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Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to ACADIA Pharmaceuticals' Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Al Kildani, Senior Vice President of Investor Relations and Corporate Communications at ACADIA. Please go ahead. Albert Kildani: Good afternoon, and thank you for joining us on today's call to discuss ACADIA's third quarter 2025 financial results. Joining me on the call today from ACADIA are Catherine Owen Adams, our Chief Executive Officer, who will provide some opening remarks; followed by Tom Garner, our Chief Commercial Officer, who will discuss our commercial brand, DAYBUE and NUPLAZID. Also joining us today is Elizabeth Thompson, PhD, Executive Vice President, Head of Research and Development, who will provide an update on our pipeline programs; and Mark Schneyer, our Chief Financial Officer, who will review the financial highlights. Catherine will then provide some closing thoughts before we open up the call to your questions. We are using supplemental slides, which are available on our website, Events & Presentations section. Before proceeding, I would like to remind you that during our call today, we will be making several forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including goals, expectations, plans, prospects, growth potential, timing of events, future results and financial guidance are based on current information, assumptions and expectations that are inherently subject to change and involve several risks and uncertainties that may cause results to differ materially. These factors and other risks associated with our business can be found in our filings made with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are made only as of today's date, and we assume no obligation to update or revise these forward-looking statements as circumstances change, except as required by law. I'll now turn the call over to Catherine for opening remarks. Catherine Owen Adams: Thank you, Al. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report another strong quarter for ACADIA with solid execution across our commercial portfolio and continued momentum positions us well for a strong finish to 2025 as we lay the foundation for sustained growth into 2026 and beyond. We delivered total revenues of $278.6 million this quarter, up 11% from a year ago, reflecting the strength of our commercial portfolio. This performance underscores our ability to execute on multiple fronts while building for future growth. Starting with DAYBUE, we're very pleased with our progress. Following the expansion of our field force earlier this year, the benefits of which are now starting to materialize, I'm excited to share that we achieved our largest sequential increase in referrals since launch. This meaningful sequential growth reflects the impact of our expanded team into the community setting, giving us confidence that we will continue to see benefits from our broadened physician reach. During the third quarter, DAYBUE generated $101.1 million in net sales, including contributions from both U.S. sales and named patient supply programs outside the U.S. We shipped the highest number of DAYBUE bottles ever in a single quarter. In total, we shipped to over 1,000 unique patients globally, an exciting milestone for the company. Importantly, patient persistency remains stable, underscoring the sustained benefit DAYBUE delivers to patients and their families. Moving to NUPLAZID. We delivered an exceptional quarter with net sales of $177.5 million, marking our strongest sales quarter ever. The momentum we are now driving gives us tremendous confidence in NUPLAZID's potential to unlock higher growth in the coming years. To ensure we capture this opportunity, we're making strategic investments in a meaningful field force expansion. The impact of this field team expansion, combined with our direct-to-consumer campaigns creates a powerful combination that we believe will drive sustained growth and value maximization for NUPLAZID. We're looking to build on our commercial success by advancing our pipeline of novel product candidates, including the recent initiation of one Phase II and one Phase III trial. I'll now turn the call over to Tom to cover our commercial performance. Thomas Garner: Thank you, Catherine. I'll begin with DAYBUE, where we delivered another strong quarter of commercial execution. DAYBUE sales were $101.1 million in Q3, representing our highest revenue and total prescription volume in any quarter to date since launch. As Catherine noted, for the first time since approval, the number of unique patients receiving DAYBUE worldwide exceeded 1,000 in a single quarter for an actual count of 1,006. This achievement reflects not only our progress in the U.S. but also from patients now starting to access DAYBUE through our named patient supply programs internationally. We're seeing strong early indicators from our field force expansion. Referrals are leading the way with the highest quarter-over-quarter increase since DAYBUE's launch in 2023. This momentum is translating into other key performance indicators such as broadening prescriber reach with 956 physicians having now written at least one prescription for DAYBUE. Our sales teams are now gaining real traction with call volumes on our expanded target customer base increasing over 20% versus Q2, supported by a similar increase in the number of educational programs we delivered, both of which are important levers in helping to educate prescribers on the benefits that DAYBUE has to offer. Importantly, adoption is broadening beyond Centers of Excellence, or COEs, with community-based physicians accounting for 74% of new prescriptions in Q3. We're also seeing a meaningful uptick in scripts from nurse practitioners and physician assistants, reinforcing that our strategy to expand in-person efforts into the wider Rett treating community is working. These trends position us well to reach more Rett patients who could benefit from DAYBUE. Even with this progress, overall market penetration remains relatively low at about 40% in the U.S. and only 27% in the community setting where the majority of Rett patients are treated. This continues to represent a substantial growth opportunity for the brand. Looking at age demographics, penetration among patients under the age of 11 is over 60%, but amongst older patients is significantly lower despite growing real-world evidence of DAYBUE's positive impact in this group. As we expand our reach beyond COEs, we see this segment as a significant growth driver for 2026 and beyond. Long-term persistency remains a key strength for DAYBUE, reflecting its sustained clinical benefit and strong patient engagement. With another quarter of maturity in our data, persistency rates remain above 50% at 12 months and greater than 45% at 18 months. The strength of these metrics are important as they further reinforce not only our confidence in DAYBUE's therapeutic value but also our outlook for sustainable long-term growth in the U.S. Internationally, our named patient supply programs continue to gain traction. All 3 distribution partners are now actively shipping to patients in the EU, Israel, Middle East and Latin America. Looking ahead, we remain confident in DAYBUE's growth outlook, driven by sustained demand generation supported by our strategic field force investments, strong persistency metrics and expanding global access. These factors are critical because they are -- not only validate the long-term value of DAYBUE for patients but also create a durable foundation for revenue growth. While we began to see the initial positive impact from the field force expansion in Q3, we expect meaningful benefits to accelerate through Q4 and into 2026. In summary, DAYBUE is well positioned to capture significant market opportunities in the U.S. and internationally, reinforcing our commitment to delivering both patient impact and shareholder value. Now turning to NUPLAZID, where we delivered record performance with net sales of $177.5 million, representing 12% year-over-year growth, driven by 9% volume growth. This reflects strong underlying demand for NUPLAZID among patients with Parkinson's disease psychosis, or PDP, and the success of our commercial strategy, coupled with the unwavering focus of our customer-facing teams on executional excellence. Referrals were a key driver of this momentum, increasing 21% year-over-year. This growth signals increasing awareness and confidence among health care providers in identifying and treating Parkinson's-related hallucinations and delusions earlier in the course of the disease. New prescription volumes grew 23% in Q3 compared to the same quarter last year, representing the strongest year-over-year increase since 2019 and were up 9% sequentially. This inflection point demonstrates that our patient engagement campaigns and HCP outreach are translating into tangible prescribing behavior. It also underscores their belief in NUPLAZID's differentiated profile as the first and only FDA-approved therapy for PDP with a well-established safety and efficacy record. Taken together, we believe these trends are an important leading indicator of future prescribing behavior and reinforce the strength of NUPLAZID in meeting a critical unmet medical need. As a reminder, the U.S. PDP market represents a significant opportunity. There are approximately 1 million Parkinson's patients with an estimated 50% experiencing hallucinations and delusions at some point during the course of the disease. This translates into a substantial number of patients who could benefit from NUPLAZID, underscoring the long runway for growth. Looking ahead, we see significant opportunity to build on this momentum. Our reach and frequency model is driving broader prescribing patterns across a wide range of HCPs and our direct-to-consumer campaigns are raising awareness of PDP symptoms while highlighting NUPLAZID as the first and only approved treatment. To fully realize NUPLAZID's long-term potential and capitalize on the brand's strong momentum, we are making strategic investments, including a 30% increase in our customer-facing team starting in the first quarter of 2026. This expansion will allow us to reach newly activated physicians and improve pull-through. We are approaching this expansion thoughtfully to maximize near-term efficiency and long-term impact. Our various consumer initiatives are driving awareness and creating demand with our expanded field force ensuring we efficiently convert that demand into prescriptions. In summary, the NUPLAZID fundamentals are strong. The market opportunity is substantial, and we have a proven strategy designed to capture it. With a differentiated product profile, accelerating demand indicators and targeted investments in our commercial model, our ambition is not just to grow but to become standard of care for these patients. I'll now turn the call over to Liz. Elizabeth Thompson: Thank you, Tom. I'm pleased to share some updates on our pipeline, where we continue to make encouraging progress across multiple programs that hold meaningful potential for the future. We've achieved some important milestones recently, including the successful initiation of our Phase II study for ACP-204 in Lewy body dementia psychosis and the initiation of our Phase III study of trofinetide in Japan. Looking ahead, our next expected milestone is the initiation of a Phase II study for ACP-211 in the fourth quarter of this year. We are developing ACP-211 in major depressive disorder, a common condition with significant unmet need. Then in Q1 2026, we expect to initiate our first-in-human study of ACP-271 in healthy volunteers. To our knowledge, this will be the first time a GPR88 agonist enters the clinic, and it moves us along the path of development, targeting the indications of tardive dyskinesia and Huntington's disease. We also have important projected study readouts coming. We anticipate reporting results from 4 Phase II or Phase III studies between now and the end of 2027, underscoring both the breadth of our pipeline and the momentum behind our R&D strategy. Our next major readout is expected to be ACP-204 in Alzheimer's disease psychosis in mid-2026. We're particularly excited about this opportunity and what success could mean for the future trajectory of our company. The unmet need here is substantial. The market opportunity is large, and we have built this program based on a substantial body