 images. It demonstrated extremely strong early performance in detecting high-risk and early-stage lesions. It's a joint development work is underway, and the ENABLE clinical study is initiated in both U.S. and Europe. Following the development phase, we plan to pursue FDA and CE submissions, with Photocure holding exclusive perpetual global commercialization rights once the software receives its clearance. The rationale of the value creation we see in this -- the partnership is strategically important for several reasons. It strengthens our position as a reference company for next-generation cystoscopy, integrating artificial intelligence and Blue Light Cystoscopy. It leverages the synergy of AI and BLC to enhance the detection, accuracy, and completeness of tumor resection, which directly translates to better patient outcomes and stronger clinical adoption. It extends our technology moat around the data-driven precision care. Paving the way for future AI-enabled diagnostics in uro-oncology. Importantly, it adds a high-margin, scalable software component to our business model, creating durable value beyond our current consumable base. Moving to segment trends. So looking at North America and Europe, both delivered continued growth. In North America, the business has significantly overcome the continued decline of Flex surveillance market, which in the first half overall was minus 60%. It was minus 71% in Q1, minus 46% in Q2, while rigid surgical market delivered a 20% unit growth in Q3. In Europe, the Q3 units surpassed previous Q3 high watermarks as momentum continues to build throughout the region through upgrades. Europe is beginning to see the impact of the Visera 3 upgrades rollout, particularly in DACH, and I called out specifically Germany and Austria, France, and the Nordics with 49 through Q3, with more in the pipeline, particularly in the Nordics and the DACH region. Upgrades deliver positive double-digit impact. And a reminder on the impact of these upgrades, 40% of Europe is dominated by Olympus. So we see this as a significant development and opportunity for the European continent. Turning to North America and trends in North America. Sales still impacted by the downturn of Flex, but despite this, we see adjusted unit growth increasing 20% with the addition of the ForTec mobile solution. 14 new Saphira were installed at 7 upgrades, 7 new, adding to the active BLC account growth of roughly 23% year-over-year, and this bodes well for quarters ahead. The ForTec mobile solution now reaching 121 accounts as of the start of service. That's plus 19 from Q2, and over 185 different physicians have now had access to Blue Light Cystoscopy that otherwise would not have had access to it. This is up 19 accounts from Q2, demonstrating growing momentum and demand. And as I mentioned in the kickoff, ForTec has added 6 more Saphira systems to the fleet, bringing their total to 24. And it remains -- bringing access of Blue Light Cystoscopy in the U.S. remains a top priority as demonstrated by our efforts with the FDA in reclassification and reimbursement. Europe growth has also remained strong with solid growth in the DACH and Nordics, which make up a majority of the revenue, and the priority markets of France, U.K., and Italy seeing double-digit growth. As I mentioned, 49 so far, Visera III Olympus systems have been installed and has very strong healthy pipeline behind that as we move through Q4 and into 2026. The picture at the bottom is just a picture of the presence is our presence at DGU.'s the German Urology Conference held in Hamburg, Germany. Bladder cancer was one of the headline areas at ESMO 2025, which took place in Berlin just a couple of weeks ago, with significant momentum around earlier intervention. I'm excited to say that Blue Light Cystoscopy was frequently mentioned as the key to finding the right patients who can benefit from these precision medicines that are coming on the market, thus reinforcing the growing strategic and scientific interest in this space. Looking specifically U.S. and growth, significant growth in accounts of 23% of active accounts who have ordered at least once in the last 12 months. The ForTec accounts continue to be a significant portion of our business, reaching over 11% or 12% of our total, spiking up as high as 15%. We believe this is a strong business opportunity for Photocure, and we'll continue to support the ForTec initiative with the mobile solution. This slide is an illustrative representation. I think it's good to just sort of step back for a moment and look at where we're at and what we see as inflection points that can bring us significant growth potential. Despite the progress we are making, we are still in the early stages in the U.S. market and remains a single most important opportunity for Photocure and is significantly underpenetrated with less than 10% market share today. We have a long runway for growth as awareness, access, and equipment availability expands. Bladder cancer represents a major unmet need in the U.S. There are approximately 85,000 new cases every year and 0.75 million patients living with the disease. Across the U.S. and Europe, there are over 700,000 TRBT procedures and 1.6 million surveillance cystoscopies annually. The total addressable market for flexible cystoscopy exceeds USD 1.3 billion globally. And we believe Blue Light Cystoscopy, in particular, the one we're developing with Richard Wolf, is uniquely positioned to capture a meaningful portion of this opportunity. We expect several catalysts to help drive the next wave of growth in the U.S. market. First, improved CMS reimbursement, which we are pursuing through direct conversations with CMS and through legislative efforts in Washington, D.C. Both would further support adoption for BLC across academic and community settings. The return of the BLC Flex system to the market, with a proprietary development work with Richard Wolf, will enable broader access for outpatient and office-based procedures. In particular, in light of the many therapeutics are being used, the therapeutic monitoring aspects will be increasingly important. Entry of additional Blue Light OEM partners would expand the installed base and provide more choice to urologists in all types of institutions. And finally, the FDA reclassification of Blue Light Cystoscopy equipment, for which there is an ongoing citizens' petition. This could be a potential milestone that would significantly lower barriers and accelerate nationwide uptake. And overall, the momentum. The momentum in the macro environment as reinforced at ESMO, the expensive precision therapeutics are turning to precision diagnostics like Blue Light Cystoscopy as necessary to find the right patients who can benefit from their therapeutic. Taken together, these drivers support the long-term growth trajectory for the U.S. business that is both scalable and sustainable. The bottom line is we have a proven product with growing clinical endorsement and an enormous underpenetrated market, giving us a potential exponential upside as these catalysts materialize in the coming year. Our growth initiatives. Jud just really briefly hit on a couple of them. Two key updates. We now have 121 ForTec accounts actively using 185 different users, gaining experience to patients who would otherwise not have had access to Blue Light Cystoscopy. The Richard Wolf interim solution for Flex is on track. When I announced that a year ago, we said it's a 30-month development that is totally on track. And this would open up the market for a $1.3 billion total addressable market in the U.S. and EU5. Super excited about it. The final comment in the third box, as mentioned earlier, AUA, EAU, the trends are clearly blowing in favor of Blue Light Cystoscopy. The momentum and pressure continues to build behind the notion of accurate diagnosis and complete resections in line with the precision pathway for bladder cancer patient care. We believe Blue Light Cystoscopy can play a central part in determining that precision pathway, and that is being echoed at every conference we attend, currently. The precision pathway starts with a precision diagnostic like Blue Light Cystoscopy that leads to the right precision therapeutics that are bombarding the market. And most recently, there's been 5 most recent FDA approvals, 2 in the last several months. There are over 26 unique therapy-focused non-muscle invasive bladder cancer trials going on. Billions are pouring in, and they're looking for solutions in the diagnostic place, and we believe Blue Light Cystoscopy plays a central role going forward.  And 2 value-generating Asieris programs. The partnership continues to progress favorably. We have taken over $18 million in milestones across both programs, with the potential for significant cash in the future to help fuel our corporate ambitions. Here are the highlights of the 2 deals, which are very different.  On the Cevira out-license program to Asieris, the Cevira NDA remains under regulatory review for potential approval in China later this year into early next year. This will be one of the first Chinese-approved drugs before the rest of the world. In other words, they're getting the product approved in China first, and then they're going for the rest of the world. Typically, it's the other way around. What we can say is only what Assyis is publicly disclosed.  They are a public company in their annual report. They remain under review with the NMPA. If it approved, it would be the first product approved in China before rest of world. They've had meetings with the EU and U.S. regulators to determine a way forward in both these large markets. in U.S. and EU. And Asieris also disclosed interest in pursuing a secondary indication, which brings additional milestones to Photocure upon approval.  On the Hexvix commercial partnerships, we're still awaiting the approval of the Richard Wolf Blue Light system that could come at the end of this year or early 2026, with a 2026 commercial launch of Hexvix in China. And with that, I'd like to turn it over to Erik to review the financials.  Erik Dahl: Thank you, Dan. So I will give an overview of the third quarter financials, including the consolidated income statement. We're looking at the segment report for our 2 main segments. And finally, we'll be looking at the headlines for the cash flow as well as the balance sheet.  A couple of words about foreign exchange first, year-over-year and measured by unweighted monthly averages, the Norwegian kroner in Q3 appreciated 5.7% against dollars and depreciated 0.3% against the euro. If you measure this in kroner, the year-over-year FX impact for Q3 revenue was negative approximately NOK 3.4 million, and for OpEx, positive approximately NOK 2.9 million. And the consolidated impact of foreign exchange on EBITDA was negative approximately NOK 0.5 million.  Final remark, as always, all financials in the presentations are in Norwegian kroner unless other currency is specified. Now I go looking at the consolidated income statement. Hexvix/Cysview revenues in the third quarter increased year-over-year 12% to NOK 134 million, which follows the trend from the record second quarter.  The revenue increase was mainly driven by a combination of volume increase of 6% and higher average pricing in both regions. Partially offsetting this was the expected decline in the flexible kit sales in the U.S. and the impact of foreign exchange. Total revenues in the third quarter increased 12% to NOK 135 million. No milestone payments have been received in the third quarter for either year. Year-to-date, total revenue increased 3%, impacted by milestone payments received from Asieris in Q2 last year related to the development of Cevira.  Q3 total operating expenses, excluding depreciation and amortization, but including business development, were NOK 112.8 million compared to NOK 107.3 million Q3 last year. The increase is mainly driven by business development expenses, merit, and inflation. Foreign exchange had a positive impact on operating expenses of approximately NOK 2.9 million.  Operating expenses, excluding business development expenses, were NOK 109 million compared to NOK 106 million in Q3 last year, an increase of 3%, reflecting merit and inflation. As previous quarters, personnel expenses were relatively stable year-over-year, except for the merit increase. However, project-driven expenses, particularly within business development, may vary significant year-over-year as well as sequentially between quarters.  Business development expenses in Q3 were NOK 3.9 million compared to NOK 1.2 million in Q3 last year. The expenses relates mainly to advisory services, market research activities, and legal fees related to partnership contract support.  EBITDA in Q3, including business development expenses, was NOK 10.2 million compared to last year of NOK 5 million. The company did not receive milestones in Q3 this year and last year.  EBITDA, excluding business development expenses, was for Q3 NOK 14.1 million compared to Q3 last year of NOK 6.3 million, an improvement of NOK 7.8 million from Q3 last year, reflecting improved operating leverage for our core business.  Depreciation and amortization was NOK 7.3 million in Q3. Main cost item was [indiscernible] of the intangible assets related to the return of the European business from Ipsen. Net financial items in Q3 were a cost of NOK 3.3 million compared to a net cost of NOK 2.8 million Q3 last year. And net financial costs were driven by foreign exchange losses as well as accrued interest costs included for the deferred earn-out liability due to Ipsen, offset by gains on foreign exchange and incurred interest income.  Net profit after tax was NOK 4 million for the third quarter, compared to a loss of NOK 3.5 million in Q3 last year. Now let's look at the segment performance. Next slide, please.  In segment reporting, we will focus on the 2 main segments, North America and Europe, and I'm starting with North America segment, which includes U.S. and Canada. Revenue for North America increased 12% in Q3 to NOK 54.8 million. The increase was driven by volume growth of 14% and higher average pricing. However, the growth was partially offset by $3.4 million unfavorable impact from foreign exchange. The volume growth was driven by increased volume for the rigid market, including ForTec Mobile. This was partly offset by the impact of the phase-down of system usage in the Flex segment. However, the impact from the Flex decline gets less and less over time. Q3 direct cost, NOK 42.1 million, below Q3 last year. Cost containment and revenue growth has resulted in significant improvements in financial results for the North America region. The contribution has more than doubled to NOK 9.9 million and have secured an EBITDA close to breakeven for the quarter.  Also, our European business had a positive development in the third quarter with year-over-year revenue growth of 11%, mainly driven by DACH and Nordic. We also experienced strong growth in priority growth markets such as U.K. and Italy. Q3 direct costs decreased 9% year-over-year, driven by headcount adjustment. We ended Q3 with a contribution of NOK 38.2 million, which is 48% of revenue, and EBITDA was NOK 19.7 million, driving an EBITDA margin of 25%.  Now let's look at the cash flow and balance sheet. Next slide, please.  So I'm looking at cash flow first. And as usual, I'm focusing on year-to-date cash flow and ending balance. Year-to-date cash flow from operations was positive NOK 26.4 million compared to positive NOK 61.1 million last year year-to-date. The difference is mainly due to the milestone of NOK 21.6 million received from Asieris Q2 last year, as well as the development in working capital driven by increased product revenue year-over-year.  Cash flow from investments was NOK 7.2 million year-to-date and includes interest received and paid and investments in intangible and tangible assets, including partnerships with ISG and Richard Wolf. Cash flow from financing year-to-date was negative NOK 65.3 million compared to negative NOK 32.8 million year-to-date last year. And the amount is driven by the Ipsen earn-out payment for both years, as well as the share buyback programs current year. In total, we paid NOK 29.6 million for the 500,000 shares we acquired this year. Year-to-date, the net cash flow was negative NOK 46.1 million compared to positive NOK 31.5 million year-to-date last year. The 2 main drivers for the decline are, first of all, the Asieris milestone last year, but also the share buyback program this year. Excluding the share buyback program, we had year-to-date a positive net cash flow of NOK 16.5 million, of which NOK 8.7 million in the third quarter. So I believe we're reaching -- we have reached a turning point, being cash flow positive. We see it now. Looking at the balance sheet, we ended the quarter with total assets of NOK 696 million. Noncurrent assets were NOK 322 million at the end of Q3, and this included customer relationship with NOK 83 million. Customer relationship is the intangible asset identified with the purchase price allocation for the Ipsen transaction. Noncurrent assets also include goodwill from the Ipsen transaction of NOK 144 million, a tax asset of NOK 53.7 million, and intangible and fixed assets totaling NOK 41 million. Inventory and receivables were NOK 122 million at the end of Q3 compared to NOK 131.8 million at the end of Q2 this year. Long-term liabilities of NOK 122 million include the earn-out liability related to the Ipsen transaction, totaling NOK 104 million at the end of the quarter. And finally, equity at the end of the quarter was NOK 486 million, which is 70% of total assets. And this concludes the financial section. Thank you. Dan, it's back to you. Daniel Schneider: All right. Well, thank you, Erik. Thank you very much. So as you can tell by Erik and I's tone, we're very excited about not only the quarter, but where Photocure is and how we're positioned going forward. We had 12% global product revenue year-over-year, and we continue to execute on the key initiatives. We had positive EBITDA of NOK 10.2 million, and I think adjusted EBITDA of over NOK 14 million, and that's 10 quarters in a row of positive EBITDA. And as Erik said, it's starting to translate down into the cash flow with positive cash flow. Ex-BD and milestones, it's NOK 14.1 million, but we continue to invest in key growth initiatives that we believe will make a difference. One, positioning ourselves for long-term success; two, generate future revenue growth opportunities; and three, increasing our operating leverage. In the flex and surveillance market, it's now and in the future. Richard Wolf and Photocure's joint development is on track, and we expect another 15 or so more months of development with market readiness in 2027. In the interim, we are beginning reintroducing the interim Flex by Richard Wolf. The first cases took place in the U.K. in July. They've gone quite well. The idea of this is to keep the interest and generate the data in anticipation of our launch of the high-def 4K system. In North America, the account growth was substantial with installs, upgrades, and mobile. Product revenue grew at 12%, unit sales, plus 14%. We grew our active accounts by over 23%. We had 24% growth in Q2, 17% growth in Q1, 11% in Q4. So you can see the momentum continuing to build behind it. And as I mentioned earlier, our greatest opportunity is the underpenetrated U.S. market with less than 10% share. There is such an opportunity there, and there are a lot of really good initiatives and inflection points we anticipate as we move through 2026. We continue to work with Karl Storz to grow the installed base of Blue Light scopes in the U.S. And it's a key initiative for Karl Storz as well. They have approximately 130 to 150 standard definition machines in the U.S. still deployed, and they're looking to upgrade them. And with all our upgrades, regardless of who the OEM is, they bring usually double-digit on average, double-digit growth in those accounts once they convert to the high-def systems. The ForTec national mobile rollout continues to gain traction. They added 6 more towers. Those will start having their impact in Q4 going forward. They'll continue to add more over time as demand grows, but we're really excited to now have a fleet of 24 deployed nationally in the U.S. And there's over 120 accounts and nearly 200 users now utilizing Blue Light Cystoscopy, who otherwise would not have had access to it. In Europe, the revenue grew 11% with 4% unit growth, DACH and the Nordics, and the priority growth markets kicking in. We continue to facilitate the quality image upgrades with our nearly 600 target accounts. And we believe that the Olympus Blue Light upgrade will help strengthen this initiative. There's been 49 upgrades since January. And Germany, France, and Nordics are now kicking in with strong pipelines and aligned interests with Olympus. Strong cash balance at NOK 247.8 million. And as Erik mentioned, we've added cash to the balance sheet. We continue to advance several business development initiatives in next-generation precision diagnostics, inclusive of our partnership with Intelligent Scope Corporation, or Claritas as known as a subsidiary, to develop AI software for real-time support during Blue Light Cystoscopy procedures. And let's look forward to anticipated milestones and corporate objectives. So we've narrowed the guidance, 8% to 10% from the original 7% to 11% guidance. We expect year-over-year EBITDA improvement and increased operating leverage to flow through. We also see increased Cysview and Hexvix account utilization through upgrades and installs, and the increase in development of the mobile solution in the U.S. We're going to advance the development of the next-gen state-of-the-art 4K high-def Flex systems to access and unlock the potential within the 1.2 million surveillance procedures done in the U.S. and EU5. We continue also to expedite the strategic partnership with ICS, Claritas, to develop BLC artificial intelligence, which is what we believe will be a game changer in bladder cancer precision diagnostic care. We continue to generate data and have presentations, in particular, with health economics and positioning Blue I Cystoscopy as the go-to precision diagnostic in bladder care. We want to increase BLC in the U.S. vis-à -vis the C' petition or other alternate pathways to U.S. approvals. So we're supporting the capital equipment guys coming into the U.S. and of course, supporting Asieris' progress across both Hexvix and Cevira with potential to receive significant milestones in the future. And with that, I think we can go to Q&A. Thank you. Erik Dahl: Thank you, Dan. There are usually a number of questions regarding Cevira. So we will take them into one. So could you put some more flavor about the Cevira approval process? Daniel Schneider: I mean it's a typical process in China. There's nothing unusual that's taken place to date. We cannot say any more than Asieris has said publicly. And I know many of the listeners are monitoring the Asieris public airways and the NMPA. We do the same. We get our information the same way. So at this point, they still remain very positive. And I mean very optimistic on an approval. I think they're just working through like we do in the U.S. or any other country, working through the conversation with the authorities to get themselves to where they can get their approval. So more to come. Erik Dahl: 2 new scope manufacturers looking to enter the U.S. market file their FDA submissions yet? If not, when do you expect this to happen? Daniel Schneider: They have not. Of course, no one can file anything in the U.S. right now because our government is shut down. So they're not accepting. There's always something, right? So as soon as the government reopens, I think both manufacturers will probably be in early 2026 is my anticipation, if not sooner.  