of learnings from pimavanserin at both the molecule and the trial level. Now switching gears to our international expansion efforts. First, I wanted to provide an update on the regulatory process in the EU for trofinetide. We've been informed by EMA that the earliest that a scientific advisory group could be held would be January. Given this, we now anticipate a CHMP opinion in the first quarter and the EC regulatory decision following the standard regulatory time line. Meanwhile, in Japan, we've successfully initiated our Phase III study, representing a key step towards potentially bringing trofinetide to patients in this important market. Now before I close, I wanted to take a moment to acknowledge and thank everyone involved in our COMPASS Prader-Willi syndrome study and the ACP-101 clinical development program. We are so grateful for the dedication and contributions of the patients, families, study site personnel and physicians who participated. While the outcome wasn't what we hoped for, we hope that learnings from the trial will benefit the Prader-Willi community, and we're actively sharing our insights while we work to add the findings to the scientific literature. Our pipeline continues to represent a powerful engine for future growth as we look to advance therapies for underserved neurological disorders and rare disease communities. We anticipate continued activity across our pipeline over the coming years with multiple programs progressing through key stages of development. As a reminder, across our 8 disclosed programs, we anticipate initiating 5 additional Phase II or Phase III studies between now and the end of 2026, demonstrating the depth and diversity of our development portfolio. And of course, we anticipate reporting 4 Phase II or Phase III study results in 2026 and 2027. And now I'll pass over to Mark for a review of our financials. Mark Schneyer: Thank you, Liz. Let me walk you through our third quarter financial results. We delivered an excellent quarter that underscores the robustness of our commercial portfolio, which enables us to generate strong revenue and cash flows while continuing to invest strategically in growth opportunities. The third quarter was strong across the board with $278.6 million in total revenues, up 11% year-over-year. DAYBUE achieved net sales of $101.1 million, up 11% year-over-year, all of which is attributable to volume growth. The gross-to-net adjustment for DAYBUE in the quarter was 22%. NUPLAZID delivered net sales of $177.5 million, up 12% year-over-year, with 9% of that growth attributable to volume. The gross-to-net adjustment for NUPLAZID was 25%. Turning to operating expenses. R&D expenses were $87.8 million in the third quarter, up from $66.6 million in the third quarter of 2024, with the increase primarily attributable to higher clinical trial expenses from our ACP-204 LBDP and ACP-101 programs and personnel expenses, partially offset by lower clinical spend from programs that have completed. SG&A expenses for the third quarter were $133.4 million, essentially flat with the prior year. Turning to the balance sheet. We ended the quarter with $847 million in cash compared with $762 million at the end of the second quarter. Looking ahead to our full year 2025 guidance. We're making targeted updates that reflect our strong performance and outlook. For NUPLAZID, we're raising the lower end of our guidance range and increasing at the high end to $685 million to $695 million, up from $665 million to $690 million, reflecting the momentum we're seeing in the business. For DAYBUE, we're modifying to include contribution from our named patient supply programs and narrowing our prior guidance range and now expect $385 million to $400 million compared with prior guidance of $380 million to $405 million for U.S. only. Regarding operating expenses, we now expect R&D expenses of $335 million to $345 million compared with prior guidance of $330 million to $350 million. For SG&A expenses, we now expect $540 million to $555 million compared with prior guidance of $535 million to $565 million. Our financial strength positions us exceptionally well to finish 2025 strong while making the investments necessary to drive sustained growth in 2026 and beyond. I'll now turn the call back to Catherine for closing remarks. Catherine Owen Adams: Thank you, Mark. As we wrap up today's call, I wanted to emphasize our commitment to finishing 2025, getting over $1 billion in total revenues, positioning ACADIA for continued growth in 2026 and beyond. We continue to be confident in the stability and growth trajectory driven by our new sales team for DAYBUE, reflected by the over 1,000 patients globally who are now on treatment. We're focused on unlocking NUPLAZID's full potential with our strategic field force expansion and proven patient engagement campaigns. And we now have the elements in place to further accelerate that growth. We are dedicated to advancing our robust pipeline, as Liz has described, and look forward to the 4 major readouts expected in 2026 and 2027. We also continue to focus on expanding our portfolio through business development with our strong balance sheet providing flexibility to pursue partnerships and acquisitions. Ultimately, our mission drives everything we do, to turn scientific promise into meaningful innovation that makes a difference for underserved neurological and rare disease communities around the world. We are here to be their difference. I'm excited about what lies ahead for ACADIA, and I'm confident that our strategic investments and unwavering focus on our patients will deliver value for all of our stakeholders. And with that, I'll turn the call back to the operator for questions. Operator: [Operator Instructions] That first question comes from the line of Ritu Baral with TD Cowen. Ritu Baral: I wanted to ask about the expanded NUPLAZID client-facing force. Catherine, how is that organized? Is it along the lines of focus on the newly activated prescribers? How should we think about it in terms of community versus long-term care facilities, which is a way that historically ACADIA has broken up the population for NUPLAZID? And which of those 2 has the most likelihood for continued growth as you see the market right now? Catherine Owen Adams: Thanks, Ritu. Appreciate the question. I'm going to ask Tom to explain. He's been leading this charge for us. So Tom? Thomas Garner: Thank you for the -- thanks for the question. So as we think about the expansion that, as we mentioned, we plan on executing in Q1 of next year, there's a few different factors, I would say, are playing into our thinking. So as you think about kind of the new writer base, if we look at kind of dynamics during Q3, we actually saw that in terms of our overall prescription volume, 26% actually came from new writers. So I think this really talks to the way that our campaigns are working, the execution of the field force. And it's been that kind of underlying dynamic that we've actually seen throughout the year but actually accelerated in Q3 that's really given us the confidence to pull forward this investment into Q1 of next year. In relation to your question regarding community versus LTC, actually, we're seeing growth across all channels. We're seeing growth both in the community setting and in the LTC setting as well. And there are various channels that we see the NUPLAZID scripts being pulled through. So in essence, we're investing in both. If you're looking at it from an absolute kind of percentage terms, we're actually investing slightly more on a percentage basis in the community, but at the same time, we are going to be modestly increasing our LTC team just given the dynamics that we're seeing in that space as well. So long story short, we're investing in both and at the same time, making sure that wherever we see a NUPLAZID script, we're able to pull that through as optimally as possible. Operator: Your next question comes from the line of Yigal Nochomovitz with Citigroup. Yigal Nochomovitz: I have one on ACP-204. With the top line data for Phase II coming out middle of next year, I'd be curious if you could comment briefly on what you would see as a clinically meaningful score on the SAPS-H+D score and also, if you could just discuss related to that why that particular scale is a good one to use in this context. Catherine Owen Adams: Thanks, Yigal. Liz is leading that for us, so I'm going to ask her to comment on the scales and the confidence around both [indiscernible]... Elizabeth Thompson: Yes, absolutely. Thank you. So I'll go in reverse order, I suppose, and start with SAPS-H+D and why we landed there for Alzheimer's disease. So SAPS-H+D is actually an end point that we do have some experience with in our prior pimavanserin trials. It was involved in the pivotal study for PDP, and it was also part of the relapse criteria in HARMONY. And so overall, we feel like we have a good understanding of that end point and its responsiveness. It is well set to measure the domains that we think are important in this patient population. And it's one of several end points that are in the literature that are supported as being relevant for this patient population. We are measuring other things as well. So that is how we landed on this as the primary end point for the Phase II portion of this study. In terms of how we're looking at this, I'll -- first, I'll note the powering piece, and then I'll talk a little bit about what we're looking for in this trial. In terms of how we size the trial, we actually did this on effect size, and so we're looking for roughly a moderate effect size, a 0.4 effect size on SAPS-H+D. But really, what we're looking for in the Phase II is to continue to understand how we progress towards our overall target product profile for 204, and that certainly has an efficacy component to it, but it also is about making sure that this is appropriate for use in this patient population. I think there are a number of important unmet needs here, sparing cognition, avoiding daytime sleepiness or sedation, avoiding increasing risk of falls or fractures, avoidance of motor adverse effects. So there's a number of things we're going to be looking for that we feel good about based on what we know about 204's profile, but we're sort of holistically going to be looking at the profile of the drug in this trial. Operator: Your next question comes from the line of Tess Romero with JPMorgan. Tessa Romero: So for DAYBUE, you cited the highest quarter-over-quarter referral growth since launch this quarter. Double clicking, how do you think new patient starts will look sequentially here over the next few quarters in light of the growth you are seeing? And second one is just a quick housekeeping. When do you think you will finish enrollment in the Phase II trial in ADP? Catherine Owen Adams: Thanks, Tess. I'll ask Tom to kick off about the referral dynamics we're seeing and we saw in the quarter and then Liz to talk about 204. Thomas Garner: Yes. So thank you for the question. In terms of DAYBUE and referral dynamics, we're really encouraged by what we saw. In Q3, we saw actually our highest rate of referrals since essentially launch. And if you look over the last 12 months, we're really growing at a pretty decent rate now, which is very encouraging. In terms of pull-through, just given standard dynamics that you would expect, it does take some time for a referral to then become an actual new-to-brand prescription. Given the dynamics that we saw during Q3 and the acceleration that we saw, we would anticipate that we'll continue to see growth in actual active patient counts through Q4 into 2026 and beyond. Catherine Owen Adams: Liz, do you want to touch on 204? Elizabeth Thompson: Right. Sorry, 204. So again, just reiterating the [ predicting ] midyear for top line results here. We're really keeping a careful eye on enrollment for the right patient populations. I don't have an exact date of final enrollment here, but we anticipate that, that would be occurring sort of in the Q2-ish time frame to enable that midyear. Operator: Your next question comes from the line of Brian Abrahams with RBC Capital Markets. Brian Abrahams: Congrats on the quarter. Maybe another question on 204. Can you talk a little bit about maybe the overall study conduct, how you're feeling about that? And are there any -- I guess, any -- have there been any -- or will there be any looks at the blinded safety data that might inform the potential around having the QTc prolongation advantage or anything you could learn about things like risk of falls or some of the other aspects of the profile that you talked about that could give you kind of an early read into that? Catherine Owen Adams: So first, overall, pleased with how the study is progressing thus far in terms of behavior of sites, investigators, the patient population that we're getting in there. We are laser focused on making sure that we are getting the right patients in here, trying to -- not trying to, we are verifying them with biomarkers to make sure that this is a biologically confirmed Alzheimer's diagnosis, which we think is going to be important. From a blinded safety perspective, I'd say a couple of things. We do have a DSM-V that looks after this on an ongoing basis. So we would get any indication of anything that is concerning from that perspective, and thus far, they've been supportive of continuing the study on as planned. And we do monitor on an ongoing basis from just sort of medical monitoring perspective. That said, I don't like to comment on data from ongoing blinded trials because you never really know how that's going to sort out across arms. Operator: Your next question comes from Ash Verma with UBS. So Youn Shim: This is So Youn on for Ash. Just wanted to get back to the risk-adjusted peak sales guide that you have provided at your R&D Day. What is your latest thought on the $2.5 billion and $12 billion peak sales you provided on risk-adjusted and nominal basis? Catherine Owen Adams: It's a little bit difficult to hear, but I think what you asked was how our -- how we're commenting on our peak potential that we talked about at R&D Day and our expectations for the commercial portfolio within that same discussion. So let me talk about the overall aspirations for ACADIA. R&D Day, we shared that we aspire to achieve a $12 billion top line should all of our pipeline programs hit during the next 2 to 3 years. And as you know, unfortunately, our 101 program did not hit, and so we would take about $800 million to $1 billion from that top line expectation. So we would now, if we were speaking about the same thing, aspire to achieve the $11 billion total peak sales of our currently shared portfolio within that same group of compounds. In terms of our commercial aspirations, we shared the $1.5 billion to $2 billion for our commercial brands, NUPLAZID and DAYBUE, and we are still absolutely committed to deliver on that and look forward next year to share a little bit more clarity about both of those brands and our expectations for each of them so that you can understand where we see both of those in the next 2 to 3 years. Operator: Your next question comes from the line of Sam Beck with Deutsche Bank. Samuel Beck: This Sam on for David Hoang. Just a quick one from us on NUPLAZID. If you could just provide a little bit more detail on any drivers you're seeing behind the higher average net selling price in the quarter, that would be great. Catherine Owen Adams: Yes, I'll ask Mark to take the net selling price question around NUPLAZID. Mark Schneyer: Yes. I think at this point, I think when you take all the puts and takes that go into pricing and the fact that the majority or the supermajority of sales for NUPLAZID are for Medicare-based patients, kind of our year-over-year pricing is about the rate of inflation. That's been our expectation the whole year, except for the kind of onetime pricing benefit in the first quarter, and that's really what we saw in this quarter. Operator: Next from the line of Evan Seigerman with BMO Capital Markets. Malcolm Hoffman: Malcolm Hoffman on for Evan. For DAYBUE, with the CHMP opinion expected in the first quarter next year, how can you make sure scripts kind of get off the ground quickly after what could be a positive opinion there? Catherine Owen Adams: I'll let Tom take that. He's leading our European team. We're all getting ready for that right now. So Tom, why don't you share our plan? Thomas Garner: Absolutely. So thank you for the question, Malcolm. So as you'd imagine, there's a significant amount of energy being put behind our launch readiness planning in Europe. We're going to be following kind of the standard track that you see for any approval in Europe, so we will be out the gate first in Germany. And I can tell you, we're already gearing up to make sure that the team is ready to go there. So we already have a small group of key account managers. We have a handful of folks working on the medical side of the organization, and they've been very actively engaged already with prescribers -- well, actually with Rett treaters from across the universe. I mean, as you would imagine, each of the European markets looks very different to the U.S., but we are making sure that we have the right infrastructure in place, the right focus in place. And I'm pleased to announce that actually in this quarter, we opened our compassionate use program in Germany and have already had a number of requests from German HCPs to enroll their Rett patients in that program, which we think is a very nice kind of early indicator of enthusiasm to use the product. And obviously, we'll be making sure that, that experience is positive as we build out towards the launch. Catherine Owen Adams: Do you want to share a little bit more about the other countries who have also opened their program in the last quarter? Thomas Garner: Sure. So also pleased to announce that we have just opened programs in Italy and France. Again, we're pursuing wherever the regulatory and legal frameworks allow us to do so in early engagement programs. And as we mentioned on the call, we also have our ongoing rest of world patient access programs as well, which, again, encouragingly, we continue to see ad hoc requests in an unsolicited fashion coming through to the [indiscernible]. Operator: Your next question comes from the line of Sean Laaman with Morgan Stanley. Sean Laaman: I have a question on the 30% increased investment to NUPLAZID. I guess, could you describe in percentage terms of how many new prescribers you might be reaching with that investment? And what's the headroom there before you get near saturation? And if you can provide any guide on quantifying what the cost of that investment is, that would be really useful. Catherine Owen Adams: Yes. I'm going to let Tom talk about the increase, and we'll go from there. Thomas Garner: So as I mentioned a few minutes ago, we actually saw a very nice uptick during the quarter in terms of new prescriptions increasing through actually new writers, which was over 25% in the quarter. As we look ahead to kind of opportunities for growth and as we've really kind of done a deep dive on what that assessment looks like and where we see the opportunity, we see a ton of opportunity across a wider group of customers that we've been actually calling on to date. Just for reference, historically speaking, we've generally called on neurologists. We've called on some movement disorder specialists and some psychiatrists. But as we look at that 26% who are new to writing prescriptions for NUPLAZID, a ton of those are now coming from primary care. They're often nurse practitioners or advanced practitioners that are now writing NUPLAZID. And in reality, we want to ensure that wherever that prescription is written, whether it be for a patient in the community or in the LTC setting that we're really highlighting the benefit that NUPLAZID can offer. And just as a reminder, in terms of headroom, our share in terms of NBRx remains in the mid-20% range. So if you just think about the upside opportunity that we have, given the size of the overall PDP population in the U.S., there is still significant headroom for growth. And that's what we're aiming to tap into in 2026. Catherine Owen Adams: And I'll let Mark share a little bit more about how we plan to make that investment. Mark Schneyer: Yes. I think in terms of people, it's about 50 customer-facing reps. I think you can certainly use standard benchmarks for what that cost is. We don't dive into the exact cost at this level of detail but consider 50 reps plus some home office support and other things that go around that for the kind of overall investment. And we'll just share this kind of within our guidance for SG&A expenses next year. Operator: Your next question comes from the line of Tazeen Ahmad with Bank of America. Tazeen Ahmad: I maybe just wanted to ask about why you think now is the right time to add to the field force for NUPLAZID. And how are you deciding like what is the right size? Is this a final change or final increase that you think you need to make? Or are there certain targets that you might be monitoring? And if so, can you kind of share a little bit about how you are thinking about needing more or less people as this launch matures? Catherine Owen Adams: Yes, Tazeen, let me start, and then I'll let Tom dive into a little bit more of the details. I think as I came onboard last year in September, the team had just started their DTC communications, both the unbranded and the branded. And we weren't sure how impactful that was going to be. We knew it probably would have some traction. But again, we haven't really been in the DTC space for a while since pre-COVID, and we wanted to understand the impact of that type of DTC investment. We've now got a year under our belt, and we can see and you can see in the numbers real traction in terms of carers and their families being made aware of what the symptoms of Parkinson's disease can be beyond motor and then those sort of awareness levels now translating into moving into the physician office and physicians now also with our increasing real-world evidence and data generation around NUPLAZID being confident in prescribing it for the right patient to treat their hallucinations and delusions. So all of those metrics have come together. And with the important IP win that we had for NUPLAZID, allowing us to continue to feel confident about our IP runway in the U.S., we felt it was time to reassess the opportunity for NUPLAZID. Tom has been leading that reassessment. And from that, he has made the decision, and we have as a management team, that it's right to invest now. And so maybe, Tom, you can talk a little bit more about some of those investment decisions. Thomas Garner: Yes. I mean, I think, Catherine captured it really well. I mean it's really been a story of momentum this year for NUPLAZID, and Q3, in particular, has really seen this kind of step change in how we're seeing referrals across the board. And I think given that momentum, that gave us the opportunity and the lens to really have another look at what our customer model look like, especially as you think about the world where we're seeing a number of new prescribers outside of our core kind of target base really beginning to latch on to the benefit that NUPLAZID can offer and really engaging with this community in terms of where they're engaging with health care professionals, which, as a reminder, it can be quite challenging to get time with a neurologist or with a PDP specialist. And we think that with this expanded reach, we'll be able to actually help these patients really understand the benefit that they can afford and see with NUPLAZID beyond what we're doing today. So it's about really capitalizing on momentum and then ensuring that we have the right structure in place for both today and tomorrow, to your question, that we believe will put us in a really very strong position to maximize the opportunity ahead. Catherine Owen Adams: And just a final thought. We've been very focused at ACADIA on ensuring that we are building a company that's built on a foundation of analytics and insights and data. And within the new expansion, it's being fueled by analytics, data and insights, and we'll be using both that and AI on top of it to ensure that we really efficiently now find our patients and target them and so I think the combination of the new data being sort of driven by a focus on analytics technology. We have a new CIDO in place to help us drive that, and so I feel very confident that it will not only be an efficient focus but also a very effective one. Operator: The next question comes from the line of Jack Allen with Baird. Jack Allen: Congrats to the team on the progress made over the course of the quarter. I wanted to ask on the European opportunity for DAYBUE. I just want to [indiscernible]... Catherine Owen Adams: Jack, you just cut out at the