Erik Dahl: The updated revenue growth guidance indicates a slower growth rate in Q4 compared to Q3. Could you elaborate on the drivers?  Daniel Schneider: I think the way to approach is to have a look at the last year, the 2024 fourth quarter revenue, which was the record year up to that time. And I want to be careful in terms of prognosis or estimating a revenue, which is above or significantly above what we had before. So it's core.  Erik Dahl: What was the growth impact of shipments to the wholesale market in Europe? And was there any stocking of kits from ForTec?  Daniel Schneider: I think we're talking about somewhere -- top of my head, somewhere between 150,000 and 200,000. Yes. And I can add ForTec. So Forteq does not buy the kits for the accounts by the kits. The way the process goes is that ForTec engages the account with us. We work through the formulary approval needed to get our products shipped in. We set up the account. ForTec sets up the procedural day, and then we ship the product directly to the account, and then the procedure goes off. So the account is the one. Generally, they don't stock a bunch of inventory. It's usually just in time or near time for the procedure.  Erik Dahl: How are Olympus new placements in Europe tracking with the targets for the year?  Daniel Schneider: Very good. Actually, extremely good. Like I said, we have 49 Visera already upgraded. They have a very healthy pipeline, double that size. I don't know that we'll get the other half of that pushed through this year, but we still see a significant upgrade coming through Q4. And if you think about it, and this is just more high-level, of the 600 or 700 accounts, if 30% or 40% of those are Olympus accounts, that's roughly 200, 240 accounts, and we've got 50 of them already upgraded, and maybe another 40 to 50 coming in the near term.  That's a healthy upgrade. And as I mentioned, every upgrade on average brings a double-digit growth to that account. So we're really excited about the development here. And again, it's all about positioning as well because the folks at Olympus have white light, they have MDI, and they have blue light. And all 3 are important in the diagnosis of a patient. So we're getting a really nice positioning of blue light, particularly for high-risk patients.  Erik Dahl: What is your view on the timeline of a potential down class?  Daniel Schneider: I don't know. And the government shutdown. Honestly, we created optionality. And I think that's the thing everyone should focus on. The system petition and going through governments, everyone is part of the government that's on this call. I think we all have sort of a general opinion that it's often difficult and bureaucratic. That hasn't stopped us. We put a tremendous amount of pressure. It's been all of Photocure's work, getting the KOLs, the capital equipment manufacturers, patients, therapeutic companies, all the right into that system petition, urging the FDA for this reclass.  The FDA closed the system petitions public portal last December, I believe it, somewhere around then. So we know it's under consideration, but it's about initiating it and picking it up. In the meantime, I think more importantly, what we should focus on is the ultimate goal. And the ultimate goal is to get multiple capital manufacturers into the U.S. market. And as I mentioned in the question earlier, there are a couple of manufacturers, and we're working with all of them to find a pathway into the U.S. market because it is a tremendous opportunity. And we believe having more manufacturers in this marketplace, especially with hospitals that have preferred vendor relationships, will open this market up drastically.  Erik Dahl: There are several questions about ForTec, so we will cluster them into one. What does ForTec say about the utilization of the towers currently?  Daniel Schneider: They excited. This has exceeded their expectations. The way they look at it -- you've got to remember, their towers are moving from one location to the next every day of the week. So, what they try to do and they encourage it financially as well in terms of case costs is they try to stack cases at hospitals. So if you're a hospital and you want to try Blue Light Cystoscopy, they encourage the physician, we support it as well, to not just do one case because you basically bring a tower in for just one case.  They want to stack several cases. But that's always patient-dependent. And not every patient comes in on a Tuesday and has a Blue Light procedure. But they do the best they can. They want to continue to consolidate procedures into 1 day and get the most out of every tower. But their #1 objective is to treat every patient who wants Blue Light Cystoscopy and every physician who wants to use it.  Erik Dahl: The wind-down of revenue from Flex is almost complete. Growth in the Regis segment is strong in the U.S. Do you expect this strong growth rate from Regis in the U.S. to continue beyond 2025?  Daniel Schneider: I do. And I think the way to look at this is at one time, Flex was nearly 20% of our business. This is less than 2 years ago, 20% of our business, and we've turned it around, gobbled all that up, and now we're growing at 20% in the regional market. It's quite astounding. And I don't see any reason for it to slow down. I think the mobile solution has really added some jet fuel to our efforts. I think Karl Storz has a renewed focus in this area. I think the overall macro environment with these expensive therapeutics coming out has also added to the interest in Blue Light Cystoscopy.  So I don't see any slowdown here. It might fluctuate around those growth rates. Maybe it's high teens, maybe it's 20%, but I don't see a slowdown to this, and I see more and more opportunity in the U.S., especially as more OEMs come into the marketplace in hopefully 2026 sometime.  Erik Dahl: Long-term gross margin level do you currently expect?  Daniel Schneider: I expect to see better than what we see in the P&L right now because we've had some adjustments this year. So I expect the gross margin to go down to approximately the level that we've seen before.  Erik Dahl: And we have a couple of questions regarding AI. So, can you elaborate on the preliminary study in the BLC study?  Daniel Schneider: Yes. I think the way to look is if you layer AI onto white light, you get one level of artificial intelligence support. And it's really a decision as a physician support system. But what ICS/[indiscernible] is super excited about is when you look at Cysview and Hexvix, it is instilled into the bladder. It is a metabolic biological effect. What it does is it produces texture patterns and color changes that aren't visible and aren't accessible under white light. And that leads them to believe that this could go much further, typically identification.  In addition, you got white light. And if there's an AI white light, it's only going to learn from what white light sees. And we all know, everybody on this call knows that white light misses 30%, 40% of the tumors, especially CIS, flat lesions, right?  Blue light is going to see more than white light AI. And AI blue light, we believe, could lead to better segmentation, stratification, and decision-making by physicians. We think it's a game-changer. And that's the way ICS is seeing it, and they're super excited about this. When I say super excited, like they really couldn't wait to partner on this project. So we're really excited about this.  Erik Dahl: We have one more question here. Could you give us a quick recap of your tax position carry-forward loss in the U.S., both on and off balance sheet?  Daniel Schneider: I guess you're talking about the tariffs.  Erik Dahl: Your tax position.  Daniel Schneider: Loss carryforward. Yes. Well, obviously, there has been interest among the auditors about our tax loss carryforward, and in terms of the debt that the U.S. has. We're evaluating what's going to happen with that right now, but it's too early to say what the consequence will be.  Erik Dahl: Thank you so much. That concludes the questions we have received online. So, back to you, Dan.  Daniel Schneider: All right. Well, great. Well, thank you all for joining. I'm super happy with where the organization is. I think we've had a lot of challenges in the past years, but the agility and resilience have come through, a strong balance sheet, and a strong company poised to really make a difference in bladder care. When this macro environment is really emerging, we've got an opportunity to be a major player. And I think mostly, if you look at the U.S., the opportunity is immense, and we have some inflections coming in as we turn the corner into 2026. So thank you for joining us. I think we'll see you on February 18 for Q4. Until then, have a great week and great holidays.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the FIBRA Prologis 3Q 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Alexandra Violante, Head of Investor Relations. Please go ahead. Alexandra Violante: Thank you, Kate, and good morning, everyone. Welcome to our Third Quarter 2025 Earnings Conference Call. Before we begin our prepared remarks, please note that all information disclosed during this call is proprietary and all rights are reserved. This material is provided for informational purposes only is not a solicitation of an offer to buy or sell any securities. Forward-looking statements made during this call are based on information available as of today. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this call, we may refer to certain non-accounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events or otherwise, except as required by law. As is our practice, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at fibraprologis.com and download this material. On today's call, we will hear from Hector Ibarzábal, our CEO, who will discuss our strategy and market conditions; and from Jorge Girault, our CFO, who will review results and guidance. Also joining us today is Federico Cantú, our Head of Operations. With that, it is my pleasure to hand the call over to Hector. Hector Ibarzabal: Thank you, Alexandra, and good morning, everyone. Today, I'd like to begin by addressing the geopolitical environment in which we are operating. Trade uncertainty has improved slightly as Europe and Japan have formalized new trade agreements with the U.S., while negotiations between China and the U.S. remain intermittent. On the other side, the U.S. has hardened its stance towards Mexico and Canada, implementing additional sector-specific tariffs outside of the USMCA framework. In this environment, most manufacturing customers remain cautious about expansions and new projects. We've observed some improvement in manufacturing leasing activity in certain markets and also signs of customers reconfiguring their supply chains to strengthen their presence in the U.S., seeking political goodwill. Overall, the outlook is constructive, though we continue to monitor developments closely. If a definitive resolution on tariffs doesn't emerge in the next 2 or 3 quarters, we believe uncertainty will become the new normal and customers will begin to move forward incorporating that uncertainty into their business risk assessments. Turning to our consumption-driven markets, Guadalajara and Mexico City continue to perform exceptionally well, fueled by both e-commerce growth and the modernization of supply chains by major retailers. These dynamic markets represent about 50% of our operating portfolio. We continue to see a robust pipeline of customers seeking large modern spaces to optimize operations, particularly in Mexico City, which accounts for nearly 40% of our activity. E-commerce continues to expand its market share with leading players making significant investments in new facilities. Thanks to this strong diversification, FIBRA Prologis delivered outstanding financial and operational results this quarter. Jorge will provide more details shortly. Talking about market dynamics, new leasing activity totaled 10 million square feet, up sharply from 5 million last quarter and roughly in line with the 2024 average of 11 million. We saw a rebound in manufacturing markets and a notable uptick in Mexico City. Net absorption reached 7.8 million square feet, impacted by move-outs in Tijuana, but still consistent with the average of the past 4 quarters. New supply declined 33% versus last quarter's to 10 million square feet, but this level was sufficient to increase vacancy by 40 basis points to 5.3%. Construction starts totaled 14 million square feet, reversing the downward trend of the previous 2 quarters and nearing a historical record. Market trends were relatively stable this quarter with consumption markets seeing low single-digit growth, while manufacturing markets were flat to a slightly down. Property values were also stable with marginal cap rate expansion in select submarkets, mainly Tijuana. While headwinds remain on the trade front, customers appear to be gradually making investment decisions in advance of the upcoming USMCA renegotiation. The path ahead may be bumpy, but we expect a constructive outcome. We continue to closely monitor customer sentiment and policy developments to ensure we maximize long-term value for all stakeholders. Turning to the Terrafina acquisition. On October 14, we launched the third tender offer for the remaining 10% at MXN 42.5 per certificate. We are optimistic about the results and expect to provide an update by mid-November when the tender offer closes. By reaching 95% ownership, our intention remains to delist Terrafina. At the same time, we are making solid progress elevating Terrafina's operating standards, bringing contracts to market rents, which has surpassed expectations and moving forward our disposition and asset recycling goals. We remain fully committed to our shareholders and to always placing their interest first. With that, I'll hand it over to Jorge. Jorge Girault: Thank you, Hector, and good morning, everyone. We're pleased to share that our third quarter results were strong and on track. We continue to see clear benefits from the Terrafina acquisition, especially in bringing rents to market and strengthening our balance sheet. Now let's go to our financials. FFO was $0.056 per CBFI, up 28% from last year, reaching $90 million in nominal terms. AFFO totaled $78 million, up 50% year-over-year. Operationally, it was also a strong quarter. We leased a record 4.1 million square feet above expectations, reaching $9.2 million for the year, which represents 70% of the total 2025 expirations. Period end and average occupancy remains high at 98%. Tenant retention stood at 82%. Net effective rent change was 47%, consistent with our portfolio mark-to-market levels. Same-store NOI, both cash and GAAP, grew around 15%, showing the combined effect of rent increases and the neutral impact of peso movement. Let me spend a minute on the balance sheet. We've successfully refinanced short-term debt in both FIBRA Prologis and Terrafina. We are now developing a comprehensive debt financing strategy to enhance our access to the broader debt capital markets. While this process will take time, it will ultimately strengthen our balance sheet, making it more flexible, value-driven and better positioned to support future opportunities. Regarding impact and sustainability, ESG. Our MSCI rating improved from BB to BBB and Standard & Poor's Corporate Sustainability score also rose from 55 to 60, reinforcing our commitment to transparency and continuous improvement. I want to spend some time on Terrafina tender offer. As Hector mentioned, we launched a third tender offer for about 10% of Terrafina remaining certificates at MXN 42.50 per CBFI. We encourage investors to take part of this tender to avoid holding any illiquid privately held vehicle in the future. In compliance with tender offer process, we want to be addressing questions related to the Terrafina on this call. Please refer to the public information and feel free to reach out to the Acting [indiscernible] or Citibank's teams if you have questions about the process. Let me move to our 2025 taxable distribution. We expect taxable income boosted by peso appreciation and projected inflation to exceed our 2025 distribution guidance. If by year-end, FX stays at these levels, total taxable income to be distributed will be about twice our cash guidance. Therefore, we will be combining CBFIs and cash in line with local FIBRA tax rules to comply with additional requirements. This approach will protect our balance sheet by avoiding new debt through pro rata certificate issuance. We will be making a portion of this additional distribution before year-end and the remainder once final FX and inflation figures are confirmed. Going to guidance. Due to our internal process, we are adjusting our disposition guidance to be between $0 and $50 million. We are also revising our acquisition guidance to be between $50 million and $100 million. And we're revising our CapEx as a percentage of NOI to be between 9% and 12%, given timing and our -- and new budgeting on maintenance CapEx. All other guidance remains unchanged. You can find the details on Page 8 of our supplemental financial information. We believe that the key driver for continued operational excellence will be energy accessibility and customer service, which remain core to our DNA. Before we wrap up, I want to recognize our teams on the ground for their outstanding execution this quarter. We remain laser-focused on our long-term strategy and ready to adapt when needed, always guided by discipline and agility. With that, let me turn it to Q&A. Thank you. Operator: [Operator Instructions] Your first question comes from the line of Rodolfo Ramos with Bradesco BBI. Rodolfo Ramos: My question is, it's a bit on your guidance. I mean, when you look at fundamentals, they continue to seem quite solid. We've seen the light at the end of the tunnel, stable occupancy. We're seeing still very high rent rollovers. So can you give us a little bit of more detail on your lower outlook for asset acquisitions and dispositions? I mean, is this is a more of a timing issue that we're close to the year-end and things haven't closed through or sellers, buyers are just a little bit more reluctant to transact in this current environment. So any detail on that and perhaps how you see it going into 2026 would be helpful? Hector Ibarzabal: Thank you for your question, Rodolfo. Indeed, as I mentioned in my opening remarks, we have been very active on our asset recycling strategy. And as of today, I am very pleased with the results that we are receiving so far. As you mentioned, what is happening and the main reason behind this review on guidance has to do with timing. We found that the potential buyers that are active for the first portfolio are players that are active in the market as of today. So we needed to design a clean room in order to be able to share information according to compliance. This on top of having a new antitrust commission is making us feel more comfortable to move for the first quarter of next year, the disposition of the first portfolio. Regarding acquisitions, that's something that we monitor permanently, and we feel that we are not obliged necessarily to do them. It's not that there is no opportunities, but it's important to do the right opportunities, and we will never be forced to do acquisitions just because we guide on them. That doesn't mean that we will be showing on 2026 important opportunities, but we are not seeing them happening on 2025. Operator: Your next question comes from the line of Gordon Lee with BTG. Gordon Lee: I have a quick question on TERRA''s not related to the tender. But you mentioned that Hector in your remarks that you have continued to progress on improving TERRA's operating standards and bringing them up closer to Prologis' own standards, both operationally and financially. And I was wondering if you sort of had to benchmark to 100, right, 100 is as much as you can improve. Where are you in that process? And is the remaining portion at all impacted by having 2 listed entities? Is it easier if you're able to only have one vehicle? Hector Ibarzabal: Thank you, Gordon. I think that all the standards that Prologis has with its portfolio are already 95% implemented into the Terrafina assets. We have now fully dedicated teams. And I think that we have importantly enhanced the service that is provided to customers. We as well have been invested a fair amount of money on bringing the operational standards of the building to what Prologis uses as a market practice. Having said this, we have been able to importantly increase the rent on the renewals, above 40%, I would say, in the rollover that we have been experiencing. It's going to take at least 3 more years to bring 100% of the Terrafina portfolio up to market standards. But I think what I would like to highlight is that we are showing execution in these buildings that we are already operating, I would say, it's going to be 1 year that we have been having full control among them. Regarding the listing of Terrafina, I think that -- and as I mentioned in my opening remarks, by mid-November, once that the third tender process is completed, we will be able, hopefully, to provide positive news about it. And Jorge mentioned in his opening remarks, our objective is still to get the listing Terrafina hopefully early next year. Operator: Your next question comes from the line of Piero Trotta with Citibank. Piero Trotta: I have a question on CapEx. I would like to know if you could tell us if there is a relevant difference in CapEx requirements between Terrafina's portfolio and Prologis. I ask that because Terrafina's portfolio is on average older than Prologis assets. So it would be great if you could tell us on that. Federico Cantú: Piero, thank you for your question. This is Federico. So we've been -- as we guided, we're spending a little bit less as a percentage of NOI and CapEx, driven by careful analysis and rationalization in our CapEx investments, and we feel comfortable with these levels. We are assessing, of course, we constantly assess all our buildings and Terrafina perhaps need a little bit more CapEx investment, but we're bringing them up, as Hector mentioned, in line to our standards, and we feel comfortable with those levels. I would like to highlight that we maintain laser focus in providing the highest standards of quality in all our buildings. Hector Ibarzabal: We anticipated that the Terrafina assets had some lag on CapEx, and that was part of the underwriting when we were targeting Terrafina acquisitions. So nothing of what has been happening has been a surprise to us. Operator: Your next question comes from the line of [ Elena Ruiz with Actinver. ] Unknown Analyst: My first question is on -- you mentioned in your press release at the end of quarter, FIBRA Prologis and Prologis U.S. had 2.9 million square feet under development or pre-stabilization. Could you give us like a regional breakdown of how that GLA is distributed? And the second one is, could you give a little more color on the almost 15% same-store NOI growth, which percent of it came from the appreciation of the Mexican peso and which percent came from rent increases? Hector Ibarzabal: Thank you, [ Elena, ] for your question. Following market conditions, Prologis as a [ FIBRA ] sponsor and the one responsible of doing 100% of our development has an important backlog in all