end. I heard reimbursement in Europe. Could you just maybe just repeat the question for us? Jack Allen: Yes, sorry about that. I hope you have me better now. Yes, I wanted to ask about reimbursement in Europe. I know there were -- in Canada over the summer and wondered what your thoughts are and your early conversations are around payers in Europe ahead of a potential European launch for DAYBUE. Catherine Owen Adams: Thanks, Jack. So yes, we are obviously in the middle of discussions and thinking right now around reimbursement in Europe. And you're right, we did have a disappointing decision in Canada. Tom, do you want to share a little bit more about how we're thinking about reimbursement in terms of the sequential approach to that in Europe? Thomas Garner: Absolutely. So as I mentioned a few minutes ago, our plan would be that we launch first in Germany. And as a reminder, in Germany, as we launch, we have 6 months of repricing, which we will obviously think very carefully about what that looks like, especially just given some of the other dynamics that we continue to monitor across the board, such as MFN. But I think given the engagement that we've already started with payers and clinicians, we remain pretty confident actually that our European clinicians and the broader environment are seeing the benefit that DAYBUE can offer. And I think as we continue to generate new real-world evidence in the U.S., we're going to ensure that we leverage that as we go into discussions with European payers and beyond as well to really ensure that the value of DAYBUE is fully understood and realized across the markets where we're launching. So more to come. But again, I think we're excited about the opportunity in Europe and look forward to putting DAYBUE into the hands of many more patients who clearly deserve this treatment. Operator: Your next question comes from the line of Paul Matteis with Stifel. Julian Hung: This is Julian on for Paul. I guess just on ACP-204, I was wondering if you guys could clarify the exposure response relationship you've sort of seen from pimavanserin and the work you've done on ACP-204. You often allude to like your learnings that you've had from development as well -- from an execution perspective as well as from a scientific and biological perspective and why you believe greater potency with ACP-204 will translate to greater clinical benefit. Catherine Owen Adams: Liz? Elizabeth Thompson: All right. I'll try and get all the things that were in there. So starting with the exposure response. So both in the Alzheimer's disease population as well as in Lewy body, we do have some information from pimavanserin suggesting that with higher levels of exposure, you are able to get to higher levels of improvement on the clinical end points and that the median exposure that we're able to achieve with pimavanserin leaves some of that efficacy on the table. So it's sort of midway through that exposure response downward curve. And the reason for that, of course, is that, unfortunately, with pimavanserin, there was a tendency towards QT prolongation, which limited the ability that we could dose range. So we were not able to push the average patient up to the near maximal efficacy that you could get with a higher exposure level. With 204, we don't have that problem. So thus far, our nonclinical and our clinical data are supportive of the fact that there is not a signal of QT prolongation here. And overall, our experience has been such that it is supportive of moving to our current clinical doses, which we're looking at in our Alzheimer's and Lewy body programs, where the lower dose is roughly equivalent to the exposure with the marketed dose of NUPLAZID and the higher dose is roughly twice that. So those are the pieces that give us some optimism that we have the possibility of exploring higher levels of efficacy. But even if we are not able to actually achieve higher levels of efficacy with the higher doses, we do think that there are some program learnings that we're able to apply here. Certainly, in both cases, we have programs that are focused specifically on the disease under study. The pimavanserin data in Lewy body is promising, but it's a limited number of patients. And the Alzheimer's program had a single dedicated study and then a subgroup in an overall study. So here, we're going to be able to bring to bear much more robust data evaluating both of these disease states. So those are the things that we take together to give us some real enthusiasm about 204, which, again, we see as potentially having the possibility of really changing the trajectory of this company. Operator: Your next question comes from the line of Marc Goodman with Leerink Partners. Basma Radwan Ibrahim: This is Basma on for Marc. We have a question on DAYBUE. You mentioned that the penetration is lower in the patients older than 11 years old. Do you believe that this lower penetration is driven by the higher discontinuation in this age -- in this older age group? The reason why we're asking this question is we would expect that the improvement in communication skills and other effects may be minimal in the older patients and maybe that's a lack of effect to drive greater discontinuations. And also, could you clarify whether the age of Rett patients, in general, seeking treatment is skewed to the younger age group or it's basically uniform across the different age? Catherine Owen Adams: Thank you. I think there's some important opportunities there to clarify what the data actually says about DAYBUE efficacy across the age groups and to share a little bit more about what we're seeing in the field. So Tom, do you want to answer it? And if, Liz, you've got any efficacy points to add on top, that would be good. Thomas Garner: Absolutely. So thank you for the question. So I mean, going back to the original premise. Do we think that the reason that we are slightly lower penetrated in patients greater than 11 years and older is due to discontinuations? I don't think that that's the case. I mean, essentially, what we have to remember is the vast majority of patients who have been kind of treated so far, again, if we look at penetration by age are those in the 2 to 4 age bracket. Newly diagnosed patients, they're easy to identify, and they generally fall under the focus of the center of excellence. And I think that that's a group that we've been able to penetrate very early on. If you look at the last quarter, interestingly, 65% of our patients were actually older than the age of 11, so it's a group of patients that we believe that we can really begin to penetrate further still. And especially with our LOTUS real-world evidence generation, which, as a reminder, has patients as old as 60 included in it, we do continue to see a group of -- well, we continue to see patients seeing benefit irrespective of age. And this has been part of the strategy as we've extended our reach beyond centers of excellence because many of these patients who are slightly older, unfortunately, they sit within the community setting. They may not be under the care of a COE, and they may not even be aware of DAYBUE. In fact, we just heard about a patient story yesterday for a patient in Kansas, who was receiving Rett -- sorry, DAYBUE for the first time but before they came into the center have never even been made aware of DAYBUE. So I think it really does talk to the fact that we have more work to be done, both in terms of educating the community about what Rett is and what to look for and at the same time, ensuring that they understand the benefit that DAYBUE can offer to these patients irrespective of their age. Catherine Owen Adams: Liz, do you want to enhance a little bit on that? Or is there anything you want to add about the data that we've shared? Elizabeth Thompson: Sure. I mean -- so I agree with everything that Tom said there. I think that going back even to the original clinical trial, there is supportive data suggesting that there's efficacy in patients above 11 as well as below 11, though it is a somewhat smaller proportion of our overall patient population. But exactly, as Tom said, we've also been tracking these patients in LOTUS as well and see evidence of improvement in those patients as well. So I think that it is an increasing body of evidence that supports the fact that DAYBUE does bring benefit to patients in line with the indication, which is not restricted in terms of the age. Catherine Owen Adams: Yes, I think that's the key. We see DAYBUE efficacy across age ranges, and we want to ensure that neurologists and treating physicians are educated about the data and don't have preconceived notions about specific efficacy in specific age groups. And that's a big focus of Tom and Allyson and the team as we move into next year to really ensure that, that data is shared specifically to encourage the physicians that aren't so well versed in Rett to really look at the data and think about it for all patients, not just younger patients. So with that, it's a good question, isn't it? Operator: Your next question comes from the line of Ami Fadia with Needham & Company. Poorna Kannan: This is Poorna on for Ami. Congratulations on the quarter. My first question is we've seen some IRA impact feedback coming for therapies such as AUSTEDO. Is there any read-through for NUPLAZID based on this? Is this more positive than you expected? And my second question is, how is ACP-211 differentiated from SPRAVATO and the emerging psychedelic class in depression? Catherine Owen Adams: I'm going to ask Mark to answer the IRA question first, and then I'll ask Liz to talk about the differentiation of ACP-211. Mark Schneyer: I think on the IRA, there's not a great comp yet for NUPLAZID as NUPLAZID is the first and only approved therapy for its indication, and so it doesn't have competition with other branded agents as well as we haven't seen a comp like that go through the IRA negotiation. So simply speaking, I think we'll see how this evolves as and if NUPLAZID goes through negotiations or others in a more comparable situation, and that may or may not have read-through for what a NUPLAZID negotiation may look like. Elizabeth Thompson: As far as -- switching gears quite a lot to 211 as far as 211 is concerned. So we've designed 211 as an oral therapy, and what we're hoping for here is the potential for ketamine-like efficacy or SPRAVATO-like efficacy with a very different patient experience in terms of the degree of required in-office monitoring. And the data that we have so far supports that, both in terms of animal models that suggest efficacy as well as lacking sedative impacts or dissociation. And in healthy volunteers in our Phase I study, we've demonstrated the ability to reach high doses with no sedation and minimal dissociation. We think if this reads through in our upcoming clinical trials, we are looking to start this Phase II in 211 before the end of this year. And we designed this, of course, to look at efficacy but also very importantly, to rule out unacceptable levels of sedation and dissociation. So we think that there is a potential for a really appealing product here. Operator: Your next question comes from the line of Salveen Richter with Goldman Sachs. Salveen Richter: On the LBD psychosis study, can you just help us understand the rationale for enrichment of the Phase II with the additional patient groups, including LBDP and the PDP population instead of just focused on Lewy body dementia psychosis specifically? Elizabeth Thompson: So Lewy body dementia psychosis is sort of an umbrella term that actually encapsulates dementia with Lewy bodies as well as Parkinson's disease dementia psychosis. And so what we're looking to do in our Lewy body program is actually ensure that we're looking at roughly equivalent numbers of both of those 2 patient populations to understand any similarities and differences in terms of how they behave. This will help us in terms of designing what future studies could look like. When we look at the population in the pimavanserin data set that is specifically that Lewy body dementia psychosis, the numbers are relatively small, but it is very promising data, and that's part of what had us move this program forward and part of what makes us enthused about it. Operator: Your last question comes from the line of Sumant Kulkarni with Canaccord Genuity. Sumant Kulkarni: You're investing more on NUPLAZID, and there have been some questions already about that. But we're finally seeing some excitement in the Parkinson's market. Then, AbbVie recently announced the sales force expansion on the strength they're seeing for VYALEV and the potential approval for tavapadon. So how do you think this additional focus on the Parkinson's market from a relatively large player might influence the market or diagnosis rates for psychosis associated with Parkinson's? Catherine Owen Adams: So I'll start and then maybe give a perspective from Tom. I think -- so let's just start by reminding everybody that NUPLAZID is the only branded product approved for Parkinson's disease psychosis. But as we see more activity in an overall Parkinson's market, I think what history would tell us is that once more -- once larger companies are in the market talking about Parkinson's disease more fulsomely with more people, there does tend to be an increase in terms of awareness of different elements of the disease. And as Tom has already alluded to, 50% of patients suffer from psychosis or suffer from the hallucinations and delusions of Parkinson's at some point during their journey. And so it wouldn't be unsurprising to sort of see that rate increase. What we do know right now is that there's a relatively low-level awareness amongst families and caregivers of those symptoms, which is why we've been putting effort behind the unbranded campaign. And that would still have to be true because those sort of non-motor-related symptoms generally go undiscussed and unfocused on by the physicians and their families. And what we have understood is that we need to continue to talk about them to ensure that those questions are raised. As we continue to educate physicians with our expansion, Tom, I think we probably hope to see that the physicians are starting to learn more about it themselves. But I don't think without us, it's going to be sort of a natural place for them to go with other companies. What would you say on that? Thomas Garner: No. I mean one thing I would say, I mean, I think it's well recognized that Parkinson's in general is one of the fastest-growing neurological disease types in the United States. As a reminder, there's estimated to be about 1 million patients with Parkinson's in the U.S. And as we kind of then take a step down into those patients who are actually diagnosed with hallucinations, delusions, it's somewhere between 40% and 50% of that population at any given time. By our estimate, there's about 130,000 of those patients who are actually diagnosed an atypical and psychotic during the course of the disease. That's not to say there's more work to be done here because I think if you look at most patients as they go through their Parkinson's journey, to begin with, they are fully focused on the movement elements of the disease. And unfortunately, not everybody is educated on hallucinations, delusions that can commonly concur. And I think one of the key calls to action that we're trying to drive at the moment that if a patient, even if early in their disease course, is experiencing hallucinations or delusions, that, that is a trigger point to start treatment. That's a trigger point to make sure that they're engaging with an HCP, whether it be a neuro or it be their primary care physician to make sure that they're having that dialogue to ensure that appropriate action can be taken. We believe that that's where, quite honestly, NUPLAZID can play a really critical role just given its profile, given its safety profile and given the growing body of evidence that Catherine mentioned earlier on. So I think taken together, clearly more upside, and I think that that's one of the reasons that we have decided that now is the time to really up-invest in our customer-facing approach to NUPLAZID as we look forward. Catherine Owen Adams: Now is the time, is a great way, I think, to end that question. Thanks very much. Operator: Since there are no further questions, I'll pass it along to Mrs. Owen Adams to proceed to closing remarks. Catherine Owen Adams: Thanks, everybody, for your questions. We're really excited about what lies ahead for ACADIA, and we look forward to our next call. Operator: Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect.
Edna Koh: Okay. Good morning, everyone, and welcome to DBS' third quarter financial results briefing. This morning, we announced third quarter profit before tax up 1% to a record $3.48 billion and ROE of 17.1%. 9-month total income and profit before tax reached new highs. As per our norm, our CEO, Tan Su Shan; and CFO, Chng Sok Hui, will start by sharing more about the quarter. Both will be speaking to slides, which you will see on screen. The slides can also be found on our Investor Relations website. And thereafter, we will take media questions. So without further ado, Sok Hui. Sok Hui Chng: Thanks, Edna, and good morning, everyone. I'll start with Slide 2. We delivered a strong set of results in the third quarter. Pretax profit rose 1% year-on-year to a record $3.48 billion with ROE at 17.1% and ROTE at 18.9%. Total income grew 3% to a new high of $5.93 billion. Group net interest income was little changed as strong deposit growth and proactive balance sheet hedging mitigated the impact of lower rates. Fee income and treasury customer sales reached new highs, led by wealth management, while markets trading income increased on lower funding costs and a more conducive trading environment. For the 9 months, pretax profit rose 3% to a record $10.3 billion as total income increased 5% to $17.6 billion from growth across both the commercial book and markets trading. Net profit was 1% lower at $8.68 billion due to minimum tax of 15% that has come into effect. Asset quality remained resilient. The NPL ratio was stable at 1.0% while specific allowances were 15 basis points of loans for the quarter and 13 basis points for the 9 months. Allowance coverage was 139% and 229% after considering collateral. Capital remained strong. The CET1 ratio was 16.9% on a transitional basis and 15.1% on a fully phased-in basis. The Board declared a total dividend of $0.75 per share for the third quarter, comprising a $0.60 ordinary dividend and a $0.15 capital return dividend. Slide 3, third quarter year-on-year performance. Compared to a year ago, third quarter pretax profit was 1% or $42 million higher, while net profit declined 2% or $73 million to $2.95 billion due to higher tax expenses from the global minimum tax. Commercial book net interest income fell 6% or $238 million to $3.56 billion as the impact of lower rates was partially mitigated by balance sheet hedging and strong deposit growth. The group's net interest income of $3.58 billion was little changed. Fee income rose 22% or $248 million to a record $1.36 billion, led by wealth management, while other noninterest income increased 12% or $61 million to $578 million as treasury customer sales reached a new high. Markets trading income rose 33% or $108 million to $439 million due mainly to higher equity derivative activity. Expenses increased 6% or $144 million to $2.39 billion, led by higher staff costs as bonus accruals grew in tandem with a stronger performance. The cost-to-income ratio was 40% and profit before allowances was 1% or $35 million higher at $3.54 billion. Total allowances fell 5% or $6 million to $124 million. Specific allowances remained low at $169 million or 15 basis points of loans. $45 million of general allowances were written back mainly due to a large repayment. Slide 4, third quarter-on-quarter performance. Compared to the previous quarter, net profit was 5% or $130 million higher. Commercial book net interest income fell 2% or $67 million as net interest margin declined 9 basis points to 1.96% from lower Sora. Group net interest income was 2% or $70 million lower. Fee income rose 16% or $190 million, led by wealth management. Other noninterest income grew 11% or $56 million, driven by higher treasury customer sales. Markets trading income was 5% or $21 million higher. Expenses increased 5% or $123 million from higher bonus accruals. The cost-to-income ratio was stable. Total allowances were 7% or $9 million lower. Slide 5, 9-month performance. For the 9 months, total income and pretax profit reached new highs. Total income rose 5% or $777 million and pretax profit increased 3% or $260 million to $17.6 billion and $10.3 billion, respectively. Net profit was 1% or $111 million lower at $8.68 billion due to higher tax expenses. Commercial book net interest income declined 3% or $310 million to $10.9 billion due to a 27 basis point compression in commercial book net interest margin. Group net interest income rose 2% or $211 million to $10.9 billion as the impact of lower interest rates was more than offset by balance sheet hedging and strong deposit growth. Fee income grew 19% or $599 million to a record $3.80 billion as wealth management and loan-related fees reached new highs. Other noninterest income of $1.65 billion was only 2% or $32 million higher due to nonrecurring items in the previous year. Excluding these items, treasury customer sales grew 14% to a new high. Markets trading income of $1.22 billion rose 60% or $456 million, marking the second highest level on record. The growth was due mainly to higher interest rate and equity derivative activities. Expenses increased 6% or $377 million to $6.88 billion with a cost-to-income ratio stable at 39%. Profit before allowances grew 4% or $400 million to a record $10.7 billion. Specific allowances remained low at $439 million or 13 basis points of loans, while general allowances of $143 million were taken. Slide 6, net interest income. Group net interest income for the third quarter of $3.58 billion was 2% lower from the previous quarter and little changed from a year ago. Lower interest rates impacted net interest margin, which declined 9 basis points quarter-on-quarter and 15 basis points year-on-year to 1.96%. We continue to mitigate the impact of lower rates through two factors. The first is proactive balance sheet hedging, which has reduced our net interest income sensitivity and cushioned the impact of lower interest rates. Second is strong deposit growth, which was $19 billion during the quarter and $50 billion from a year ago. The growth in deposits exceeded loan growth, and the surplus was deployed into liquid assets. This deployment was accretive to net interest income and return on equity, though it modestly reduced net interest margin. For the 9 months, group net interest income rose 2% to $10.9 billion despite a 9 basis point compression in net interest margins to 2.04%. The resilience in net interest income reflects the combined effects of balance sheet growth and of hedging. Slide 7, deposits. During the quarter, the strong momentum in deposit inflow was sustained with total deposits rising 3% or $19 billion in constant currency terms to $596 billion. The growth was led by CASA inflow of $17 billion, most of which was in Sing dollars. The CASA ratio rose to 53%. Over the 9 months, deposits grew 9% or $48 billion, with more than half of the increase from CASA. Liquidity remained healthy. The group's liquidity coverage ratio was 149%. And net stable funding ratio was 114%, both comfortably above regulatory requirements. Slide 8, loans. During the quarter, gross loans was little changed in constant currency terms at $443 billion. Increases in trade and wealth management loans were partially offset by a decline in non-trade corporate loans from higher repayments. As deposit growth outstripped loan growth, surplus deposits were deployed to liquid assets. This deployment was accretive to net interest income and ROE while it modestly reduced net interest margin. Over the 9 months, loans rose 3% or $14 billion led by broad-based growth in nontrade corporate loans. Slide 9, fee income. Compared to a year ago, third quarter gross fee income rose to a record $1.58 billion. The increase was broad-based and led by wealth management, which grew 31% to a new high of $796 million from growth in investment products and bancassurance. Loan-related fees were up 25% to $183 million from increased yield activity. Transaction services and investment banking fees were also higher. Compared to the previous quarter, gross fee income rose 13% led by wealth management. For the 9 months, gross fee income reached a record $4.48 billion, led by new highs in wealth management and loan-related fees. Slide 10. Slide 10 shows the wealth segment -- wealth management segment income. The third quarter wealth management segment income grew 13% year-on-year to $1.54 billion. The growth was driven by a 32% increase in noninterest income, which more than offset a decline in net interest income from lower rates. For the 9 months, wealth management segment income grew 10% to a record $4.38 billion due to a 28% rise in noninterest income. Assets under management grew 18% year-on-year in constant currency terms to a new high of $474 billion. The percentage of AUM in investments also reached a new high of 58%. Net new money inflow was $4 billion. Slide 11, customer-driven noninterest income. We have introduced a new slide to provide a clearer view of noninterest income, which is driven by customer activity. This comprises two components in the commercial, both net fee income and treasury customer sales. For the fee and treasury customer sales fall under different lines of the P&L financial statements due to accounting treatment, they should be viewed equally as they are both driven by consumer and corporate customers demand for financial products. For the third quarter, customer-driven noninterest income grew 22%. Net fee income rose 22% to $1.36 billion while treasury customer sales rose a similar 21% to $581 million, both were at new highs and led by strong wealth management activity. For the 9 months, customer-driven noninterest income rose 17%, driven by record net fee income and treasury customer sales. Slide 12, expenses. 