of the markets in which we participate. As of today, we decided until further visibility about the new reconfiguration of the trade agreements is reached that development needs to be more cautious. This is not the case in Mexico City. In Mexico City is the market in which we are more active because we are trying to fulfill the needs of the major players that are expanding importantly in the most important consumption market, which is Mexico City as a big apple of Mexico. So we are active. We are entertaining as well some build-to-suit opportunities. And I can say that once the definitions are reached or once that we have a better visibility of how the market is going to be recuperating, we have the ability to restart development in a few weeks. Jorge Girault: [ Elena, ] this is Jorge. You made a question on the 15% cash and GAAP NOI. The main drivers for the rent change -- sorry, the NOI increase have to do with rent change on rollovers and annual bumps. That's about 2/3 of the increase. The other 1/3 has to do with a pickup in occupancy versus the same period. FX, to your question, was muted. We are about the same levels than this time last year. So FX did not have an impact this time or it was very small. Thank you, [ Elena ]. Operator: Your next question comes from the line of Francisco Chávez with BBVA. Francisco Chávez Martínez: We have seen some volatility in the EBITDA margin from the high 70s in the first half of the year to the low 70s in 3Q. Where do you see EBITDA margin stabilizing? Jorge Girault: Francisco, this is Jorge. The short answer to your question is it's going to be around 77%. And yes, we have seen volatility given the acquisition of Terrafina and everything that has to be done. But in the long term, you should be -- you should see 77% and that's around the number if you take the 9 months for the year. That's about the EBITDA margin for the 9 months. So there you are. Thank you. Operator: Your next question comes from the line of Jorel Guilloty with Goldman Sachs. Wilfredo Jorel Guilloty: I had a question on the leasing spreads, the cash leasing spread. So it's been going up for a bit and hit about almost 40% in 2Q '25, but we saw that it was 26% now in 2Q '25. And we also noticed that the amount of leases that were commenced it is a materially bigger number that we've seen in the past few quarters. So I just want to get a sense about this decline in the sense of is this -- do you see this as a one-off that's just pertaining to these leases that are being signed? And how should we think about these cash leasing spreads going forward? Do you think we go back to the 40s we've been seeing? Or is it between 25% and 40%. So I wanted to get any color you can get on that one. Jorge Girault: Jorel, thank you for your question. This is Jorge. I'll try to simplify your question and give you a straight answer. Leasing spreads depend on 2 things. One is whenever we lease -- we have -- the rent is signed vis-a-vis when it's going to expire. And the other part is where the market is, obviously. So if we lease something 4 years ago, which expires today, the leasing spread on that specific rent is going to be somewhere in the 50%, 60%. But if it's a 1-year lease, meaning that we leased it a year ago and today, maybe it's a 10% or 5% leasing spread. So I mean it depends on the bucket of leases that are expiring per quarter and their venue, you may. Also, it depends on -- remember that we do it on a net effective rent basis. So we put everything into the blender, not only the cash rent, but also the concessions that are given or the increases if they're fixed annual increases if they're fixed into the formula. So it has a lot of bits and pieces, if you may. But I would say that the main one is when these leases are done or originally signed vis-a-vis today. So hopefully, this gives you a little bit more color. Operator: Your next question comes from the line of David Soto with Scotiabank. David Soto Soto: Congrats on the results. I just have one question. Could you please provide some detail if you have seen potential consolidation of 3PLs in Mexico City? Or would you consider that this could be a trend in Mexico City? And as well, have you seen any move-outs due to consolidation of 3PLs in other regions? Hector Ibarzabal: Thank you for your question, David. The 3PLs had worked in Mexico City is cyclical. You see top executives leaving some of the important franchises and then they start their own business. They pay a lot of attention to the customer, they grow the business and then they are bought by someone else. What is happening nowadays is not different from what has been happening in the past. The 3PL that we have seen very active on buying some competitors is DSV. DSV is one of the most important customers that we have in Mexico. And we have very good communication with our customers. So sometimes we get to know this even before they do the transaction because they need to do some planning about consolidation, about leaving some of the spaces. And the fact that we have the largest portfolio help them to achieve their objectives. So this will keep on happening is nothing new what we're seeing today. Operator: Your next question comes from the line of Felipe Barragan with JPMorgan. Felipe Barragan Sanchez: So I have a question on sort of what you guys have been seeing this month of October. There have been some companies seeing some activity pick up this month. So I just wanted to do a channel check with you guys. That's it. Hector Ibarzabal: Could you repeat your question? We had some trouble getting to the main point. Felipe Barragan Sanchez: Yes, of course. So we've had some peers that have been commenting that throughout October, there's been an uptick in activity. So I just wanted to check with you guys if you guys have also seen an uptick in activity throughout October after the quarter end? Federico Cantú: Yes, Felipe, thank you. This is Federico. Yes, we have seen over the last few weeks, somewhat of an uptick in activity. Our pipeline is healthy across all our markets, including the border markets, of course. And I just wanted to mention, as companies navigate this uncertainty, which has prevailed over the last few months, some companies have had to decide on current conditions and their best guess as to what's going to happen going forward. As we all know, we're getting closer to the renegotiation of USMCA. I think there is a somewhat of a prevailing mindset that we're going to have a good outcome in the negotiation, hopefully. And so that is, I think, factoring into some decisions. Let's not forget that markets continue to demand from our customers. So they're having to make decisions. So we feel very good about both renewal and new leasing going forward and we're encouraged to see this recent activity. Operator: Your next question comes from the line of Alan Macias with Bank of America. Alan Macias: Just if you can provide an update on Prologis' development pipeline, the GLA of the development and in what markets and the leasing ramp-up that you have been seeing there? Hector Ibarzabal: Thank you, Alan. I would say that 95% of our activity is devoted in the Mexico City market on the development front. Particularly in Toluca, we have found interesting opportunities that are just in line with what the main players of e-commerce are requesting. We do see the expansion plans that they have, and we are positive that this activity will remain on 2026 and on. Operator: Your next question comes from the line of [indiscernible]. Unknown Analyst: I also have a quick question regarding land reserves, specifically with Terrafina. Do you consider part of disposal assets? Or do you consider looking at part of the development pipeline that you might... Hector Ibarzabal: Thank you for your question [indiscernible]. I think the land that Terrafina has in its [indiscernible], which is not significant compared to the backlog that Prologis has, is following exactly the same result that the assets. The land that is in our markets is being kept for future opportunities and the land that is outside of our markets is in the process of disposition. Operator: [Operator Instructions] I will now turn the call back to Hector Ibarzábal, CEO, for closing remarks. Hector Ibarzabal: I want to thank you all for your time devoted this morning to FIBRA Prologis. We know well how valuable your time and attention is. I feel very comfortable on our progress looking to year-end, and I am very excited about the opportunities that I see in front of us. According to our practice, we will be reachable to all of you any time. Talk to you soon. Operator: Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you, and have a great day.
Matt Glover: Good afternoon, and welcome to Aware's Third Quarter 2025 Conference Call. Joining us today are the company's CEO and President, Ajay Amlani; CFO, David Traverse; and CRO, Brian Krause. [Operator Instructions] Before we begin today's call, I'd like to remind everyone that the presentation today contains forward-looking statements that are based on the current expectations of Aware's management and involve inherent risks and uncertainties that could cause actual results to differ materially from those described. Listeners should please note the of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in forward-looking statements that management will be making today. Aware wish to caution you that there are factors that could cause actual results to differ materially from those results indicated by such statements. These risks and uncertainties are also outlined in the company's SEC filings, including its annual report Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements should be considered in light of these factors. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, Aware undertakes no commitment to update or revise the forward-looking statements whether as result of new information, future events or otherwise, except as required by applicable securities laws. Additionally, this call contains certain non-GAAP financial measures as the term is defined by the SEC and Regulation G. Non-GAAP financial measures should be considered in isolation from or a substitute for financial information presented in compliance with GAAP. Accordingly, Aware has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company's earnings release issued today. I would like to remind everyone that this presentation recorded available for replay via link available in the Investor Relations section of the company's website. Now I'd like to turn the call over to Aware's CEO and President, Ajay Amlani. Ajay? Ajay Amlani: Thank you, Matt, and good afternoon, everyone. Q3 reflects disciplined execution and continued progress in a Aware's transformation strategy. This quarter, we delivered 33% year-over-year revenue growth while improving our bottom line. We recognize there's still important work ahead to build consistency and scale, and we expect near-term quarterly results may vary based on timing of customer decisions and license mix. These results reinforce our 3-pronged transformation, which centers on first: advancing core biometric technology with a focus on Liveness and the Awareness Platform; second, strengthening our science forward customer-obsessed go-to-market model; and third, deepening strategic relationships and partnerships and certifications that build trust and scale. Before diving into Q3 highlights, let me set some market context. As I shared at the Gateway Conference in September, customer perceptions around biometrics have fundamentally shifted, everyday use of face ID and biometric travel checkpoints has made biometrics both familiar and expected. In the age of AI, it's not only getting harder to prove identity. Individuals must also prove they're human in real-time against increasingly sophisticated stooping attempts. This elevates Liveness Detection from a nice-to-have into a critical control for fraud prevention and trust. Against this backdrop, our strategy is to meet customers where risk is rising most, delivering adaptive liveness, interoperable matching and a platform architecture that allows enterprises and agencies interoperable orchestration without vendor lock-in. Aware isn't just selling technology, we're delivering solutions that help customers maintain uptime while solving their most pressing trust and safety challenges. Aware is a U.S.-based company with 3 decades of biometric innovation and a blue-chip customer base across government and enterprise. That foundation of trust matters as buyers raise the bar on security, privacy and interoperability. And as governments increasingly emphasize domestic providers for critical identity infrastructure. On the government side, we see tailwinds from broader funding for biometric modernization within DHS agencies coupled with a strong Buy American orientation, having helped launch some of the earliest biometric programs at DHS, I've seen firsthand how federal adoption sets global standards and Aware is uniquely positioned to lead as a U.S.-based science-led provider. On the commercial side, enterprises are moving to anchor digital identity on a biometric backbone with strong privacy controls, replacing fragile combinations of passwords and device trust with biometric proof of presence and proof of person. Our platform is designed for choice, speed to value and standards alignment, a differentiator that customers and partners increasing value. Our Awareness platform integrates matching engines, adaptive liveness and anti-spoofing and interoperability layers to deliver flexibility at scale. Earlier this year, our Passive Liveness achieved best-in-class performance in the Department of Homeland Security remote identity validation benchmark, providing clear third-party validation that we're solving real-world identity fraud with less friction. In October, our face verification stack, combining advanced liveness with facial matching, earned FIDO Alliance Certification. This is 1 of the most rigorous global benchmarks in biometric security. It not only validates our approach but also reduces compliance friction in enterprise procurements and accelerates integrations with major partners and identity ecosystems. It also complements our road map to build additional certifications that customers expect. Over the past several quarters, we've upgraded leadership across revenue, marketing and product, aligning the organization to scale with discipline. We are focused on prioritizing large durable opportunities in federal and the enterprise market that can translate into multiyear recurring revenue and product leverage. With this team in place, we are executing across 2 core markets. First, government, building a direct presence with agencies, aligning to Buy American requirements and modernization initiatives across the Department of Homeland Security, the Department of War and many other related programs in departments where liveness and interoperability are central. Growing demand for mobile identity and modernization of legacy systems plays directly to our ABIS and mobile capture strengths. Second, commercial enterprises, companies are adopting biometric-anchored journeys for both workforce and customer use cases, emphasizing privacy, standards and interoperability all well aligned with our Awareness Platform and AwareSDK. Our strategy is translating into both top line momentum and better operating discipline. I'll now hand it over to David to review our third quarter financial performance in more detail. Over to you, David. David Traverse: Thank you, Ajay. I'll now walk through our third quarter financial results. Revenue in the third quarter was $5.1 million, an increase of 33% year-over-year. The increase was primarily driven by a $1 million perpetual license expansion sale with an existing customer and a $600,000 new term license contract, partially offset by typical fluctuations in perpetual license and lower services and other revenue. Operating expenses for the quarter were $6.4 million compared to $5.4 million in the prior year quarter. The increase reflects targeted investments in sales, marketing and product development as we execute our go-to-market strategy. Looking ahead, we do expect an increase in our operating expenses in the fourth quarter, reflecting the full quarter impact of the investments made during the third quarter to support our growth strategy. Net loss for the quarter was $1.1 million or $0.05 per diluted share, an improvement compared to a net loss of $1.2 million or $0.06 per diluted share in the prior year quarter. Adjusted EBITDA loss was $800,000, an improvement compared to a loss of $1.1 million in the prior year quarter. Turning to our results for the first 9 months of 2025. Revenue was $12.6 million, similar to last year. Net loss was $4.4 million or $0.21 per diluted share compared to a net loss of $3.2 million or $0.15 per diluted share in the same period last year. Adjusted EBITDA loss year-to-date was $3.8 million compared to an adjusted EBITDA loss of $3 million in the prior year period. We ended the quarter with $22.5 million in cash, cash equivalents and marketable securities and no debt. The change primarily reflects the operating loss for the period as well as normal fluctuations in working capital, including the timing of accounts receivable collections. Our balance sheet provides us with flexibility to continue investing in growth while maintaining a disciplined approach to expenses. Our Q3 results reflect progress towards sustainable growth. We are executing with discipline, scaling revenue and positioning the company for operating leverage as our top line continues to expand. With that, I'll hand it over to Brian to provide more color on our product, customers and go-to-market progress. Brian Krause: Thank you, David. Building on the strong financial results, I'd like to provide more details on the customer and go-to-market side. We continue to see diverse demand for biometric solutions across both government and enterprise sectors. Organizations are under pressure to not only authenticate identities but also to ensure that users are live and present without adding friction. That combination, security plus usability is where Aware has the opportunity to win. We are also seeing growing demand in the local government sector with focus on modernizing biometric systems for civil and criminal investigations. In the third quarter, we expanded our work with a major U.S. federal agency by adding our Intelligent Liveness to a previously successful program. This builds on days of trust Aware has established in government and underscores our ability to bring new technology into mission-critical programs. Overall, federal demand continues to grow as a result of the new priorities at the federal level that have created both new and expansion opportunities for biometric solutions within these programs. However, the federal shutdown has slowed these actual appropriations which means that some of these programs will likely see delays until that is resolved. On the commercial side, we secured new enterprise contracts and financial services and workforce management sectors where customers are looking to reduce fraud and streamline onboarding. These deployments highlight the flexibility of our platform to integrate into existing identity ecosystems, support multiple modalities and deliver high-performance biometric capabilities. These contracts also represent solid progress in our land-and-expand approach. Over the past 6 months, we've continued to make progress in strengthening our pipeline and partner ecosystem as well. Our direct federal team is engaged across multiple U.S. and international government programs, and our partner strategy is helping us scale without an overinvestment in a direct sales force. These investments in expanding and establishing relationships with system integrators and technology partners not only validates our tech but also extends our reach into larger enterprise and government track vehicles are key buying criteria. We continue to see strong customer retention and growth opportunities and expect this to continue for the rest of this year. Looking forward, our go-to-market priorities are clear. Within the U.S. federal government deepen our direct engagement across all agencies, while aligning with the Buy American requirements. On the commercial side, expand in fraud-prone verticals in areas where biometric adoption is growing such as financial services and travel. On the partner side, broaden our ecosystem of system integrators, identity platforms and device partners to accelerate adoption and scale across the globe, aligned tightly with our customers. Most importantly, continue to deliver great products as they grow their use of biometrics to protect and automate their businesses. Our customers and partners consistently tell us that Aware stands out for combining science-driven innovation with enterprise-grade delivery. That's a differentiator that is working effectively and one we intend to continue building on. With that, I hand it back to Ajay for closing remarks and the outlook before Q&A. Ajay? Ajay Amlani: Thanks, Brian. As you've heard today, Aware is executing on a clear strategy, delivering trusted biometric solutions that combine adaptive liveness, best-in-class interoperability and enterprise-grade performance. These capabilities are not just differentiators. They are becoming requirements in a world where fraud is accelerating and digital identity is central to every interaction. Looking forward, we are focused on prioritizing large durable opportunities in federal and enterprise that can translate into multiyear recurring revenue and product leverage. That means driving deeper adoption within DHS and other federal agencies, sometimes directly and sometimes through value partners as biometric modernization accelerates. Expanding in enterprise verticals, where identity, fraud and compliance costs are highest, financial services, travel, workforce management. And finally, continuing to build the certifications, integrations and partnerships that reduce adoption friction and extend our reach. We believe this strategy positions Aware to deliver not just growth but sustainable value creation. As we scale, you should expect to see increasing operating leverage, stronger recurring revenue contributions and a disciplined balance between innovation and profitability. I'm proud of the progress our team is making and the validation we're seeing from customers, partners and industry benchmarks. With 3 decades of biometric leadership, a strong foundation of trust and a clear strategy, we believe Aware is positioned to lead in this next era of digital identity. That concludes our prepared remarks. We'll now open the call for questions. Matt, please provide the instructions. David Traverse: Good afternoon, everybody. Before we move to Q&A, I just want to note that Ajay is traveling back from the Money20/20 Conference. His return flight was delayed and there may be some airport noise in the background as we answer questions. Matt Glover: Thanks, David. [Operator Instructions] Our first question is for David. Q3 revenue grew 33% year-over-year, but was flat year-to-date. Can you elaborate on the drivers of that variance and how investors should think about the sustainability of that top line growth in 2026? David Traverse: Yes. Thanks, Matt. So we're striving to build a more sustainable revenue model, but we still have a meaningful license component business that the timing can create some variability. The strong year-over-year growth in Q3 shows that demand is there, but the flat year-to-date trend reflects the timing dynamic. With the