9-month expenses rose 6% from a year ago to $6.88 billion due to higher staff cost from salary increments and bonus accruals. The cost-to-income ratio was stable at 39%. Third quarter expenses were 6% higher than a year ago at $2.39 billion, led by higher staff costs as bonus accruals rose in tandem with a stronger performance. Compared to the previous quarter, expenses grew 5%. The cost-to-income ratio was at 40%. Slide 13, nonperforming assets. Asset quality was resilient. Nonperforming assets declined 1% from the previous quarter to $4.63 billion. New NPA formation at $113 million for the quarter was below the recent quarterly average and was more than offset by repayments and write-offs. The NPL ratio was stable at 1.0%. For 9 months 2025, new NPAs were $449 million, significantly lower than the $739 million from the prior period. Slide 14, specific allowances. Third quarter specific allowances amounted to $170 million or 15 basis points of loans, stable from the previous quarter. For the 9 months specific allowances were $430 million or 13 basis points of loans. Slide 15, general allowances. As at end September, total allowance coverage stood at $6.43 billion, with $2.35 billion in specific allowance reserves and $4.07 billion in general allowance reserves. The general allowance reserves comprised 2 components: baseline GP and overlay GP. Baseline GP refers to the GP set aside for base scenarios. In addition to the base scenarios, we incorporate stress scenarios for macro uncertainty and sector-specific headwinds. As at 30th September 2025, the total GP stack of $4.1 billion comprise baseline GP of $1.6 billion and overlay GP of $2.5 billion. You may recall that we had increased GP overlay by $200 million during the first quarter this year to incorporate tariff uncertainty. Slide 16, capital. The reported CET1 ratio declined 0.1 percentage points from the previous quarter to 16.9%, driven by higher RWA and partially offset by profit accretion. On a fully phased-in basis, the pro forma ratio was stable at 15.1%. The leverage ratio was 6.2%, more than twice the regulatory minimum of 3%. Slide 17, dividend. The Board declared a total dividend of $0.75 per share for the third quarter, comprising an ordinary dividend of $0.60 and a capital return dividend of $0.15. Based on yesterday's closing share price and assuming that total dividends are held at $0.75 per quarter, the annualized dividend yield is 5.6%. Slide 18, summary. So in summary, we delivered a record third quarter and 9-month pretax profit with ROE above 17%. Total income was also at a new high as we sustained the strong momentum in wealth management and deposit growth while mitigating external rate pressures through proactive balance sheet hedging. As we enter the coming year, we'll continue to navigate the pressures of declining interest rates with nimble balance sheet management and our ability to capture structural opportunities across wealth management and institutional banking. So thank you for your attention. I'll now hand you to Su Shan. Tan Shan: Thanks, Sok Hui. So hello and good morning. As you have now seen our numbers and Sok Hui's comments, I will say that the Q3 was a solid quarter. I think the team delivered a solid quarter in spite of very strong interest rate headwinds, especially in Singapore. We had a record top line total income, record fee income, record treasury sales and record PBT. Of course, tax we had to pay the minimum tax. So that took off some of our net profit upside. And I guess from my slide, the -- both the fact that we had some nimble hedging, and we were able to capture some opportunities when the market became volatile, speaks to our resiliency, so was hedging as well as some fixed rate assets. And what was also pleasing was the fact that we saw huge amount of deposits coming back to us. A large chunk of that was also CASA. So at $19 billion quarter-on-quarter growth, a lot of that surplus deposits was deployed to HQLA. And in terms of the structural growth, I think we have both structural and cyclical growth. And both the structural and cyclical growth came into gear in Q3 because the capital markets were very strong. So we saw strong momentum in wealth management fees, up 23% quarter-on-quarter, 31% year-on-year. These are very strong numbers. And whilst wealth management AUM remained very high, I think what was also pleasing is we are seeing the momentum also travel to the retail and retail wealth segment as well. We're trying to get more of that digital flows back and so we had a whole refresh of our digital wealth strategy, which is now yielding fruit. So that's also quite pleasing to see. The second market and cyclical opportunity is in capital markets in both ECM and DCM. So for DCM, as rates come down, corporates are coming back to the market and we are winning market share. I told our DCM team that I think we have a right to win in the global market. And so, to my surprise actually, starting from a very low base, we're now #6 in the Middle East. For example, in the MENA league table as of October 2025, we did 32 DCM issuances, including 13 public bond deals. And we're #1 in private placement league table for the key Middle East banks. So I think if we put our minds to it, we can execute. And I think both the capital markets, GCM, DCM, ECM pipeline looks good. The wealth pipeline looks good and the FICC pipeline looks good, right? So these are both cyclical and structural opportunities to capture more loan fees -- sorry, to capture more fees. The other momentum is in loan fees. You saw the loan fees up 20% year-on-year. That's also structural. Because as I alluded to the last 2 quarters, I think that speaks to IPG's focus on winning market share, wallet share and mind share and having expertise in the industries that we cover and we target. So both the loan-related fees and market trading as well was very strong, up 33% year-on-year. Very strong equity derivatives activities from clients, strong warehousing gains, good customer flows. Then I want to talk about additional assets. I alluded to this also in the last quarter where we talked about the whole digital asset ecosystem and how we had a head start and how we want to continue to drive this head start. And I think the GENIUS Act changed everything, as I said before. And we are still waiting to see how regulations turn out because different regulators have different priorities and different time lines and different ordinances. But we've gone ahead. I mean, for example, this quarter, we issued some structured notes. So we tokenized structured notes on the Ethereum blockchain. We've also announced that we are working with Franklin Templeton's BENJI fund to list that on our digital exchange. We're also working with Ripple to use -- to get Ripple -- to use Ripple currency, digital currency into -- in and out of the BENJI money market fund as well. So we're pretty active in the tokenized ecosystem. We've been tokenizing deposits for a while now, and that's also seeing a lot of customer interest. And we've also started to look at the potential for repo and collateralize use cases as well for tokenized money market funds. Asset quality, as Sok Hui alluded to, pretty resilient. NPL ratio at 1%. And again, I think this speaks to the discipline of the team. Many years back, before COVID, we started to watch-list industries or sectors that we felt were to come under scrutiny or under some pressure. That's worked out for us. So we have been quite early in monitoring clients that might get into problems. And in fact, if you see, we had quite a fair amount of loan repayments in Q3 this year. And surprisingly, that came out of Hong Kong, primarily in Hong Kong real estate. So I think we've been pretty disciplined in who we bank with. We've onboarded and banked really the big blue chip companies. Our LTVs against real estate is pretty conservative. And that's why I think our NPA formation remains at a multiyear low. Next slide, please. So I've been traveling quite a fair bit in Q3 for the IMF and IIF Board meetings in Washington, to the FII in Saudi, the Hong Kong MA, Monetary Authority Financial Leaders Conference this week and to visit my colleagues in IBLAC in China visiting regulators and colleagues in our core markets, Taiwan, China, I'll be in India next week, et cetera. And I will say that there's a lot of momentum in deal flow. There's a lot of momentum in the U.S., certainly in the whole tokenized, stablecoin, digital asset ecosystem. Outside the U.S., there's a lot of momentum in terms of trade -- potential trade flows, both because customers want to diversify their supply chain and also customers are looking for new markets to grow. So this shift in trade and investment flows is something that our team is very focused on, and we're looking at growing the pipeline, say, intra-regional trade between Asian countries, ASEAN countries, China to ASEAN countries, Singapore, China, et cetera. There's been a lot of two-way conversations and the upscaling of the China agreements that most countries in ASEAN have has also been put in place. China GCC trade also is projected to double to $1.9 trillion by 2025. So there's some good structural shifts in global macro flows, and we want to play into that. I talked about the capital markets revival. You all know about the long pipeline of deals in Hong Kong and China. We're trying to play to our strength there as well. Singapore also has a strong pipeline and the MAS' recent measures to rejuvenate the markets here, the equity market development program, seems to be working as well to create some liquidity and some momentum. I was struck also by the concentration of the market cap of the U.S. U.S. still is about 70% of global market cap valuation at $72 trillion, Hong Kong at $7 trillion, China at $13 trillion, Singapore at $0.6 trillion. I think there could be next year, let's see, maybe valuations will change. But the good news is, as I said, the pipeline for ECM remains very strong in our part of the world in Asia ex-Japan. Another theme I want to talk about was the internationalization of the RMB and also the revitalization of the Chinese market. You see that from the authorities talking about high-quality growth. You see also a lot of investments in AI and chips. The enterprise use of AI is formidable and their commitment to internationalizing the use of RMB for global trade, that figure has quadrupled over the last 3 years. That's also admirable. The Southbound Bond Connect is also busy. That's also quite good structural growth in wealth management onshore in China. So wealth, global net wealth reached $512 trillion in 2024. I think that's grown a lot this year because of the market moves and also some wealth creation at the high end. So we remain committed to our strong focus on wealth management. The teams that Tse Koon and his team hired over the last couple of years are starting to mature and yielding returns for us. Similarly, for IBG, the FICC focus, the institutional client focus is also yielding good returns. I've gone to see several global sovereign wealth funds with my team, pension funds with my team. And I think DBS has a role to play with these global II and FICC clients across various products from custody to FICC flows to digital flows to ECM, DCM block placements to repos, reverse repos, et cetera. So I think playing to our strengths in wealth and FICC is structural focus, I've said this time and time again, I feel like I'm a grandmother nagging, but I do believe that these two growth pillars will continue to yield returns in the next few years. And in terms of other big theme, of course, everyone is talking about AI, generative AI, agentic AI, when will agents start using -- when will customers start using their own agents to deal with bank agents, et cetera. Suffice to say, we've been at the forefront of this. We have been rolling out both horizontal and vertical use cases. Some working out quite well, some less well. But I think the momentum continues to be pretty strong. And we're working with various partners, both in the U.S. and elsewhere in Asia to accelerate the tech adoption. And what's pleasing to me is pretty much most of our staff have started to use it. They're saving time, they're taking a lot of productivity saves in the more mundane work, like writing credit memos, KYC, transaction screening. And our wealth managers are using it also to good stead in our wealth Copilot. Our tech guys are using it for coding, for developing. So I think there's good momentum there, and that will continue to evolve. Last but not least, I talked about the growing interest in tokenization of stablecoins. As you know, we had a head start in 2021. We will continue to support regulators in their quest to stay ahead of the trends. Right now, our key focus is on tokenizing deposits. For stablecoins, we will play where there is a play in different jurisdictions. But I think that regulations have to evolve there for us to have a clearer look. In the meantime, we believe that we can play a role, like more of a picks and shovels kind of role in the whole asset ecosystem, whether you want to tokenize your assets, you want to tokenize your deposits, you want to trade on our digital exchange, you want to custodize with us, you want to use it for payments, et cetera, we've learned how to do it end-to-end. So I think that's also a differentiator for us. So the right side is a short pitch of DBS as a differentiator bank, increasingly in a bifurcated volatile world with geopolitics being volatile. I think our clients are looking for a safe neutral bank for their long-term needs, right? And I think DBS plays to that. We've been recognized by Global Finance, it's Asia's safest bank now for 17 years running. And we're ranked #2 globally amongst the 50 top safest commercial banks. So I think being safe, being dependable plays to our strength, and I think we have a right to win more market share. As a diversifier bank, we are now seeing global ultra high net worth thinking they should have a bank in Europe or Switzerland, a bank in the U.S. and quite possibly a bank in Singapore and that bank should really be us. MNCs and FIs as well are looking for a diversifier bank for both the custody needs and their transaction needs, and I think that plays to our strength. As a disruptor bank being an innovative -- having an innovative head start, the fact that we can work with the likes of Franklin Templeton or Ant or JD or any of these big platform companies means we are a head start. We've been holding a lot of teach-ins for our clients. And as the world starts using more generative and agentic AI, we want to be at the forefront of that as well. As I said before, I think the fact that we've organized our data, the fact that we've organized our tech and the fact that we organized our people and processes quite a few years ago, thanks to Piyush and the team's foresight, I think we've created a digital and data moat to be able to embrace these big AI moves that are upon us. So last but not least, the digital and data capabilities I've talked about. We were just recognized the World's Best AI Bank at Global Finance Inaugural AI Awards this year. We've implemented over 1,500 AI models, 370 different use cases, and we hope to create an impact of $1 billion in AI this year. Okay. So next slide is the 2026 outlook. And we are looking for total income to hold steady to 2025 levels in spite of significant interest rates and FX headwinds. We're looking at Sora to hold at current levels of 1 -- well, to hold at the sort of the 1 month and 3-month MAS bill levels at about 1.25. That means there's a 60 basis point decline from this year's average. We're looking at three Fed rate cuts next year. And we are also looking -- well, we're also using for our forecast a stronger Sing. So there, you have significant interest rate headwinds and FX headwinds, which we want to make up for with volume growth and fee growth. So the commercial book noninterest income growth to be in the high single digits. And the reason for that is whilst we have great headwinds on the loan side, we also have tailwinds in terms of our cost of funds because of our floating liabilities as well, mostly in dollars. We are looking to continue to have mid-teens growth in wealth management and also in FICC and to maintain our cost income ratio at the low 40% range. And SP, we've assumed that it will normalize to 17 to 20 basis points. So far through cycle, this has worked and asset quality remains resilient. We're comfortable, but we're not complacent. We're still watching constantly to assessing our different exposures for impact from trade, geopolitics, real estate, et cetera. And so if the macro conditions stay resilient, we could actually also have some rooms for GP write-backs. And if conditions soften, we have quite a lot of buffer, as you heard from Sok Hui earlier on through our allowance reserve and our strong capital ratios. So we're looking for net profit to be slightly below 2025 levels or pretty flat. That's it from me. Thank you very much. Edna Koh: Thank you, Su Shan. We can now proceed to take questions from the media. [Operator Instructions] We have a question from Nai Lun from BT. Tan Nai Lun: This is Nai Lun from BT. I just want to check, right? Because I understand you have a $200 million GP already taken at the start of the year. But then are you foreseeing like you to take more of that, especially as you mentioned, you have some macroeconomic uncertainties or sector-specific headwinds? Sok Hui Chng: Yes. So let me clarify. I will say that actually our stack of total GP $4.1 billion comprise two components, right? The baseline GP and the overlay GP. And the overlay GP is quite substantial at $2.5 billion. If you look at our September last year, it will be about $2.3 billion because we did top up $200 million this year. In the second quarter, we said it's actually sufficient. So we are not topping up. So just to convey that we are actually very adequate in terms of our general provision levels. Tan Shan: I would say even more than adequate. Sok Hui Chng: Yes, more than adequate because we actually exceeded the MAS 1%. Edna Koh: Okay. A question from Goola. Goola Warden: Congratulations on the very good results in the current environment. Can I ask at least three questions. Okay. So the first one would be on the capital return and the share buyback? Because I think that Sok Hui has said that you are committed to paying $3 in total dividends for this year and next year and 2027, is it, could you just correct me on that if that's wrong? So -- and then there is -- there was a share buyback program and how much of that have you completed? Because it looks like a very low percentage based on -- I must have missed out, I look back, 10% to 12%, I'm not quite sure. So what -- I mean what happens if you don't complete it within the time frame? And what are the other avenues for management to return the earmarked amount to shareholders. That's one question. Should I carry on? Okay. Then you mentioned that your deposits -- because you've got more deposits than -- a lot more excess deposits will be deployed into HQLA, are these local government bonds, are these U.S. government bonds or are they corporate bonds? And what's the currency and duration like? I mean you don't have to say the company or the country, but just an idea of whether they're Sing dollars or non-Sing dollars. And the last question is funding related. But again, you have no AT1s anymore based on your current -- your third quarter. So what are your funding plans? AT1s, are they cheap now? Or is there any reason -- is there any regulatory reason why you don't have any? That's it. I think that's it. I mean two more general questions, but only when everyone else is answered. Tan Shan: Thanks, Goola. I'll take the first one, this is Su Shan and then Sok Hui will take the HQLA and AT1 question. So on the dividends, we've always said that our stock, we had $8 billion of excess stock of capital to return. We remain committed to returning that. $3 billion was allocated to share buybacks. We've done about 12% of that. And our philosophy is to buy it when the market is bad, right? So that's the philosophy. We don't want to chase it up. And the $5 billion is to be returned to shareholders through capital, the capital return dividends. So as you can see, we've got many different things in our toolbox to pay our shareholders back. You've got your normal dividend, of course. You've got step up dividend, then you've got the capital returns dividend and then you have the stock buyback and so based on that we intend to keep to that $8 billion commitment. Goola Warden: How much of that $8 billion has been returned? Sok Hui Chng: The share buyback, 12% would be $371 million. Tan Shan: Yes. And then the dividend return was $850 million. It's $0.15 per share per quarter, if you remember. Goola Warden: I mean, how much of the $8 billion is just... Tan Shan: So in total, we basically use 15% of the $8 billion. Goola Warden: Oh, okay. So there's a lot more. 1-5 percent. Tan Shan: No, but the $5 billion is committed, right, because it's $0.15 per quarter. So that $0.60 a year. So that's committed. So over 3 years, that will be all paid back. Goola Warden: Okay. And the 3 years is '24 -- '25, '26, '27, right? Tan Shan: Yes, correct. Sok Hui Chng: We started in '25 for the capital return dividend. Tan Shan: '25, '26, '27. So we will end by end '27. Sok Hui Chng: Correct. Maybe the only thing I would add is that we also communicated that we would be able to step up ordinary dividends $0.06 in the fourth quarter for 2025 year and then 2026 year. Goola Warden: By $0.06 is it on the... Sok Hui Chng: By $0.06 in the fourth quarter, which means the full year impact is $0.24. Goola Warden: And the full year impact will be next year, right? Sok Hui Chng: No, we'll step up end of this year. So you get it approved at the AGM in March 2026. And then it will actually flow through. So the full year impact is $0.24 for ordinary dividend. So what you see on the slide as $0.60 would then step up to $0.66 per quarter. And then you still have your $0.15 on the capital return dividend, which we have committed up to FY 2027. Goola Warden: HQLA and the AT1, yes. Sok Hui Chng: Okay. So your next question was about the HQLA. So you see on my slide, in the loan slide, you see that loan, actually, the growth rate was slower than the deposit growth. And for 9 months, our HQLA, which you can also see in the Pillar 3 disclosure is actually up $30 billion, and these are all in high-quality liquid assets. So they are in government securities, they are in U.S. government securities. These are the main items where we have seen the increase. So very, very safe assets. And then you had a question on the AT1 because the -- our CET1 is already at such a high level. Transitional basis, we're at 16.9%. So there's no point raising AT1. The CET1 currently doubles up. So for AT1, the spec is already quite a lot. So we don't intend to actually sort of pay up for AT1 until the need arises because you see on the slides as well. Goola Warden: Look, it's not a regulatory thing with the stuff that's going on with Credit Suisse and UBS and what Basel I doesn't want, right? Tan Shan: It's just AT1s because they don't have enough CET1s, right? Sok Hui Chng: So regulators set CET1 minimum, AT1 and Tier 1 and then total. So it's a stack. So if your CET1 is really well above the minimum, they can come towards Tier 1 capital. Goola Warden: Okay. Okay. That's all I have on