management changes that we made this year, we really are sharpening our focus on driving more recurring and predictable revenue. So over time, you can expect smoother results and a more consistent growth. Matt Glover: Thanks David, another 1 for you. You mentioned that quarterly results may fluctuate based on the timing of customer decisions and license mix. Can you give more color to the pipeline conversion patterns? How much visibility you have in the near-term deals and recurring revenue contribution? David Traverse: Yes. Thanks again, Matt. It's kind of similar to the other question. With the new management team, we really put a stronger emphasis on building a disciplined go-to-market engine and improving how we are able to forecast and manage the pipeline. What we're really seeing is healthy engagement and good visibility into opportunities, though the timing of customer decisions can still affect the quarterly results. As our process matures and the team gains traction, we do expect to be able to see more consistency and better conversion across the pipeline over time. Matt Glover: Thanks, David. Next question is for Ajay. Ajay you called out the federal budget delays and shutdown impacts on appropriations. How significant has that been the near-term bookings? And are those revenues expected to shift into FY '26? Ajay Amlani: Yes. The government shutdown has impacted businesses across the board. And most -- I feel most sorry for obviously, the people that are furloughed. Those individuals are going through a very difficult time now trying to sustain their livelihoods and pay the rent, pay for their families daily expenses. For us, there is an impact to near-term bookings. However, most of the conversations are still occurring. And we would expect to see all of that money still flow and a higher urgency to be able to deploy that budget coming through in the near term. So we anticipate significant volume of deal flow and conversations once the shutdown is over. The total amount of budget allocated is still going to remain the same and the urgency to deploy the capital, to improve the systems, the antiquated systems of the federal government on the identity system is still going to have a very high sense of urgency. Matt Glover: Great. Thanks, Ajay. Another 1 for you. As enterprises move towards biometric anchored digital identity, who do you view as your primary competitors in the space? What differentiates Aware's Awareness platform technically and commercially? Ajay Amlani: Sure. From a competitive set, on the Awareness platform in particular, I'll [ think ] of the platform first. This is very much a buy versus build competitive set. So with regards to existing large enterprises looking to try to deploy biometrics at scale, our largest competition is actually internal development and a desire to be able to add and own your own platform and continue to increase and modernize its capabilities. What we see is significant overlap between all of these different companies that are looking to try to build these types of platforms and that they would turn to a model where economies of scale will help them to save money and increase capacity and capability much faster through an outside vendor such as Aware. With regards to the individual components and the products that we actually serve and develop internally, there are other competitors in the market that develop different styles of biometric capabilities with different strengths. Those partners are -- those companies are, in fact, partners for us in the Awareness platform. while we still have an element of competition when it comes to proving who's best at which component of the technology overall. What's most important for us is that customers get the best [indiscernible] in the market to serve their individual needs and their use cases so that they have [ plausible ] experiences for their consumers, for their customers and secure experiences. And that could be different in a physical environment, as you can imagine, in an airport environment, in a border environments, those styles of biometrics and types of biometric technologies that you would deploy in those environments will be very different than the style of technology that you would deploy over people's mobile devices to be able to onboard into a financial services product remotely, which will be very different than the style of product that you want to use on a desktop computer, allowing a workforce application to protect, let's say, new hires or password resets to secure your enterprise against the largest vulnerability today in cybersecurity attacks, which is password compromises. So the different components of biometric technology. We go into it at Aware knowing we can't be the best at everything. So we select the specific components that we believe we'd like to be the best in, that are the most important and also that we have the capability of being the best in. And we look to partner with others who we feel in certain use cases are the best technology for our customer base. Matt Glover: Thanks, Ajay. Another 1 for you. How do you prioritize new certifications like ISO or FedRAMP in your road map? And are there any gating factors for certain federal or enterprise contracts? Ajay Amlani: ISO FedRAMP and other certifications, such as the FIDO Certification that we most recently announced are incredibly important certifications for customers to pay attention to, to require in their RFP processes when they're looking for vendors, to request vendors to adhere to and to continue to push the envelope with the certification organizations to protect their enterprises against the most modern threats that are in the market. And there are quite modern threats in the market. Cybersecurity attackers continue to get better. They continue to collaborate using commercial tools and a worldwide attack vector. Nation state actors are continuously trying to penetrate the most critical assets of our country. And as a nation and as a globe, we need to come together to have a unified set of standards to hold vendors accountable to continue to be able to communicate the importance of protecting them against things like liveness or generative AI deepfake attacks that basically can impersonate other people online through video calls, through voice calls with very minimal sophisticated tools. You can imagine with sophisticated tools in the hands of attackers, what they can do is quite dangerous. So pushing the envelope and staying ahead of the attackers with certifications that can push the vendors beyond what they have today to better protect our customer systems is what we actually here at Aware advocate for daily. We're talking to all the different testing organizations globally. We're pushing them to address better standards to understand how to protect against digital injection attacks and other extremely important vectors of attack that need to be secured, but doing so in a standardized fashion so customers know that if a vendor comes to you saying that they're the best in the market at something, they have proof to back it up. So we will continue to invest in these different standards. We'll continue to advocate to customers and to the actual certification organizations to push the envelope to become better because we at Aware, view ourselves as a premium provider of biometric systems, the best in the market with the best depth of technology and expertise to protect against these next generative -- next-generation generative AI attacks where the only way to determine if somebody is a human and the right human in a digital environment is through the utilization of biometrics. Matt Glover: Thanks, Ajay. Our next question is for David. David, operating expenses rose due to investments in sales, marketing and products. How should we go about expense levels and operating leverage in FY '26 as revenue scales? David Traverse: Yes. Thanks, Matt. So yes, so operating expenses as expected and as we kind of mentioned last quarter, did increase as we invested in the sales and marketing and go-to-market and product positioning for the company growth. And we will continue to invest there when we see a clear line of driving top line revenue expansion. When the opportunity is there, we'll lean in and invest and accelerate growth so -- while also keeping a disciplined focus on efficiency. Matt Glover: Ajay, can you share any color on the national ID contract? Ajay Amlani: Sorry. But at this point in time, we're not in a position to be able to share any color on the national ID contract other than what was already shared. We are still in a position where we want to be able to pursue global business through partners in such a way that we can make sure that we can cover the globe and the needs of all countries with our identity needs, but focus our resources specifically towards direct conversations that we have here in the Americas. So we're spending the majority of our resources here on the Americas, North America in particular, given our domestic focus, given our large base of U.S. citizen biometric scientists and given the desires and the demands here in the market, along with the larger scale here in the market. But we believe that national ID program not to be ignored, but rather addressed. So we're constantly looking for the best partners in the market. And I would encourage any partners globally looking to work with countries to advance their national ID programs to better secure the needs of their citizens and residents to be able to increase their access the federal government benefit systems, whether it's United States or globally to reach out to our partnership team here at Aware and be able to encourage them to choose best-in-class technology with a partner they can trust that will have their backs in the global fight against nation state actors that are doing bad things. Matt Glover: Thanks, Ajay. We received another question for you. Has Aware considered enabling interactions with smaller platforms? Ajay Amlani: That's a great question. I would love to have a little bit more color and a little bit more follow-up with [ them ] after to specifically address which smaller platforms that they're requesting and talking about. But as we've went through the years, smaller platforms can grow very quickly in this economy. And we've seen if you have the right team, the right investor base and the right customer relationships and the right product, pretty expansive scale. So while most companies are only choosing to be able to work with the largest partners in the market, the ones that have raised the $200 million to $400 million to deploy identity systems and identity verification capabilities, we are also paying attention to the smaller vendors in the market and the smaller partners in the market. But we are prioritizing the ones that we believe have the most opportunity for scale based on the management team, based on the customer contacts, based on the products that they have and the capabilities for scale because we can't serve and be everything to everyone. So a prioritization process and the vetting process ahead of time is extremely important for us so that we can align resources effectively and better serve our partners and enable them for the kind of growth that they deserve. Matt Glover: Thank you, Ajay, David. At this time, this concludes our question-and-answer session. If your question wasn't answered, please e-mail Aware's IR team at awre@gateway-grp.com. Before we conclude, I'd like to remind everyone that a replay of today's call will be available via link in the Investor Relations section of Aware's website. Thank you for joining us for Aware's Third Quarter 2025 Conference Call. You may now disconnect.
Operator: Hello, and welcome to The Vita Coco Company's Third Quarter 2025 Earnings Conference Call. My name is Daniel, I'll be coordinating your call today. Following prepared remarks, we will open the call to your questions with instructions to be given at that time. I'll now hand the call over to John Mills with ICR. John Mills: Thank you, and welcome to The Vita Coco Company's Third Quarter 2025 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's third quarter earnings release issued earlier today. This information is available on the Investor Relations section of The Vita Coco Company's website at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial performance results. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it is my pleasure to now turn the call over to Mike Kirban, our Co-Founder and Executive Chairman. Michael Kirban: Thanks, John. Good morning, everyone. Thank you for joining us today to discuss our third quarter financial results and our expectations for the balance of 2025. I want to start by thanking all of our colleagues across the globe for our continued strong performance, particularly in a very fluid environment and for their commitment to The Vita Coco Company and advancing our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. Although I'm incredibly pleased with our third quarter performance, I'm even more excited by the underlying momentum in our category and our very high execution levels, which bodes well for our future. Coconut water remains one of the fastest-growing categories in the beverage aisle, growing 22% year-to-date in the U.S. and 32% in the U.K. based on Circana data and over 100% in Germany based on Nielsen data. This, coupled with our significantly improved inventory position versus last year, has resulted in very strong retail growth for our brand. Year-to-date, according to our retail data, Vita Coco Coconut Water, excluding our coconut milk-based products like Treats is growing 21% in retail dollars in the U.S., 32% in the U.K. and over 200% in Germany. This has led to similarly strong global net sales, gross profit, net income and adjusted EBITDA performance for our third quarter. Year-to-date, our international business is accelerating, driven by strong performance in Europe. Our increased investment this year in the U.K., Germany and other select European markets is paying off with healthy growth and brand share wins. The acceleration of the category that we saw in late 2024 has continued through 2025, which, combined with improved inventory and strong execution is producing exceptional year-to-date results. Looking forward, we expect to maintain strong growth trends as we invest in and develop the coconut water category in our priority markets and our asset-light model and strong cash generation position us well to take advantage of the opportunities ahead. Big picture, I believe that the coconut water category is in the very early stages of gaining mainstream appeal on a global level. Coconut water looks to be transitioning from niche to mainstream, and we are at the forefront of that trend. If we can continue the household penetration and consumption gains that we are seeing, I'm confident that coconut water will one day be as large as some of the major beverage categories across the beverage aisle. And now I'll turn the call over to our Chief Executive Officer, Martin Roper. Martin Roper: Thanks, Mike, and good morning, everyone. I'm pleased to report Vita Coco's continued strong performance in the third quarter. Net sales in the quarter were up 37%, driven by growth of Vita Coco Coconut Water of 42%, benefiting from strong growth in the coconut water category and improvements in our available inventory and service levels. Our branded scan results in the United States were very strong, even with a slight drag in our scans created by the changes in the Walmart set late last year, which we estimated was a mid-single-digit drag to our total U.S. branded scans in the third quarter. We are benefiting from strong volume growth and the impact of the 2 price increases taken in the U.S. this year, the first in mid-May to cover our normal inflationary cost of goods increase and the second in mid-July to cover the dollar impact of the 10% baseline tariffs announced in April. The cumulative effect of these price increases on shelf in the U.S. is best viewed on a 2-year basis, which is showing as approximately 7% in the last quarter according to Circana. To date, we think the price elasticity impacts from these increases are within expectations. but we need more time to understand the impact of the July increase and to see competitor moves before thinking about any further price increases to cover the additional tariffs announced in August. Since November last year, we have been in the juice set at Walmart with significantly reduced assortment. We currently expect this juice set to be reset in mid-November. We've been told that our current total points of distribution will grow significantly compared to the current sets and also above levels we had before the move to the juice aisle. We are optimistic that we don't have complete visibility to understand the competitive dynamics of the new set and the actual shelf space allocated for our SKUs beyond the expected distribution gains. The private label business remains strategically important to us with greater uncertainty on costs, particularly due to the announced tariffs and some intermittent service issues from some of our competitors as the category accelerates, there have been more inquiries than normal about our private label services. In addition to the new U.S. private label relationship announced last quarter, we now expect to regain in early 2026, some private label service regions with key retailers that we had previously lost. We view this as a positive signal on our quality, service and pricing and reinforces our belief in the competitive advantage of our supply chain. Other than increasing tariffs and slightly softer ocean freight, our cost of goods has been pretty stable since we last spoke to you. We believe ocean freight rates during the quarter were still elevated relative to historical levels, but we saw rates soften through the quarter and since quarter end. We are operating primarily on spot rates with some fixed price arrangements on certain lanes to secure capacity, which allow any lower rates to benefit our P&L probably early next year, depending on the timing of inventory flows. Corey will cover our outlook for the balance of the year. For 2026, the most difficult element to predict is the applicable U.S. tariffs we'll be operating under. During the quarter, there were signals that the administration is willing to offer exemptions for products related to natural resources not available at scale domestically to meet U.S. demand, which gives us more optimism that coconut water could potentially receive waivers. If we do not receive any waivers and tariffs are uphold, we will continue our mitigation efforts. And ultimately, if significant tariffs remain and other offsets like ocean freight are not sufficient, we will evaluate the potential to take more pricing next year to further mitigate the impact of tariffs. We have a global diversified supply chain, which positions us well to deal with the dynamic U.S. tariff situation. The majority of our supply comes from the Philippines and Brazil, with the remainder principally coming from Thailand, Vietnam, Malaysia and Sri Lanka. Our current weighted average tariff rate on coconut water shipping to the U.S. from source country at the end of the quarter is estimated at a blended rate of approximately 23%, which is before any significant moves to mitigate the 50% tariffs on coconut water from Brazil. We are currently seeing tariffs into the U.S. applied to approximately 60% of our global cost of goods and believe that this is a good approximation for the cost of goods that U.S. tariffs are applied to. We are developing and executing plans to avert some of our Brazil production to Canada and Europe and to cover U.S. demand more completely from Asia, which could help further mitigate our average tariff rate. We have started preparations for this diversion but may choose for service and responsiveness reasons to source some production from the U.S. from Brazil on an ongoing basis. As the applicable tariff rates change in the future, we will adapt our plans. To summarize, our category is very healthy. Our brand is performing well, and our supply chain is supporting very strong growth and together with potential future pricing, we believe that we'll be able to mitigate the potential tariff impact long-term and to remain very competitive in our markets. We are confident in our team's ability to execute and deliver our plans for the balance of 2025 and 2026, and our confidence in the category and Vita Coco brand trends remains very high. Longer-term, we believe that we will benefit when ocean freight rates return to historical levels and that when all of our tariff mitigation efforts are in place, this should allow us to achieve or beat our long-term financial targets. With that, I will turn the call over to Corey Baker, our Chief Financial Officer. Corey Baker: Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the third quarter 2025 financial results and our outlook for the full year. Net sales were very strong for the third quarter, increasing $49 million or 37% year-over-year to $182 million. Vita Coco Coconut Water grew 42% and private label grew 6%. Our quarterly results benefited from the continued strong category growth, the restoration of a key club retailer promotion in the U.S. as well as the depressed third quarter reported last year when we were significantly inventory challenged. Please note that the key retailer promotion that ran in late Q3 and early Q4 this year has created unusually healthy scan trends in the U.S., and I would suggest that you look at a 2-year growth rate for an appropriate reading on the underlying momentum. On a segment basis, within the Americas, Vita Coco Coconut Water increased net sales 41% to $132 million and private label decreased 13% to $14 million. Vita Coco Coconut Water saw a 30% volume increase and a price/mix benefit of 8%. The branded price/mix benefit was driven by the cumulative effect of our 2 price increases in 2025. Our other product category grew 182%, primarily reflecting the national launch of Vita Coco Treats. Our international segment continued to deliver exceptionally strong results in the third quarter with net sales up 48% and Vita Coco Coconut Water growing 47%, driven by strong growth across our major markets. Private label sales increased 70% due to strong sales of private label coconut water within our current customer base. For the quarter, consolidated gross profit was $69 million, an increase of $17 million versus the prior year. On a percentage basis, gross margins finished at 38% for the quarter. This was down approximately 110 basis points from the 39% reported in the third quarter of 2024. This decrease in gross margin resulted from higher year-on-year finished goods product costs and the baseline 10% import tariffs announced in April, plus a very minor impact from the August tariffs that collectively created a $6 million tariff impact in the quarter. This was partially offset by our combined pricing actions and lower year-on-year ocean freight expense as well as the recovery of a reserve for private label packaging. Moving on to operating expenses. SG&A costs increased $10 million to $41 million within the quarter, driven primarily by higher people-related costs and increased marketing expenses. Net income attributable to shareholders for the quarter was $24 million or $0.40 per diluted share compared to $19 million or $0.32 per diluted share for the prior year. Net income benefited from higher gross profit and a lower year-on-year tax rate, partially offset by higher SG&A spending and the lower gain on derivatives than in the prior year. Our effective tax rate for the third quarter of 2025 was 22% versus 25% last year, which is primarily driven by the discrete tax benefits and a favorable geographic mix of pretax profits. Third quarter 2025 adjusted EBITDA was $32 million or 18% of net sales compared to $23 million or 17% of net sales in 2024. The increase in adjusted EBITDA was primarily due to higher net sales and gross profit, partially offset by higher SG&A expenses. Turning to our balance sheet and cash flow. As of September 30, 2025, our balance sheet remained very strong with total cash on hand of $204 million and no debt under our revolving credit facility. We have generated $39 million of cash year-to-date, driven by our strong net income, partially offset by increases in working capital, primarily due to increased accounts receivable. Our updated guidance reflects our current best assumptions on marketplace trends and timing of our shipments as well as the continuation of the U.S. tariff levels announced in August. Based on our current trends, we are raising our full year net sales guidance to between $580 million and $595 million. We expect full year gross margins of approximately 36% with higher finished good costs, including tariffs relative to last year being partially offset by our increased pricing and slightly lower logistics costs. The impact of U.S. tariffs announced in April and August has increased through the year. For the full year, we expect to see an increase in our cost of goods of between $14 million and $16 million versus the prior year. We expect our average tariff rate on imported U.S. goods to peak at the previously mentioned rate of 23%, and this should start hitting our P&L late in the fourth quarter, depending on actual sales and inventory usage. Our sales expectation is based on a tougher Q4 net sales comparable to last year when we benefited from distributor and retail inventory rebuild. We expect full year SG&A expenses to increase high single digit versus 2024. This, combined with our expected higher net sales is resulting in a higher adjusted EBITDA guidance of $90 million to $95 million. Our full year SG&A increase is due to increased people investments, including increased incentive and stock compensation and higher year-on-year sales and marketing expenses and other focused investments to support the delivery of our growth objectives as we aim to maintain a strong branded growth momentum into 2026. We look forward to providing additional updates and formal 2026 guidance on our next earnings call. And with that, I'd like to turn the call back to Martin for his closing remarks. Martin Roper: Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of The Vita Coco Company, our ability to build a better beverage platform and the strength of our Vita Coco brand and the coconut water category. We are confident in our ability to navigate the current environment and are excited about our key initiatives to drive growth. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth, both domestically and internationally. Thank you for joining us today, and thank you for your interest in The Vita Coco Company. That concludes our third quarter 2025 prepared remarks, and we will now take your questions. Operator: [Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs, your line is open. Bonnie Herzog: I had a couple of questions on your guidance. First, you raised your top-line growth guidance, but it does imply a sharp decline of about 15% in Q4 at the midpoint. So I understand you've got a tough comp in the prior year to lap, but I guess I wanted to better understand this expectation. Was there a pull forward of shipments from Q4 into Q3, for instance? Is there anything, I guess, in particular, expected in Q4 as it relates to private label? And then on EBITDA, your new guidance implies a big ramp in growth in Q4. So could you give us some more colour on the drivers of that expected acceleration? Michael Kirban: So from a top-line perspective, as we've talked about, we've been focused on the full year. And the quarters, especially around Q3, Q4 are quite hard to tell. We would ask you to take a look at the 2-year stack, which in the underlying base business is still very, very strong. Half 2 and quarter-on-quarter is showing double-digit growth on a 2-year CAGR in the underlying business. And we do have the current trends of the private label business, which as we talked about in Q2, I believe Q2 was down in the mid-30s. We would expect that trend to continue. Martin referenced new private label business starting in 2026. At this point, we don't expect any impact from that, but we may get some -- as you know, the timing of private label is quite challenging, so at the midpoint, we feel there's still a strong underlying growth trends embedded in there, offset with the private label. And then from an EBITDA perspective, we've embedded the tariffs at the 23%. We currently see inbounding to the country. Those will gradually increase through the quarter, peaking at that 23% roughly at the end of the quarter. And then it's the current level of pricing. Bonnie Herzog: Okay. And just want to verify, there's nothing that we should think about as it relates to inventory levels in terms of Q3 versus Q4? Nothing to call out there? Michael Kirban: Yes, it's quite hard for us. We don't have complete visibility to inventory, which is why we stay focused on the full year. Q3 had the large retailer promotion. So the timing of that may have been a little heavier in Q3. And as we've talked about, we expect improved distribution at Walmart, how that shifts to distributors and exactly when that inventory will pull is hard to call as well. So I would stay focused on the 2-year second half trends, maybe and you'll see a very strong growth. I would just add that I think we think distributor inventories at the end of the quarter were healthy and sort of ready to support the Walmart set process. And obviously, how those adjust through the end of the year, as you know, can produce a little bit of noise at the end of the year, but we currently think inventory levels are appropriate based on the activity we see in Q4. Bonnie Herzog: Okay. Super helpful. And if I may just squeeze in a quick question on private label because it certainly has been a focus, and you touched on this, hoping for maybe just a little bit more color on what you touched on the recent private label customer wins. How do we think about these wins, meaning offsetting some of the prior losses, if at all? And then as you think about your private label business, how do you believe it's advantaged maybe versus peers? And how do we think about your approach to private label next year and beyond? Is this something you're going to aggressively pursue? Michael Kirban: Yes. I think as we've said all along, Bonnie, we view the private label business as one that's complementary to our brand on a number of factors, both on the supply chain side and the retailer relationship side. And so we intend to continue to seek private label business or regain private label business and be competitive in it. As it relates to how we think about our competitive position, we believe that we are uniquely placed to provide large private label programs with diversified supply of private label across multiple countries, multiple factories. And we also believe that some of our sourcing leads to a cost advantage and a service advantage and a quality advantage. Now that doesn't always play out in how those bids are awarded. And so it hasn't all been wins, but we certainly believe that we are strategically well positioned to compete going forward. As it relates to your question, we're obviously not providing any sort of '26 guidance here. What I would say is that we recovered some of the regions that we lost, but not all of them. So we still have some headwinds next year, which may or may not be offset by some of the wins on the new customer front. But it's sort of, you know, to us, we lost regions early in the year, and we're regaining some of them. To us, that shows that our sort of supply position is competitive on a quality service and price perspective. And it gives us hope that we can recover more, but obviously, there are no guarantees and nor have anything been announced or those are more expectations and hopes over, let's say, a multiple year period as opposed to a single year period. So I think next year, private label probably will still be a slight drag for us, but obviously, the category on a lost business basis. But the category is very healthy. It's growing. The private label business that is retained is growing because the private label business is healthy, too, similar to the category. So again, I would just say we're optimistic for a good '26, but we're not in a position to provide guidance. Operator: Our next question comes from Chris Carey with Wells Fargo Securities, your line is open. Christopher Carey: The implied Q4 gross margin, a couple of questions there. So the first is just the Brazil tariffs. Is it reasonable to assume that Q3 did not include much of those and those will be heavily concentrated in Q4? And so I'd love some perspective on that because Q4 has some seasonality that is lower than Q3, but there's also this new cost factor. So I'd love maybe a bit more detail on how you see that impact. The second thing is how are you thinking about some of the headlines around tariff? What are some of the key markers that you're looking for as it pertains to Brazil? The reason I ask is because at what point do we start thinking that you may need to take some pricing going into the front half of next year? How long will you assess the tariff backdrop before making that decision? Michael Kirban: I think for starters, the headlines are interesting and definitely worth looking into. I mean, the numbers that we've given in terms of what tariffs look like for us as of the end of the quarter are -- could change. And this is what we're dealing with is the uncertainty around it. I mean if you look at the headlines over the weekend, obviously, Trump and Brazil's President Lu had a good meeting and have committed to getting a trade deal done and Brazil has asked for relief on the 40% reciprocal tariff. It hasn't been denied, hasn't yet been approved, but we're hopeful that we'll see some changes on a positive level as it relates to Brazil. And then even as you look at some of the other trade deals that are getting done, if you even look at Cambodia and Malaysia, which happened this weekend, coconuts are listed as excluded from the tariffs in those trade deals. Coconut water is not yet. This is something, obviously, we're hopeful for and working on. But I think it's pretty clear that the administration is looking to exclude unavailable natural resources. We've just got to make sure that coconut water is recognized. And so as these trade deals continue to get done with different countries which we source from, we're hopeful that we'll see some improvement to the tariff numbers that we've talked about. But as of now, that's where we stand. Martin Roper: And Chris, going back to start of your question, which was did the increased tariffs from early August hit the Q2 P&L. Maybe, Corey, you could take that. Corey Baker: Yes, Chris, it was a small amount. If we think of the tariffs as April and August, the August tariffs had very little impact on Q3, a slight bit at the end, and that will ramp-up towards that 23% rate. And we anticipate that would hit late in the quarter, November, December time frame and then be at that steady rate through next year, barring any of these changes we're hopeful for. Martin Roper: And then, Chris, relative to your pricing question, we took pricing in July to mitigate the 10% baseline tariff from April on a dollar basis, right? And I think we indicated in the call that, that was showing up as like a 7% pricing on Circana on a 2-year basis comparison to 2 years ago is how it's showing up. And that would, I suppose, also include the May. So that's the impact of both pricing. We're still monitoring the impact. There's certainly been a slight volume decline with the pricing, but in line with our expectations, but we want to monitor it. We're also monitoring competitive actions and movements on private label pricing, where we expect private label pricing to follow the tariffs rate because it's a cost-plus business model for our retailers. And so we're monitoring that to see what happens. We don't feel in a rush to sort of mitigate further the tariffs while we wait for that. We're also working on the mitigation strategies, particularly as it relates to Brazil, which is the outlier in our tariff environment at 50%. And those mitigation activities revolve around taking Brazil production to other countries other than the U.S. it's not as simple as just a switch because you have to get packaging in place, you have to get approvals in place. So we're working to be able to do that over the next few months and certainly complete that if the Brazil tariffs stay in place by the end of next year. So we want to see how those mitigation efforts go. You said the tariffs is very fluid. It is obviously very fluid. We don't want to take price if we effectively have to give it back. So we're thinking we'll make pricing decisions in Q1 that might take effect Q2 based on our view on where tariffs are and mitigation actions are in Q1. We're reserving the right to take pricing or not take pricing based on what we see in the marketplace and what we think is right for the brand long-term. Christopher Carey: Perfect. A quick follow-up or perhaps not, but international, just give us a sense of where we are in the international journey. I suppose you're going to say early, but it's really starting to come through. So how are you thinking about the growth runway in international? And just remind us on your capacity to service that international market given your supply? Martin Roper: Yes. Let's start with the capacity. As we sort of have talked about for like the last 18 months, we started adding capacity because we saw the category accelerating both in the U.S. and in our core markets internationally. And so we've been adding capacity to support growth rates in the mid-teens or a little bit higher, and that is progressing well. It's a lot of work and a big shout out to the team involved. We're adding 1 to 2 or more factories a year. And it's -- there's a lot of hard work going on in that. So we don't see a capacity issue in supporting this over the next few years. And then as it relates to your international question, we view category development in our core markets internationally, which we would describe as the U.K. and Germany as being underdeveloped versus the U.S. And I would refer you to our investor presentation from June, where we provided an estimate of consumption per population, right, by different countries. So you'll see there that the U.K. is about 1/3 of the U.S. Germany is like 10% of the U.S. So it's pretty early. And obviously, the U.S. is still growing. So we see it as early innings. And I think big picture, longer-term, the way we think about it in our 5-, 10-, 15-year planning, I suppose I do 10-year planning, Mike does 5-year planning. We want Europe to be as large as the U.S., right? So is it possible that, that could happen? Absolutely. Populations are good, demographics, income levels, health orientation are all good. So we think coconut water is still in early innings in Europe. Operator: Our next question comes from Robert Ottenstein with Evercore ISI. Robert Ottenstein: And congratulations on another terrific quarter. I want to kind of double or triple click down on international, which just seems super exciting. So just to help us get a little bit more granularity on the business. Can you give us a sense based on what you've learned today, how the international market in terms of Europe, is there a significant difference in terms of the consumer occasions and how they look at the category? How would you compare the competitive intensity in Europe versus the U.S., margin profile? And then just in terms of this quarter, was there anything unusual that perhaps flattered the results? Martin Roper: Yes, sure. I'll try and get to all of these. Let's see, international is very exciting. International for us is sort of largely Europe. That's where the strength is. It's led by the U.K., which was launched about 11, 12 years ago, probably a little bit off on that, but effectively 10 years behind the U.S. in its launch trajectory. In the U.K., there is a healthy category, but our brand has over 80% share of it. It is largely cold in the stores, which is a difference to obviously the U.S. where we're warm shelf. And the competitive players sort of really don't -- aren't that strong because with over 80% share, there's not -- no one really talk about. About 5 years ago, Innocent juice had a coconut water brand that probably had 10%, 15%, 20% share, but that has largely been squeezed down to low single digits. And so we have a very strong position, and we're focused on growing the category and then obviously maintaining our share of the category. As the category growth continues, obviously, retailers get excited and they introduce new brands, et cetera, but it's largely small stuff, and I don't think we see any impact from that. But would I expect the competitive environment to continue to be active? Yes, of course. The rest of Europe, for the most part, has been small for us up until about 2 years ago. We put a commercial leader into Germany to try and open up the private label business. In a lot of the rest of Europe, private label is actually a very big player in coconut water, whereas in the U.K., it isn't as big a player. And in many of those countries, private label is the largest sort of nonbrand brand, but obviously, it's across multiple retailers, but it's very significant. So we led with developing retail relationships with private label, and that then allowed us as coconut water growth started to take off, we were asked whether we bring the brand in, and we were able to do so. We're in very early innings in Germany. We have national authorizations. Germany retail is interesting in that national authorization doesn't result in distribution in many of the retailers, you have to then go get a regional approval and then actually go store or store collective to get -- to build that out. So we're in pretty early innings there. And as I look at the next 2 years, the blocking and tackling is actually delivering on the national distribution that we've been awarded by selling it at the regional and the local level. And that's probably a multiyear task. Interestingly, as we launched Vita Coco into Germany, we saw the category growth accelerate. I think that's partly because there aren't strong brands there that are investing and have good brand recognition. And we've been able to gain a very significant piece of that growth. So we've gone from effectively 0% branded share to a healthy brand share by grabbing that growth. That said, the private label business has also accelerated. So it's been good for the category. And obviously, we try and compete in that. So we're trying to take some of the learnings from these markets. They're different than each other, right? And they're different both on where the category is and the retail environment and think very carefully about which markets to prioritize next, obviously, with a weight on maybe the larger markets like France and Spain. But we're also testing different routes to market in more fragmented markets like the Benelux, which is currently growing very healthily for us through a partnership with the distributor there. So we have different models that are working. And I think we're happy to be patient, and we're not trying to blast it out and overstretch ourselves. We're trying to build it from the ground up, and we feel pretty good about healthy international trends for the next few years based on that European business. You asked about margin. We mostly do not use distributors. We do have some reps. There are some distributors for small markets. So there isn't a distribution layer. It's direct to retail. So pricing in the market is lower than in the U.S., pricing to consumer because of that. And margins are good. It benefits from lower ocean freight costs from Asia to Europe mostly. So that can support a lower price structure. But the margins are perhaps maybe on a branded side, a little less than they are in the U.S., but they're still very nice and appealing. And I think I've touched on every one of your questions, but if I miss one, please re-ask. Robert Ottenstein: Yes. Just was there anything in this quarter on the international that flattered results in any way? Martin Roper: Just strong demand. Michael Kirban: Yes. Operator: Our next question comes from Christian Junquera with Bank of America. Christian Junquera: Just 2 questions. A quick clarification question. Just the tariff impact for 2025, did you guys say $14 million to $16 million? And if so, that implies a blended tariff rate for this year about like 6% to 7%. And then the expectation or what you guys are expecting is it jumps to 23% in 2026. Did we catch that correctly? Corey Baker: The $14 million to $16 million, Christian, is correct. The percentage, the 23% is of the applicable finished goods amount, which we've quantified as approximately 60% of our global cost of goods. So I'm not sure of your -- the math you have on, 6%. Martin Roper: So you have to remember that the tariffs were imposed initially in April, first week of April at a 10% rate. And what hits our P&L is delayed by when those tariffs flow through our inventory. So as an example, a 10% tariff applied on April 7 to a container leaving Asia wouldn't arrive in the U.S. until maybe early June and then wouldn't get sold out of our inventory probably until July. So our tariff impact in Q2 didn't really MERIT talking about. So we didn't talk about it in Q2 as a dollar amount. We talked about $6 million impact in Q3, which would largely reflect the 10% baseline tariff imposed in April because that would be the inventory flowing through our P&L in Q3. And as Corey indicated, the blended tariff rate based on our current sourcing at the end of the quarter is 23% of containers shipping at the end of the quarter from source. That rate will which is the rate that effectively was put in place in early August, flows into our P&L in mid-late Q4, but is the rate that is applicable for next year. So that's the reason that the $14 million, $16 million looks small to you because effectively, it's on half year and effectively, at least half of that year is only at 10% -- sorry, half of that 6 months is only at 10%. Does that make sense? Christian Junquera: Yes. Yes. That's very, very helpful. Thank you for the clarification. And then if we just can go into -- and you've talked about it, but just the levers to offset the higher tariff rate for next year, right? You guys have the higher pricing that you took this year that's going to carry over. And I mean, potentially lower ocean freight. I mean looking at the chart, it looks like rates keep going down. Do you have any expectations for ocean freight next year? And I don't know if I'm missing anything else, any other levers at your disposal. Michael Kirban: I mean that's the biggest benefit. That is the biggest benefit for the offset ocean freight... Martin Roper: We're talking to suppliers and trying to work out things that we can do, but this isn't a particularly large margin business for them. Obviously, we're asking whether their governments can help as well, right? We're trying to optimize our sourcing to take advantage of the different tariff rates. But really, that means trying to avoid Brazil, if we can, right? And the base pricing we took in July that was, again, incremental to our May pricing was designed to cover the dollar impact of the 10% baseline. Obviously, we're evaluating the impact of that. And if we think we have to take more pricing and it's prudent given the competitive environment and our brand trends and everything else and all our mitigation efforts, then we will consider it. But we're a little reluctant to rush into pricing if indeed some of these tariffs may be waived under the trade agreements that Mike was talking about. We obviously have the Supreme Court case coming up next week, which may or may not also declare that the tariffs don't apply. So we're a little reluctant to rush into pricing until we get a better feel for all these impacts. Operator: Our next question comes from Jon Andersen with William Blair. Jon Andersen: A couple of questions. We talked a lot on the call about headwinds from ocean freight -- ocean freight tariffs, I'm sorry. But I did want to ask a little bit more about ocean freight because the rates look like they've been cut in half year-over-year, and that started happening earlier this year, the decline year-over-year and down 50% starting in the midyear. And I think you're operating of, as you pointed out, a lot of spot situations right now. And again, I don't know the exact kind of composition of your cost of goods, but the freight piece seems like a big piece of the cost of goods. And if that's come down to that degree, it seems like that would be much more impactful than the tariff piece here. So we'd be looking at a pretty good margin outlook -- gross margin outlook for '26. How do you kind of think about that? Martin Roper: So one way to think about that is we've indicated that the tariffs applied to 60% of our global cost structure. If you apply 23% to that, you get -- come out at like 13% of our revenue is tariffs. That's a huge number, right? And the last time ocean freight spiked, which was '22, really spiked. We talked about a total transportation impact of $65 million, which included domestic transportation, and we said 2/3 of it was ocean. So the ocean freight, you can extrapolate an ocean freight number from that $65 million, and you can get back into -- that was when rates were $10,000, $12,000, $14,000, right? So ocean freight is an important part of our cost structure, but I would caution you not to overestimate it and to use those data points that we've provided. And I'm going to say, Corey, did we provide a percentage of transportation costs in one of our investor presentations. Corey Baker: A few times in the years, we have in the range of 1/3, but it varies up and down and... Martin Roper: Up and down based on ocean freight... Corey Baker: Yes. We haven't quantified the tariffs, obviously change that equation. Martin Roper: Yes. So I think, Mike, said earlier that ocean freight is an important opportunity for mitigation. And obviously, we're not actually doing anything. We're benefiting from market changes. So it's a benefit from market change that can be an offset. But the tariff impact, if it were to stay, is pretty significant. You mentioned what's going on with ocean freight. If you look back a year on the indexes, the indexes were in the low 3,000s, and they're currently sort of -- I'm looking at the global index, it's currently in the low 2,000s. So it's down 33%, but it went up last year and had a couple of peaks that cost us, right? So yes, current ocean rates are lower than they've been for at least a year, but the change is perhaps not as big as the 50% as you were talking about, like it's not down 50% versus a year ago. Jon Andersen: And what -- I think I have in my notes that ocean -- well, freight in aggregate in COGS is 30%, 35%. Is that -- with the balance being finished goods? Is that a reasonable way to think about it? Michael Kirban: I believe that number is transportation and logistics. So it's warehousing, drayage, ocean freight, internal transportation, distribution, et cetera., ocean freight is a subset of that number. Jon Andersen: A component of that 1/3 of COGS or so. Okay. The other question I had was just on the guidance. I haven't -- I guess the guidance implies 4Q sales of around $105 million, which looking at what you did in Q3, $182 million, it's like a 42%, 43% sequential decline in sales from Q3 to Q4. We haven't seen anywhere near that kind of a seasonality or change in the past. I know there's a little bit of seasonality, but again, a 45% decline is big. Any -- I just want to make sure I understand what's causing that. Michael Kirban: Jon, I don't see those levels of declines year-on-year, but maybe we're... Jon Andersen: No, sequentially, sequentially. Martin Roper: So Q3 was very big. We benefited from the major promotion that we skipped last year, right? Michael Kirban: And it erodes from the out of stock. Martin Roper: So I would just -- obviously, there's lots of moving pieces here. But on branded, maybe you look at the decline in '23, which would have been a comparable year on a promotional side. And then obviously, we have the private label decline that we prefer you to look at in Q2 rather than the Q3 number. So it's tough modelling Q4 for us and we're providing the best view that we can. And again, we have some uncertainty on exactly how the private label falls through the end of the year and into next year. So it's just -- that's one of the reasons for me taking the ranges. Michael Kirban: That feels like maybe the bottom or below the guidance range. Is that -- so we can follow up. Martin Roper: Yes. Operator: Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery: Just wanted to touch on capital allocation. You mentioned now your cash balance over $200 million. I know in almost the same breath, you point out the share buyback authorization, though it's a small piece of that even if, of course, you always reauthorize more. But what's the expectations for use of cash? I know you've always had M&A on your kind of to-do list, but it hasn't been a big factor ostensibly because there hasn't been something interesting or at the right price. But how do we think about what the cash is meant to go for? Martin Roper: So I think our priorities haven't really changed. And the first one is growth of the core business. I would say that with the growth we're seeing and our planning for next year, we'll probably be building inventory as we finish this year into next year. And obviously, we're a pretty inventory-intensive business given so much of it sits on the water. And so I would just draw your attention to that, while also recognizing that $200 million is a very healthy cash balance for a company of our size. So our next sort of priority is innovation and supporting our innovation efforts. Third priority is M&A for something that will deliver value to our shareholders. And I think we've talked about M&A a lot in the 3, 4 years we've been public and obviously haven't done anything. So we're prudent, and we're not looking to do M&A for M&A's sake. That's certainly not part of our mission statement. And then as we look at what's going on in all those 3 areas; growth, innovation and M&A, if we believe we have excess cash, then our intentions would be to apply it to share buyback at stock prices that we think are fair for our long-term shareholders. So that's how we think about it. And I don't think anything has really changed. And certainly, as the cash builds, it becomes more of a conversation, but I don't expect us to change our approach to it. Michael Lavery: Okay. And just on Treats, a follow-up there. It seems like it would be a pretty nicely incremental part of the portfolio. Is that a fair characterization? And even if so, do you find it can be sort of a gateway to the coconut water part of the portfolio, too? Or are you seeing any interplay there that it might be attracting new users who then also switch to the coconut water side of the business? Michael Kirban: Yes. I mean we're seeing a lot of consumers coming into the brand through Treats, which is really nice to see. So exactly what you mentioned, they're coming into the family. And then kind of like what we've seen over the years with our pineapple flavor and our extra coconut flavor, those are kind of the entries for the category and then the hope is that they stay within the brand. And you see a lot of people then move to the original pure coconut water, the blue one. So Treats, it's early, but we aren't seeing cannibalization. We are seeing a lot of new consumers coming into the brand through Treats. So that is the idea. Hopefully, they stay with coconut water and drink it for different occasions in different flavors and formats. Martin Roper: And just a couple of comments on how Treats gets reported. On a shipment basis, it's reported in other -- so the coconut water reporting on a shipment basis does not include treats, right, and it's indicative again of the health of the category. On a Nielsen, Circana basis, Treats gets reported sort of not necessarily in coconut water, but it might get reported in sort of milk-based products because it's a coconut milk-based products. And so I would just caution you to work out if it is being reported or not in our Circana data, it's not in the coconut water definition that we buy. And it was order of magnitude, I'm looking, Corey, would have added an incremental 4 percentage points to our Circana growth rate. But indeed, we reported in our investor deck because our investor deck reports coconut water growth rates that don't include Treats. Operator: Our next question comes from Eric Serotta with Morgan Stanley. Eric Serotta: Great. First question would be in terms of pricing. I know you said that you're waiting on further pricing to see what the competitive environment looks like. What are you seeing in terms of -- have competitors moved on pricing in as we sit here today at the end of October, you guys moved early August. I know that some competitors were on a different kind of pricing cadence over the past few years. So what are you seeing in terms of pricing from your competitors today? I know you can't speculate about the future there. And then just to follow up briefly on Treats. What does the repeat purchase look like on that? And was -- it looks like it was nicely incremental to this year. Do you see it building next year? Or is that, in some ways, going to be a tougher comparison with the launch this year? Michael Kirban: Let me take the pricing, Eric, and then Martin can talk to the Treats performance. I'd say on pricing, and we tend to use Circana as a measure of what we're seeing in the market. We're seeing a few different things. Some competitors took pricing early and quite a bit and have maintained at that level and not moved incrementally in response to tariffs. Others have moved 1 or 2 times, and we're seeing some moves in some private label more recently up on a second tariff move. And then others have not moved at all. So there seems to be a differing strategies across the market. Obviously, we lead the market by a wide margin, and we've moved. So we'll see -- continue to monitor closely on additional moves. Corey Baker: Yes. I think we're also monitoring the tariff -- what tariffs actually could end up being. I think there's still so many moving parts between Brazil and trade deals getting done. I think there's a lot of questions to be answered. Michael Kirban: That's quite hard. Martin Roper: Yes. And because of the timing of the August tariffs, I'm not sure we've seen anyone moving relative to that. But obviously, we would expect people to have to move particularly on the private label side. So that's a good reason to sort of wait. With regards to Treats, I think as Mike said, it's providing a different gateway for consumers to come into the brand. That's good. I would say we're seeing acceptable repeat rates, if not positive repeat rates and our challenge is to drive more trial, so more visibility of the brand. And so that probably requires a little bit more investment, et cetera. And so that's what we're planning for next year. I think you asked about next year. Obviously, it's very difficult to sort of project next year, we do think that we will get some Treats distribution gains. While we did very well on Treats this year. We didn't, for instance, get it into Walmart. And I think our expectation is that we would get it into Walmart in the resets and some other places as well on sets next year. So I think we still have another year of growth for Treats just based on the launch before distribution growth before sort of -- and then obviously, we are trying to drive adoption on top of that, but it certainly should be a positive next year. Operator: Our next question comes from Jim Salera with Stephens. James Salera: I first wanted to ask on just the kind of composition of the growth this year. If I look at the slide deck, it looks like multipacks have been kind of the biggest incremental driver, which I would kind of read as a proxy for increased purchase with existing households. Please correct me if you think that that's a wrong read there. But with the inclusion in modern hydration upcoming, do you view that as an opportunity to really introduce the brand to new households if it's more visible on shelf? Or is that a way to maybe pick up some lapse opportunity with people that were buying it, but then it gets shuffled around in the store and they kind of lose track of it and don't follow up with. Martin Roper: So we view the multipack strategy as a way of increasing value to our customer while also increasing velocity and potentially putting more product in their pantries, right, which potentially increases their own consumption. And I think that's what we're seeing. Some of the multipack strength is also a little bit driven by multipacks are much more predominant in club type environments. And so if club is strong as a channel, which it obviously is in the current economic environment, you are seeing some growth from multipacks from that point side. As it relates to how is that all filling into total growth, we still see our growth as a nice balance of new households and increasing velocity per household. Our rough approximation is half of the growth is coming from new households, and half is coming from increased consumption per household. And so that's what we think is currently going on. Obviously, numbers in this area are available, but messy. James Salera: Great. And then I appreciate all the color around COGS and kind of the moving pieces next year, and you guys still have some stuff you want to look at before you give '26 guidance. But if I just take the 4Q exit rate on tariffs, coupled with kind of running forward the ocean freight rate through into '26 and blend that together, it would imply FY '26 gross margins are kind of flat to down modestly. Is that a fair way to characterize it just as we're thinking about -- and I appreciate, obviously, there's plenty of moving pieces on tariffs. But assuming no changes there, the gross margin would be kind of down modestly next year? Michael Kirban: That sounds like '26 guidance, Jim. Martin Roper: It was a good try. Michael Kirban: It was good try. Martin Roper: Jim, I wish the same I think we're covered by very smart analysts with very smart support team. Operator: [Operator Instructions] Our next question comes from Eric Des Lauriers with Craig-Hallum Capital Group. Eric Des Lauriers: And congrats on a really impressive quarter. My question is on tariffs. So you've outlined several levers you can pull to offset the impact of tariffs. But I'm wondering sort of what levers you have to pull or what's in your power to do in terms of lobbying for coconut water to be excluded from tariffs like other coconut products are. Do you have any levers to pull here? Is there anything from a lobbying or even import classification perspective that you're able to do? Martin Roper: Yes, it's what we're working on. I've been spending time in D.C. and doing exactly that and working from both the angle of the producing countries in their negotiations and discussions and also on the U.S. administration side. So we're doing -- we're making every effort that we can. Eric Des Lauriers: That's great. And then just a question on the marketing spend outlook. Just overall, should we expect a general increase in marketing spend as a percentage of sales going forward given balance sheet strength, investments in Treats, consumer education efforts. Should we expect a general increase as a percentage of sales? Or do we have enough kind of robust top-line growth that sort of this current level of marketing spend as a percentage of sales is a good guide going forward? Michael Kirban: Yes. As we think about the long-term, and there's variability year-to-year, but broadly, we would expect sales and marketing expenses to track net sales or branded net sales over the long-term. Operator: Our next question comes from Gerald Pascarelli with Needham & Company. Gerald Pascarelli: I just had going back to tariffs. If they remain in place as is, can you just speak about how long the process is should you choose to reroute shipments from Brazil to international markets? And then I guess, based on your current sourcing, is it possible to reroute all shipments from Brazil to international markets? Or is that just not practical based on your supply chain? I guess any color there would be helpful. Martin Roper: Yes. So to reroute, we need to develop packaging that the factory and the new market it's going to be servicing. And we also need to get any validations for that factory in that country or with that retailer that are required. So those processes might take 3 months, could take 9. So it's a moving target. We've started working on those things back in August, September. But equally, the urgency on working on them, while it's urgent, we're also sensitive that once we start buying that materials, if Brazil tariffs go away, then we've got this packaging in the wrong location for a non-optimized supply chain because Brazil is optimized to supply to the U.S. So answer to your question is we're working on it. We're pulling triggers that we think are appropriate given the uncertainty around the 50% tariffs from Brazil. And if the 50% were to stay in place, our hope would be to have our weighted average tariff rate down from 23% to closer to 20% by the end of the year. We may still choose to source some items from Brazil for certain markets and/or customers and/or for strategic reasons because it's got a much shorter lead time in servicing the East Coast of the U.S. So we may not fully exit Brazil as it relates to U.S. demand, but that's where we would think we could get to by the end of the year -- end of next year. Gerald Pascarelli: That's very helpful. And then I guess just going back to the prior question, in your trade discussions, are you hearing anything that maybe makes you more optimistic on the potential for a lower negotiated rate from the 50%, specifically based on the significant inflation that the U.S. is seeing from Brazil coffee. Is that playing a factor? Do you think that will play a factor as we look out over the near term here? Corey Baker: Yes. I think it's also -- it's things that we're hearing in meetings, but we're also hearing publicly discussed from both sides. And they're looking to make progress in the very near term. So we're hopeful that something happens in the near-term, specifically as it relates -- most specifically as it relates to this 40% reciprocal tariff hopefully being relieved, but we will see how that plays out. Operator: This concludes the question-and-answer session. I would now like to turn it back to Martin Roper for closing remarks. Martin Roper: Thank you, everyone, for joining the call today, and we very much appreciate your interest in The Vita Coco Company, and we look forward to talking to you again in 2026. Cheers. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Third Quarter 2025 Acadia Realty Trust Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Gabriella Vitiello, Junior Lease Admin Analyst, please go ahead. Gabriella Vitiello: Good afternoon, and thank you for joining us for the Third Quarter 2025 Acadia Realty Trust Earnings Conference Call. My name is Gabriella Vitiello, and I'm a Junior Lease Administration Analyst in our Lease Administration department. Before we begin, please be aware that the statements made during the call that are not historical may be deemed forward-looking statements within the meaning of the Securities and Exchange Act of 1934, and actual results may differ materially from those indicated by such forward-looking statements. Due to a variety of risks and uncertainties, including those disclosed in the company's most recent Form 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, October 29, 2025, and the company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures, including funds from operations and net operating income. Please see Acadia's earnings press release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. [Operator Instructions] Now it's my pleasure to turn the call over to Ken Bernstein, President and Chief Executive Officer, who will begin today's management remarks. Kenneth Bernstein: Thank you, Gabriella, great job. Welcome, everyone. Last quarter, I commented that in the ongoing tug of war between economic uncertainty and resilience, resilience seems to be winning. Well, looking at our third quarter results, this continues to be the case. Notwithstanding, continued noise and uncertainty around the broader economy, tenant performance and tenant demand at our properties, especially the street retail component, is continuing, and if anything, this positive momentum is accelerating. In fact, we are probably at an inflection point for our portfolio's operating performance. As John Gottfried will explain, as we look at our forecast for 2026, we see both total NOI growth and same-store growth accelerating, keeping us well above our long-term goal of 5% growth. And we remain focused on making sure that this top line growth hits the bottom line with respect to our earnings. As A.J. Levine will discuss, we see enough internal growth opportunities beginning to take shape to enable us to maintain this 5% plus annual growth well into the foreseeable future. A.J. will walk through in detail our continued progress in the third quarter. But in short, we were busy both harvesting current opportunities as well as planting seeds for longer-term internal growth. This includes realizing a 45% lease spread in SoHo, a 70% mark-to-market on Bleecker Street while successfully opening new stores, representing nearly $7 million from our SNO Pipeline and then positioning us for future growth. We also added nearly $4 million in new leases into our SNO Pipeline. I discussed in detail on previous calls, the tailwinds for open-air retail demand. They're still continuing and remain encouraging, both for our suburban and our street retail portfolio, but the tailwinds for our street retail portfolio seem to have even more momentum for a few reasons. First, is the longer-term secular trend of retailers recognizing the critical need to establish their own network of stores, what we refer to as or DTC or direct-to-consumer stores. This trend is increasing the demand from mission-critical locations, especially in the key markets where we are most active. Second, is the continued resilience and increasing importance of the affluent consumer who are the majority of the shoppers at our street locations. And then third and perhaps most encouraging is the noticeable resurgence of foot traffic and energy on these streets. This energy and excitement was on full display earlier this month at Kith's grand opening at our Walton Street property in the Gold Coast of Chicago. Hundreds of eager customers waited online for hours to shop this exciting 10,000 square foot flagship store. If you've recently shopped at Gold Coast of Chicago and were impressed by what you saw, you're not alone. Our team consistently hears from investors after touring [indiscernible] a given city, how they did not appreciate the vibrancy that is occurring until they saw firsthand. And if you've not toured some of these markets, and are simply relying on your new speed, especially depending on what cable channel you watch, you are missing out on the power of these retail markets. Thankfully, our retailers get this. This is why Melrose Place in L.A. or Green Street in SoHo are experiencing the continued tailwinds well in excess of our expectations. And it is expanding beyond a few major markets and in ways that might surprise you. For instance, in Georgetown in D.C. Notwithstanding all of the attention and concern around Washington, D.C. and surrounding markets due to DOGE or government shutdowns for the majority of our retailers on M Street, foot traffic and sales are up year-over-year and tenant demand has not been this strong in a decade. New York experienced this rebound earlier than most markets. But now we are seeing this play out across all of our urban markets. San Francisco is the most recent example of this momentum, driven by the growth in artificial intelligence, accelerating a return to office and a new mayor, who is making important progress on quality of life issues, that had burdened the city coming out of COVID. And what we are seeing on the ground is that the live, work, play vibrancy that San Francisco has historically enjoyed is coming back and so are our retailers. That resurgence is coming at the right time for our 2 significant San Francisco redevelopment projects. At City Center, we have our new T&T supermarkets slated to open in late 2026, and at our 555 9th Street redevelopment, we recently expanded our Trader Joe's and have a new lease with LA Fitness' high-end club studio, slated to open next year. On a combined basis, these 2 projects have close to 100,000 square feet of additional space for us to lease and are slated to add roughly 5% to our REIT NOI. And if the positive momentum continues, we'll have even more growth. Along with continuing to drive our internal growth, a key additional driver of our business is adding accretive and complementary external growth, both on balance sheet and then through our investment management platform. While we saw a bit of a pause in investment activity around Liberation Day concerns, based on the current status of our pipeline, we are now confident that our 2025 investment activity will match the strength of 2024, which was also a great year for us in terms of external growth. Reggie will walk through our transactions closed last quarter and the opportunities we see going forward, but to reiterate our goals and outlook, given our size, we see our acquisition activity continuing to enable us to move the needle. And while our cost of capital increased some last quarter, we are confident that we can still invest accretively and we will. For our on-balance sheet street retail investments, this confidence is due to a few factors. First, Acadia is in somewhat of a unique position of being a buyer of choice. There are certainly private market participants that are active competitors, but we have carved out a niche and a reputation that gives us a competitive advantage in the street retail space, an advantage that does not exist in other segments of open-air retail where there are too many well-capitalized private participants for any one public or a private player to have a unique advantage. Second, along with being a buyer of choice, many retailers view us as a landlord of choice, and they are steering acquisition opportunities our way as well. And then finally, as we discussed on the last call, the scale that we continue to build, both in terms of ownership concentration in a given corridor as well as tenant relationships nationwide, is giving us increased visibility into the accretion potential we can achieve in any given investment and providing us a competitive advantage over other bidders. All of this makes us uniquely well positioned to continue to attractively add street retail to our portfolio, and it provides further support for why we are focused on building Acadia into the premier owner operator of street retail in the U.S. Then for our Investment Management platform. The volatility in the REIT market is less of an issue. Perhaps, it's even a tailwind, since we rely on our institutional partners for the majority of the capital and are generally recycling our equity in this complementary and profitable by fixed sell arm of our business. So in conclusion, as we look forward, our peer-leading internal growth looks like it has several years of tailwinds behind it. Coupled with continued strong external growth and a balance sheet with multiple avenues of access to capital, we are well positioned to absorb any speed bumps and more importantly, capitalize on the exciting opportunities in front of us. I'd like to thank the team for their continued hard work. And with that, I will hand the call over to A.J. Levine. Alexander Levine: Thanks, Ken. Hi, everybody. Good afternoon. So jumping right in, I'm happy to report another successful and productive quarter of leasing, with the team executing on another $3.7 million in ABR and bringing total signed leases year-to-date to $11.4 million, keeping us well ahead of last year's record-setting pace. To put that into some context, for every $1.4 million of new revenue we add, that equates to about $0.01 of FFO. And overall GAAP spreads for new and renewal leases on our streets were 32%. Looking forward, we've seen no signs of a slowdown in tenant demand. And in addition to the leases we signed during the quarter, we've increased the size of our lease negotiation pipeline to $8 million, which is $1 million ahead of where we were at the end of Q2. In short, that translates to an increase in leasing velocity, fueled by pending new leases on North 6th Street in Williamsburg, Newbury Street in Boston and on Melrose Place in Los Angeles, all markets where we will see the highest level of contractual growth at 3% per annum. The pipeline also includes another impactful deal in San Francisco, where so far this year, we've executed on over 90,000 square feet, including new leases with T&T Supermarkets, LA Fitness Club Studio and a long-term renewal and expansion of Trader Joe's. John will get into the details of our SNO pipeline, but in Q3, we converted approximately $7 million of ABR from SNO to open and paying tenants. Impactful openings from the quarter included the Richemont brand Watchfinder, John Varvatos and Alex Moss, all in SoHo; Kith on the Gold Coast of Chicago; Moscot on Armitage Avenue; and J.Crew on M Street in D.C. But this is not just leasing and delivering space. In addition to filling vacancies, we are prying loose and profitably backfilling space while improving the curation and merchandising along our high-growth streets. In the third quarter, we pried loose and replaced 4 tenants in high-growth markets, including M Street, Williamsburg, Bleecker Street and SoHo at an average GAAP spread of 36%. Each of those leases is subject to 3% contractual increases and the opportunity to once again mark-to-market in the relative near term through FMV resets. During the quarter, we added, expanded or renewed some highly coveted brands, including Veronica Beard, Faherty, Theory and Frame Denim, again, all in SoHo. Sezane on M Street, Doen on Bleecker Street, Tecovas on Henderson and Practice Room in Williamsburg, just to name a few. I'm also happy to report that momentum on Henderson Avenue in Dallas continues to build, and the redevelopment is ahead of pro forma. Over 60% of the retail is spoken for with some of today's most recognizable and coveted brands, several of which you will find elsewhere in our portfolio on Armitage Avenue, the Gold Coast of Chicago, in SoHo and on Melrose Place. Which become clear over the last several quarters is that our strategy of building scale in must-have street markets means that our team is getting the first call, the early call and the urgent calls. Our recent lease with Sezane in M Street is a perfect example of our first call advantage. Like many recent negotiations, this one started with the simple question, where can you put me? As the largest owner of retail on M Street, Sezane knew that we were the right landlord to help them find a long-term home in Georgetown. And true to form, we were able to pry loose an under-market tenant, increase the rent by double digits and upgrade the overall curation of the street. Historically, tight supply means that tenant calls are coming in early, sometimes 12 to 15 months before a space will become available. We are currently in active negotiations with tenants on Melrose, in SoHo and on North 6th Street for space with expirations that are all more than 12 months out. And finally, the strong sales performance we continue to see on our streets is creating a sense of urgency amongst our tenants. There is a very real fear among tenants of missing out on the incredible sales growth that our highest earning consumers are continuing to drive on our streets. From reporting tenants on our streets, year-to-date comparable soft goods and apparel sales continue to outperform. In SoHO, sales are up 15%; on Bleecker Street, north of 30%; and on the Gold Coast of Chicago, driven largely by an accelerated recovery on North Michigan Avenue, sales are up over 40%. Even on State Street in Downtown Chicago, which has certainly felt the effects of hybrid work over the last several years, we are seeing the early signs of a strong recovery with sales in our portfolio up over 10% year-to-date with one flagship tenant in particular, up over 20%. And on M Street, despite all of the headlines in D.C. this year, sales are up 16% year-over-year and show no signs of slowing. To be fair, we are seeing positive sales growth in our suburbs as well, but nothing resembling the double-digit growth on our streets. So when we consider the overall landscape, accelerating sales growth on our streets, strong tenant demand and the scale we've built to capture that demand, it's full steam ahead. With that, I'll echo Ken on thanking and congratulating the team for their hard work this quarter, and I will turn things over to Reggie. Reginald Livingston: Thanks, A.J. Good afternoon, everyone. As noted in our earnings release, our Q3 activity brings our year-to-date acquisition volume to over $480 million. And based on our current pipeline, we're looking to double that amount by year-end. It's important to note for a company of our size, that's extraordinary growth unmatched within our sector, but it's not simply growth for growth's sake. These deals are poised to deliver the earnings and NAV accretion consistent with our goals, not to mention strong CAGR to complement our internal growth. Our year-to-date activity and our pipeline are being driven by a few factors we're noticing. As Ken said, while street retail opportunities slowed down midyear, caused in part by Liberation Day hangover, we're starting to see more of those sellers come off the sidelines. And just as A.J.'s leasing team gets that first call from tenants, we're getting that first call from sellers of street retail as our reputation as a group that knows how to underwrite and close these transactions is well known throughout our target markets. Recall, the vast majority of our street retail transactions this year have been off market, and we expect that competitive advantage to continue. It's also worth noting the improved debt environment is causing sellers to test the sales market more in open-air retail across the board. And as that environment continues, we're confident we'll get more than our fair share. Turning to specific activity in Q3. Within our investment management platform, we acquired Avenue at West Cobb for $63 million. This asset is a 250,000 square foot lifestyle center in an affluent Atlanta suburb, where we will deliver value-add returns through a combination of significant lease-up, upgrading tenancy and harvesting mark-to-market opportunities. As we've done previously for assets slated for the investment management platform, we closed the asset on balance sheet and we'll recapitalize with an institutional investor. And speaking of that capability, we're close to selecting a top-tier investor to recapitalize Pinewood Square, the Florida Power Center we purchased back in Q2, and we expect that transaction to close in due course. So to summarize, through 3 quarters, we've acquired approximately $0.5 billion of assets, and we're looking to double that amount in the fourth quarter. And with respect to our metrics, that nearly $1 billion in deals will yield an attractive going-in GAAP yield in the mid-6s and 5-year CAGR in excess of 5%. And most importantly, these deals will deliver accretion consistent with our $0.01 per $200 million target, a target we could achieve, frankly, with either our balance sheet transactions or our investment management deals. Bottom line, we're achieving our growth goals, and we're excited about a Q4 pipeline that will be keeping our team very busy across street acquisitions in our target corridors and value-add deals for our IMP. I want to thank the team for their hard work this quarter. And with that, I'll turn it over to John. John Gottfried: Thanks, Reggie, and good afternoon. I'm going to dive straight into the quarter, and my remarks today will focus on 3 key themes. First, our differentiated street retail business hit an inflection point this quarter, delivering same-store growth of 13%, and we expect to have this above-trend growth continuing into 2026 and beyond. Secondly, as you just heard from our team, we are on offense, and we have the balance sheet flexibility and liquidity to fund it with our debt-to-EBITDA at 5x and over $800 million available under our revolver and forward equity contracts. And lastly, simplification. We recognize that our guidance methodology of including investment management gains and other items is unduly complicated and results in a level of volatility that is not at all indicative of our underlying NOI growth. And as discussed on our last call, we will be refining our 2026 FFO definition to provide investors with a single metric that directly links to the growth of our real estate business to bottom line earnings, driven by our highly differentiated street retail portfolio. Now diving into our results. The third quarter was an inflection point for us, and I want to discuss a few key data points that's driving our confidence of above-average NOI and earnings growth for the next several years. Starting with NOI. Same-store NOI came in ahead of our expectations at 8.2% with our street retail portfolio delivering 13% growth during the quarter. And with expected same-store growth of 6% to 7% in Q4, we are on track to come in at the upper end of our 5% to 6% projection for the year. And now for those modeling on the call, here come some numbers. Our growth was driven by approximately 5% of our ABR comprised of $6.7 million in pro rata rents commencing during the third quarter, with virtually all of it representing leases in the same-store pool. In terms of the earnings impact, approximately $1 million was recognized in Q3 earnings. The full $1.7 million impact will show up in Q4, leaving us with an incremental $4 million in 2026. Additionally, the $6.7 million of commencing rents increased our occupancy by 140 basis points this quarter, keeping us on track to achieve 94% to 95% by year-end. It's also worth highlighting that our street and urban occupancy sequentially increased 280 basis points this quarter, with several hundred basis points of future growth in front of us with just 89.5% of our street and urban portfolio occupied as of September 30. And our leasing team continues to set us up for future growth. We signed $3.7 million in new leases or approximately 2% of ABR during the third quarter, resulting in an $11.9 million signed not yet open pipeline as of September 30. Over 80% of the $11.9 million pipeline resides in our street and urban portfolio and is comprised of $4.4 million in our REIT operating portfolio, which, as a reminder, means our same-store pool, $6.5 million from our REIT redevelopment projects and $1 million from our share from the investment management platform. And in terms of the estimated timing and earnings impact of the $11.9 million signed not yet open pipeline, approximately $5.5 million of ABRs are projected to commence in Q4 with the remaining $6.4 million in 2026. And when factoring in the expected rent commencement dates, this results in anticipated earnings of approximately $700,000 in Q4 2025, of which roughly $200,000 is same-store, $7.4 million in 2026 with about $3.5 million of it being in same-store, leaving us with $3.8 million in 2027. Additionally, consistent with our discussion last quarter, approximately $9 million of the $11 million will hit our bottom line earnings after adjusting for interest and other carry costs that we are capitalizing, primarily for REIT assets and redevelopment, with the vast majority of these capital costs attributable to our City Center redevelopment project in San Francisco and our new grocer TNT, which we are targeting a late 2026 rent commencement date. I recognize that I just dropped a lot of numbers on you. But when stepping back, it's these data points that are driving our confidence in Q3 being an inflection point and setting us up for outsized growth in 2026 and beyond. And more specifically, our increased conviction of achieving the 10% REIT portfolio NOI growth target in 2026 that we discussed on the second quarter call. Based on our current model, we are projecting total same-store growth inclusive of redevelopments between 8% to 12% and between 5% to 9% same-store growth, excluding redevelopments, with our street and urban portfolio projected to contribute growth in excess of 10%. In terms of dollars, the projected 8% to 12% NOI growth approximates $12 million to $14 million of incremental NOI over our 2025 projected results or roughly $0.09 a share of FFO at our current share count. And while we're still finalizing our budgets and have some more leases to sign, we are well on our way of hitting our targets. Now moving on to earnings. The NOI growth from our street retail portfolio is dropping to the bottom line and the simplified method of reporting FFO that we discussed on our last call will provide even greater visibility. Driven by the 8.2% same-store NOI growth, we sequentially increased our quarterly FFO by $0.01, to $0.29 as compared to the $0.28 we reported last quarter after adjusting for the gains from our investment management business. And this growth was achieved despite the short-term dilution from the partial conversion of the City Point Loan. In terms of City Point, as mentioned on the last call and disclosed in the second quarter Form 10-Q, about half of our partners converted their interest during the third quarter. As a reminder, had all the loans converted at the beginning of the year, it would have been approximately $0.06 dilutive on an annualized basis against 2025 FFO. So as we've previously discussed, while the loss of interest income will be short-term dilutive for the balance of 2025 and into 2026, this sets us up for meaningful future NOI and earnings growth over the next several years as we continue to stabilize the asset. Moving on to guidance. As highlighted in our release, even with the dilution from City Point, we maintained our FFO prior to the realized gains we earned from our investment management business. Additionally, we have revised and tightened FFO inclusive of gains of our investment management business, driven primarily by the decline in share price of Albertsons. In terms of 2026 guidance, as we discussed last call, we will be moving to a simplified reporting metric. Our new metric will be FFO as adjusted and will exclude the gains from our investment management business, along with material noncomparable items that we believe are not reflective of our core operating results. Please take a look at our investor deck on our website, which further discusses the reporting change and what this revised metric would have looked like for our 2025 earnings. And for those on the sell side that have not yet done so, please update your 2026 earnings estimates based upon our revised definition. Additionally, while an important and highly profitable part of what we do, we are no longer going to include investment management gains and promotes in any of our earnings guidance metrics going forward. So we would ask that you please also exclude these from your metrics to avoid any inconsistencies amongst the analyst community. Thus, NAREIT FFO and our new metric, FFO as adjusted, should be identical when we provide our 2026 guidance in February. And when we earn a promote in any given quarter, it will be included in NAREIT FFO and excluded from FFO as adjusted. And please keep in mind, while we won't be including investment management gains and promotes as part of our guidance, this profitable part of our strategy will continue to be an important part of our business with approximately $30 million of near-term gains anticipated. And finally, I'll close with an update on our balance sheet. With our pro rata debt EBITDA at 5x and meaningful liquidity, our balance sheet has a dry powder to play offense. We raised approximately $212 million of equity at the quarter at just under $20 a share to accretively fund our acquisition pipeline and the Henderson Redevelopment project in Dallas. As A.J. mentioned, Henderson is on track, and we are in advanced stages of lease negotiations on a significant portion of the project, giving us increased confidence of achieving our targeted 8% to 10% development yield and $0.02 to $0.04 of projected incremental FFO growth commencing in 2027 and into 2028. I also want to point out that over the past few quarters, we have acquired 5 additional properties on Henderson Avenue, which we've set aside for future development. And combined with our existing holdings, this brings our ownership to well over 50% of this premier retail corridor. So in summary, with strong embedded internal growth and meaningful dry powder on hand to accretively fuel our large and growing pipeline of external opportunities, we are incredibly excited as we look forward over the next several years. And with that, I will turn the call over to the operator for questions. Operator: [Operator Instructions] And our first question will come from Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: Obviously, underlying results appear to be really solid here and you did raise some equity. Maybe my first question is, can you lift the veil a little bit on your -- the pipeline of acquisitions you're looking at? You did talk -- I think, Reggie, you indicated that about a chunk of the doubling of investments or ballpark figure, $500 million of investments is Henderson, which I believe the total cost is around $190 million, $200 million. Maybe talk about some of the other potential investments you're looking at and maybe talk about the difference between cash yields versus GAAP yields. John Gottfried: Before I turn it over to Reggie, just to clarify, the acquisitions Reggie is mentioning are separate and beyond what we're talking about for Henderson. So those are incremental to Henderson. So Reggie, do you want to take the... Reginald Livingston: Yes. Let me start with the bottom of GAAP yield and cash yield. As I said before, we feel really confident that we're finding the right opportunities in street retail that may take a 5% cash yield into the mid-6s, which is our target for GAAP yield. So trying to find those deals with the right attributes of lease duration and mark-to-market. We found those. We're continuing to find those in the pipeline as well. So we feel good about not only getting deals done, but getting deals done at our metrics. What was the first part, Floris? Floris Gerbrand Van Dijkum: Are they in existing markets in particular? I'm curious what percentage would you say is New York versus other areas? Reginald Livingston: They are in existing markets. We still like New York and still doing a lot of activity there. But they go kind of up and down the East Coast, but I would say most of it is focused on New York, just looking at our pipeline today. Kenneth Bernstein: Floris, again expect our geographies, though, to expand, and it's a fluid situation. So we'll be in other spots as well. Floris Gerbrand Van Dijkum: Great. And then maybe the momentum in the street appears to be really strong. You guys are seeing no signs of slowing down in terms of tenant demand? And are retailers focused on their occupancy cost, i.e., are they able to generate the sales to be able to pay the rents to be in your street locations? Kenneth Bernstein: Yes. I think a few things are at work in terms of that. Some of the economic recovery that we're going through that some refer to as a K recovery. Certainly, the affluent consumer is driving more of this recovery, more of the spending than was historically the case, and that seems to be continuing. Couple that with the fact that the affluent consumer is who drives street retail and from our retailers' perspective, the shift from wholesale to stores, the shift to DTC, as I touched in my remarks, means that these retailers in order to capture that customer have to be on these key streets, means that they need these stores. And to your point, the sales are showing up, the profitability is showing up. The other thing, as I reflected on the last 6 months, we, as investors, perhaps were fighting the last war. And so immediately, when Liberation Day hit, we were all focused on, oh my gosh, the consumer is going to focus only on necessity items. Well, for some segments of the consumer, that may have been the case, those living paycheck to paycheck. But in general, the affluent consumer has continued full speed ahead and thus, our retailers has followed. And I guess my takeaway was we thought with Liberation Day, it was what you are selling, i.e., necessities versus discretionary. And it's really more about who are you selling to and how are you selling? Who, meaning to the customers who are shopping on our streets and then how our retailers recognize that the physical channel in an omnichannel world is by far the most profitable. All of that's leading to this much longer-term trend, what I refer to as a secular trend of the street locations being must-have for a wider and wider variety of important retailers, and that's why you're seeing the kind of results that A.J. discussed. Operator: And our next question will come from Linda Tsai with Jefferies. Linda Yu Tsai: A question for John. The 5% to 9% same-store growth ex redevs in '26 is impressive considering the tough comp in '25. But could you go into some of the considerations of what would make you hit the 5% versus the 9% since it's a wide range? John Gottfried: Yes. Linda why don't we first start with -- and I know I throw a lot of numbers out there. When you look at the transcript, you could digest them. But a couple of data points that gives us confidence in doing that. If you look at the commencements, this quarter alone, right, with the $6.7 million that commenced, our incremental pickup from that is $4 million plus of what we have in our SNO that will commence. So this is all same-store, another $3.5 million. So when you apply both of those numbers together, you're above 5% already in that number. You then have contractual growth that's going to go on top of that. And not to accept there's going to be move-outs as there's always in that portfolio. But in terms of our level of conviction, we feel really good about the 5%. And to get us to the 9%, it's -- as I mentioned, we have some leasing in the normal course to do. So it's how quickly do we get some of those spaces leased and open, gets us to the 9%. But that factors in as we sit here today, rollover credit, et cetera. But we'll update that as we get closer, but feel pretty confident of that range for sure. Linda Yu Tsai: And I have a follow-up for Ken. If you could snap your fingers and vastly increase your street retail concentration in 1 or 2 specific markets, which would they be? Kenneth Bernstein: Oh, no. Thank goodness. I don't get to snap my fingers. So of our existing markets, there are some that are up and coming and intriguing. San Francisco certainly would fall into that category. Their new mayor is doing a fantastic job, and we're enjoying the tailwinds in our 2 redevelopments. I'd be happy to see more there. Dallas, certainly of one of our existing markets, strong demographic trends, and we're capturing the right retailers at the right time. So those will be 2 that would add good balance, good diversity overall. But open order from, frankly, most of our markets. M Street, there's no reason we shouldn't continue to add there. New York selectively, no reason we shouldn't add there as well. Operator: And our next question will come from Craig Mailman with Citi. Craig Mailman: Just to go back to the acquisitions, just to clarify. So Reggie, should we take away from it that there could be up to $500 million of potential deals in 4Q? And is that like a gross number and maybe your net would be lower as you partner with people? Can you just kind of put some goalposts around it? Reginald Livingston: Yes, that's a gross number. And just to be clear, when I talk about this pipeline, this is the product of exclusive negotiations, right? So it's not just, "Oh, there's an OM on the street and I'm just included in the pipeline." These are specific conversations we're having, but that is a gross number that we could achieve in the fourth quarter. Kenneth Bernstein: And keep in mind, Craig, somewhat coincidentally, but conveniently, the earnings accretion, whether it's on the investment management platform side or on the street retail from an earnings perspective only, they're both about equally accretive on a gross-to-gross basis and our effective input. So from an earnings perspective, the same. That being said, we certainly appreciate the importance of us adding the street retail piece, the long-term permanent ownership. Craig Mailman: Right. And so it could be $0.025 accretive on an annual basis is what you're saying, given the magnitude in your historic $200 million or $0.01 for every $200 million. Kenneth Bernstein: Exactly. And that's still playing out at... Craig Mailman: Okay. Then... Kenneth Bernstein: Go ahead. Craig Mailman: Okay. So I was just going to say from the financing perspective, right, you guys have -- you did the forward equity. You potentially have some capital coming back in from the recap of the 2Q acquisition. And then you guys have -- clearly, the debt market is wide open here. So from a -- as we think about kind of sources to fund this and maybe timing with taking down some of that forward ATM and some dispo proceeds, like how should we think about that whole mix given maybe what you guys have in the fourth quarter plus Henderson Ave financing to continue, right? And that's a higher return, so maybe you earmark more equity for that versus more debt for acquisitions? I mean could you just talk about the puts and takes on how you guys are thinking about that to maximize accretion? John Gottfried: Yes. Why don't I start and then, Ken, if you want to jump in. But I think, Craig, the way we want to -- the way that we're going to manage the balance sheet is that we're going to stay on a pro rata basis debt-to-EBITDA, inclusive of whatever share we do in Investment management, sub-6 and sub-5 where we just look at rebalance sheet debt to EBITDA. So that's just sort of our goalpost as to where we're looking for. And we look at -- you mentioned the liquidity in the debt market, and it is outstanding in terms of both primarily on the secured side, we're seeing incredible tightening of spreads and availability of capital. But on the unsecured side, we are borrowing at 120 over. So we look at on a 5-year swap that we borrow on an unsecured basis, we'll be able to do in the mid-4s. So when we look at the mix of what we do -- so think of those goalposts as to where we're going to keep our debt-to-EBITDA targets. We have plenty of liquidity available. Our revolver is virtually completely untapped. And you mentioned we have the proceeds coming back from the recap of the asset we did during the second quarter. So plenty of liquidity that are going to be able to manage the acquisition pipeline that's coming on, and we're going to do that in the most efficient way possible. Kenneth Bernstein: Yes. And just to clarify or just so that there's no doubt, we are in a position now to fully fund all of those opportunities as well as play offense going forward. And what John is articulating is the wide variety of choices we have in terms of how we fund this, both in the secured debt market for our investment management platform and then the unsecured market. Operator: And our next question comes from Andrew Reale with Bank of America. Andrew Reale: I guess first on the investment management platform. First, on West Cobb, Reggie, I think you said you're close to closing with an institutional partner there. So I'd just be curious to kind of hear how the level of demand from potential partners was after you closed on that asset? And maybe just more broadly, are you seeing increased partnership interest from institutional capital? And how might that be shaping your investment management strategy overall? Reginald Livingston: Yes. We're seeing broad demand. There's a lot of institutional investor demand. All of the fundamentals that A.J. and Ken have discussed are not a secret anymore. I feel like they were a secret for some time with institutional investors. But now the note is out, everyone gets it and everyone is looking to do retail. What they're finding at the same time is retail can be very idiosyncratic. And so you have to have best-in-class operators in order to do it. So we're certainly on inbounds of a lot of groups saying, "Hey, we want retail, but we need a best-in-class operator to do it." So whether it be Pinewood or Cobb, we have no shortage of opportunities to recap those 2. And as far as on a go-forward basis, we feel really good that we'll be able to do all the deals that we want to do from the investment management platform and find the capital as needed. Andrew Reale: Okay. And maybe one for A.J. Specifically at the core properties you've acquired this year, I'd just be curious what proportion of that mark-to-market and pry loose opportunity kind of has already been addressed or is going to be addressed by year-end versus how much is still left to be realized in '26 and beyond? Alexander Levine: Yes. Well, we're not going to get into specific numbers, but I'll tell you a few things, right? I mean we look to number one, the incredible growth we've seen in these markets, right? 15% sales growth in SoHo, 30% Bleecker, 40% in Chicago. We look at tenant health, right, which is stable and only improving as those sales outpace contractual growth, demand at the highest level it's been in a decade. And then, of course, the scale that we've built in these markets to capture that. Couple that with what we've already accomplished this year through our pry loose strategy, right, taking back 9 spaces, re-leasing them at an average spread of about 32%. That should give you an indication of where our markets stand and the opportunity that we think is ahead of us in each one of those markets. Operator: And our next question will come from Todd Thomas with KeyBanc. Todd Thomas: First, I wanted to follow up on the funding questions around investments. Any sense what the split might look like on that $500 million pipeline between core and investment management deals? I'm trying to just get a sense what the net number might sort of look like as you're looking at that today? And then, John, it doesn't sound like the accretion math changes right now for the current pipeline with the capital that's been raised. But does the current stock price and your current cost of equity capital change how you would think about funding future investments or the returns that you might require going forward? John Gottfried: Yes. Let me start with that and then kind of Reggie can take the second piece. So Todd, at the current, and we highlighted where we raised the equity just under $20 a share, which is lower than we had done previously in the past year or so. But what has counterbalanced that where we look at our funded cost of capital is the debt market. So if we do and what we're going to do is on a leverage-neutral basis. So with the mix between the debt portion and the equity portion, we're in the mid-5s when we look at the -- when we put in -- using the FFO yield on the equity raising at the price that we did it at, plus the mid-4s on the debt piece. So that's where our all-in funding cost, and I'll let Reggie and Ken talk about where we can deploy that and grow accretively at that $0.01 per 200. But that's how we're looking to fund it, and we can do it accretively and it's stuff we want to buy with the current capital markets. Kenneth Bernstein: Let me take a stab then at the first part of the question where Todd asked, how much is the breakout between the investment management platform or on balance sheet. Let me take a stab at not answering that, Todd. And I apologize, but I've always struggled with providing too much information about deals that are in our pipeline because I don't think it creates shareholder value. I think it actually hurts to provide too much information and sellers hear about it and this or that. We have a robust pipeline. Otherwise, we wouldn't mention it. It is earnings equivalent either way. And as John just said, we are in a current position where we can fund all of it if it were all street retail or all investment management platform. So no one should have any funding concerns. And then I will be that, and we're going to be that vague until we see which ones get done by year-end, how much of those then fall into the next quarter. But I'm confident that there are investment management platform deals that are going to be very accretive, very exciting, very profitable. And I'm even more confident over the next quarter, but more importantly, over the next year or 2 that we're going to continue to grow that street retail accretively, notwithstanding a volatile REIT market, accretively and profitably as we continue to drive Acadia to be the premier owner-operator of street retail in the U.S. Quarter-to-quarter, I just don't want Reggie to answer that question, even though he knows the answer. Todd Thomas: Okay. Understood. My other question, A.J., you mentioned that the suburban portfolio is performing well, but noted the growing delta in growth rates between the street and suburban portfolios, which we've seen now for quite some time. The company sold one asset in Dayton from that suburban portfolio. Can you just comment on pricing for that disposition and whether or not you'd consider selling more suburban strips to improve portfolio growth and sort of further reshape the complexion of the portfolio overall or accelerate that? Alexander Levine: I'm happy to take a guess, but I'll pass it off to Reggie. I think he's probably better equipped to answer that one. Reginald Livingston: Yes. Look, if we can accretively dispose of assets that are no longer core, Dayton, that's a legacy Acadia asset. If they're no longer core and the business plan is finished, and we can sell those assets and accretively redeploy, we'll always look at those opportunities to do so. Kenneth Bernstein: Todd, the devil's in the details of transaction costs, friction costs, tax issues and all of that. So it's not as easy as snapping my fingers as someone said earlier. But you should expect the majority -- vast majority of our growth to be street and urban and over time, whether we cycle assets into our investment management platform, which you have seen us do or just outright sell them, that's how we will be dealing with the suburban side. That being said, and it's important to note, suburban retail has real tailwinds as well. There's nothing about us focusing our long-term REIT ownership on street retail that in any way negates us being opportunistic on acquiring shopping centers in our investment management platform. That's where they belong, utilizing more leverage and being leveraging off of our institutional equity partners as well. Operator: And the next question will come from Michael Mueller with JPMorgan. Michael Mueller: First, I guess, what was the ballpark range of rents that you achieved on the 300 to 400 basis points of street openings that occurred during the quarter? John Gottfried: Yes. So A.J., maybe give some color on the biggest markets where of the openings were in Chicago and D.C. So maybe just talk about those 2 markets that -- on Walton and M Street. So maybe to see what -- just talk through the range on that. Alexander Levine: Yes. Specific to the properties that we rolled online. I mean those are -- especially in those markets, those are multilevel space. There's a lot of nuance within those markets. So it's really hard to peg a per foot number. I can talk to you about growth in each of those markets... John Gottfried: [ Footage ] on the ground. What would you say the ground would be on... Alexander Levine: Armitage. Yes. Ground on Armitage is, let's call it, between $120 to $130 a square foot. And Wisconsin Avenue seeing real increase in rents there. I mean, rents are up to the $150 a foot range. John Gottfried: And then on Walton Street. Alexander Levine: On Walton Street, ground floor space at this point is leasing for, call it, $350 to $400 a square foot, which again is pretty remarkable when we look at where we were even just a few years ago. Michael Mueller: Got it. Okay. So if we think of those numbers and try to do some blending, that's probably representative of the blended rent for the 360 basis points that came on? John Gottfried: Probably is, Mike. And then here's the challenge that I know you and I have had multiple conversations on. A, just a wide range that A.J. gave would give one challenge. Secondly, if you just look at square feet, and if you look at the one building that came on in Chicago, it's 2 floors, right? So it's 2 floors. So the second floor is going to get a different attribute. So I would -- as we've talked about in the past, I would love to just say you could just use a single dollar mark, $137.5 per square foot, but it really, really depends on the building that's going in because it really can move the needle dramatically. Michael Mueller: Got it. Okay. And then the second question, for the City Point conversions, are there any more expected over the near term? John Gottfried: I would say at this point, we don't have new information as to -- we now own 80%, so there's another 20%. Look, I would say that -- and we're not putting out guidance, but I was putting out -- if I was forced to put out guidance at this point, I would assume that, that comes out in '26, Mike. But we don't have new information. But I think for modeling, you should assume that, that does come out in '26. Operator: And our next question will come from Paulina Rojas with Green Street. Paulina Rojas-Schmidt: I only have one question. The strong underground fundamentals you have described extensively in this call, I don't think they have been reflected in the year-to-date performance of the stock. So what do you see as the main drivers behind that share pullback? And what would be your contra arguments to the market's reaction? Kenneth Bernstein: I wish I could control our stock performance, I can't. We are doing as good a job as we can is providing additional clarity, and I think this will be important of top line growth hitting the bottom line. But what we have seen, and I've been through more than a few cycles, is if we take care of our day-to-day business, meaning leasing and acquisitions, sooner or later, the market follows. I always prefer if it's sooner. And I'd say over the last 6 months, it's been a little frustrating that it's taking longer for us than I think is deserved. But Liberation Day was very disconcerting for a lot of different folks. And the immediate conclusion that discretionary retail was going to somehow be significantly impacted and high rent street retail even more so turned out to be dead wrong. Our retailers have done a fantastic job of navigating around supply chain and the consumer has hung in there. Now whether it takes us 3 months, 6 months or 9 months, sooner or later, what we have found is shareholders get it. And when we're posting the kind of results that we are at the real estate level, well, I'm going to rely on you, Paulina, to get the story out of what you saw in Chicago, what is going on in San Francisco, what is happening certainly in M Street and things like that because when people see it with their own eyes, then sooner or later, it shows up. And if we continue to deliver at the property levels, both in terms of internal growth, external growth, we've seen time and again the stock recovers, not fast enough for my impatience, but overall, it tends to work. And so I believe it will. That being said, I'd rather it be sooner than later. Paulina Rojas-Schmidt: Okay. Hopefully, you're right and things go your way. Kenneth Bernstein: We're counting on Green Street to help us. Did you have a follow-up? Operator: My apologies. Kenneth Bernstein: No, I'm going to add one other thing to help Green Street and everyone else, and John maybe chime in. One area that continues to frustrate me is leasing spreads. We have said in the past, not all spreads are created equal. John, why don't you chime in just quickly because we have a minute or 2. John Gottfried: Yes. And I think where we look at that calculation, there's lots of metrics out there. I think the one that Ken mentioned, not created equal, and we have a -- anyone interested, we have a page in our deck, but the simplest form that if we look at, and we have both of them, a suburban lease and a street retail lease that we would need to accomplish the same growth rate that from the time the lease started to the time we get to mark that to market, we would need probably more than double the spread that we get from suburban than we would on the street because of the 3% contractual growth as part of the street piece. So that's one metric that I think that we want to keep reminding folks that we have the 3% contractual growth. And when you look at a spread, that sort of ignores what you have done historically. Kenneth Bernstein: So Paulina, you can add that to your thoughtful pieces. And operator, I think that concludes all of the questions. So I'd like to thank everybody for taking the time to meet with us. Thank you to the team for producing some extraordinary results. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.