that. I'm just wondering what's the difference between your structural tailwinds and your cyclical tailwinds. That's the other sort of general question. And the other one is you said that bancassurance was one of the reasons why you have a fee income. You've got a bancassurance agreement with Manulife. And I'm just wondering, that one is 15 years. How much longer does that have to run? And what is the state -- I mean is it performing to what Manulife wants? Tan Shan: Okay. So on your question around what are the difference between a structural and cyclical tailwinds. So cyclical tailwinds to me are what are cyclical. So when markets are strong, stock markets are up, money supply is up, et cetera, that's sort of cyclical. Structural is more long term. So where you have demographics, demographic reasons or structural reasons for the growth. So for me, the cyclical tailwinds was the markets were very strong, right? Q2, Q3, the markets were strong after Liberation Day, the rally was a lot higher than most people expected. The structural tailwinds I talked about was the fact that there is structural wealth creation. So the wealth management team remains structural growth for Asia and frankly, for the rest of the world, for the U.S., particularly. And then the structural growth in FICC, II, assets under management, quite a lot of these funds. There are clients, they've seen trillions of dollars in asset growth. So you've got these two growth pillars that are structural. On Manulife, I think we signed in 2015, it was 15 plus 1, so 16 years in total. Sok Hui Chng: So it was till 2023. Tan Shan: 2023. So the partnership has been growing really well. It's been fantastic actually. Tse Koon, you want to say anything? Shee Tse Koon: Yes, I think it's gone very well. So I mean, earlier on, when we talk about our wealth fees, right, the wealth fees growth has been a factor of both investments and insurance at the same time. Tan Shan: So there is a need for insurance like state planning, et cetera. And that is another structural theme, Goola, because you look at China, silver economy, Singapore, Hong Kong, all these people need to plan. And actually, that's our USP, right? We're good at onboarding these clients, discussing their long-term plans, putting it in a state planning, helping to plan for the next generation, for their own life, et cetera. And that creates a very sticky long-term relationship for your wealth clients. And Manulife has been a great partner in helping us to design suitable products for our customers, having a portfolio approach and thinking very long term. They're long-term investors in Asia, good credit rating, et cetera. So they've been a very good partner. Edna Koh: Next question from Bloomberg, Rthvika. Rthvika Suvarna: So I'm with Bloomberg. My name is Rthvika, and I had two questions for Su Shan. You've talked about wealth as a structural growth pillar with mid-teens growth targeted. Given recent high-profile wealth scandals in the region involving RMs and client fund misappropriations, what safeguards do you have in place? Are you seeing any reputational or compliance headwinds? And what do you think of extra regulatory scrutiny off the back of these scandals? How does this affect Singapore as a wealth hub? Tan Shan: Okay. I'll start and then Tse Koon is going to weigh in. So I think by the way, we have well presence in all our core markets. So it's not just Singapore, right? But of course, Singapore is a major financial hub for us and for many of our peers. And I will say that it's -- the bar has been set very, very high right now in Singapore and in all the major jurisdictions. The bars are set very high for KYC and AML, number one. Number two, there's been very rigorous source of wealth declarations and we all need to triangulate with proof of documents, et cetera. And there's no let up in these high standards. It still takes a fair amount of time to onboard a new client because of these. And transaction surveillance remains a key part of triangulating for bad money, right? Every bank sees what they see, right? So if you don't see the flows between the Middle East and the U.S., for example, and you will only see the flows from your bank to another party. And so when you have big scandals like this, it beholds multiple countries and jurisdictions to work together to be able to triangulate the global flows because otherwise, most banks will see their own bilateral flows, and they don't see the other flows. And you need to put the pieces of the jigsaws together to see that, oh, there is a trend or there's scams or there are all these patents. So I will say that it's these kind of global transaction surveillances remain a challenge. In Singapore, we set up with the regulator something called COSMIC, which has been a good platform on which we can look at sort of -- the banks can work together to weed out the bad actors. And I think that that's been working. It's just -- it's pretty new, but that's been working. But it takes multiple parties to work together to be able to catch these -- and catch them early. Shee Tse Koon: Can I just add to that. And I would say that Singapore is clearly a very, very strong wealth management hub, all right? And it has been growing very, very steadily over the last couple of years. If we look at the standards that we have, right, I would say that it's something that is aligned with those that are global wealth hubs, right? If you look at whether or not there are issues that have been -- that have risen, I'll say there's nowhere where you will never -- there will never be a zero kind of situation. The important thing is that there is robustness from which the typologies, new typologies that we see will lead us to continue to sharpen our capabilities. And we can see in Singapore, the big difference in Singapore is that when things happen, I think the industry comes together very, very quickly between regulators, law enforcement and the industry to just handle it. And I think that in itself speaks volumes of the strength of Singapore as a continued wealth hub. So I don't see any of these being a hindrance to Singapore becoming a world hub. In fact, this speaks to the very strength of Singapore being a wealth hub. Rthvika Suvarna: Are there any other broader risks that DBS is weighing out that could affect Singapore's reputation as a wealth hub globally? Shee Tse Koon: Sorry, I don't quite get that question. Rthvika Suvarna: Yes, like any other -- I mean any other like threats, I suppose, aside from the scandals? Shee Tse Koon: I'm not sure if you are specifically asking about DBS per se. Tan Shan: He's asking about Singapore. I will say I beg to defer. I think your question, you're asking if there's any risk, I would say that Singapore's status as a clean hub has been reinforced by the swift action taken by [Technical Difficulty], number one. The rule of law here is strong, right? We are open for -- Singapore as a hub is open for business. It's a diversifier hub, as I said to you earlier on, and it's a digital hub. And there's enough wealth practitioners here of high quality and standards. And I believe that the authorities are protecting the reputation and the standards here rigorously. The bar is high. I'll tell you the bar is high for KYC and sort of wealth verification. So I don't know where you're going with this question, but I will say that the fact that -- and we're very open, right? When the scammers are caught, it's open, it's all declined. So I will say that it should reinforce the seriousness that Singapore takes in keeping the standards high. Shee Tse Koon: I guess there are -- so I say risk, right? When we're talking about risk, I think the inherent risk is no different in the financial industry wherever you operate, right? The difference is we have robust standards, and we deal with it swiftly. If you're asking for further the risk of Singapore being a wealth hub, I think actually what we have done as a nation will enhance that. And in my interactions with clients, I think there continues to be a very, very strong interest. And as you can see, the performance of the wealth management business, I think that speaks volumes as to the robustness of the continued growth. And if you ask me whether there's a risk of us being a wealth hub, the answer is no. Edna Koh: We are now at 11:42. I think that might be all the time that we actually have because we have an analyst briefing at 11:45. So I think we will wrap things up here right now. Thank you, everyone, and we'll dial out here. Tan Shan: Thank you. Sok Hui Chng: Thank you. Edna Koh: Thank you.
Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's Third Quarter 2025 Operating Results. [Operator Instructions] And for your information, this conference call is now being broadcasted live over the Internet. A webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn it over to Ms. Angela Tsai, Vice President of Financial Department. Thank you. Ms. Tsai, please begin. Cho-Fen Tsai: Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to our third quarter 2025 results conference call. Joining me on the call today are Chunghwa's President, Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin with sharing our recent strategic achievements and provide an overview of our third quarter business results. This will be followed by a discussion of our segment performance and financial highlights. We will then open the floor for questions and answers. Please turn to Slide 2 to review our disclaimers and forward-looking statement disclosures. Now without further delay, I will turn the call over to President. President Lin, please go ahead. Rong-Shy Lin: Thank you, Angela, and hello, everyone. Welcome to our third quarter 2025 results conference call. Extending the outperforming results of this first half, we continue to beat the financial guidance in the third quarter. Our revenue, operating income, net income and EPS all exceeded the upper end of our forecast. Third quarter revenue hit its highest level since 2017, reflecting the robust growth in our core business and extending ICT services. ICT revenue alone set a new third quarter record, the highest since 2021. As Taiwan's telecom market continued to develop healthy, we are confident in our full year financial results and supported by our leadership across all business segments. For our midterm to long-term development, we believe that group expansion of -- and AI-related initiatives are critical, and we have taken proactive steps. In this area, we are pleased to see our cybersecurity subsidiary, a Chunghwa Telecom Security, successfully complete its public listing in September with International Integrated Systems soon to follow in its upcoming IPO. Moreover, in October, we launched InventAI, a new subsidiary spun off from our research division, dedicated to monetizing AI innovation. Our AI capabilities have received significant recognition and honors. On the global stage, our first self-developed Vision-Language Model technology secured first place in the transportation category at the Global AI City Challenge, a prestigious international competition co-organized by NVIDIA and a leading university worldwide. This recognition was earned through our technology, superior accuracy and predictive capabilities in analyzing highly complex traffic scenario. In Taiwan, we hold the largest portfolio of AI-related patents in the industry, far ahead of our peers, serving as a solid base for future development. We are proud of these achievements and remain committed to maintaining our competitive advantages. Our technology expertise and resilient network have also created social value to benefit the public. In August, as Taiwan was suffering from catastrophic typhoon, we overcame challenges to deliver portable OneWeb equipment and restore communication in isolated area affected by the breakdown, demonstrating our commitment to social responsibility. Additionally, as we continue to invest in facilitating ESG practice, we completed the issuance of TWD 3.5 billion sustainability bond in the third quarter to promote biodiversity, EV initiatives and other environmental projects. This reflects our action to integrate ecological conservation, decarbonization and green finance to progress towards net zero. Now let's move on to the business overview of the third quarter of 2025. Please turn to Page 5 to review our success in Taiwan's mobile market. In the third quarter, we further strengthened our leadership position in Taiwan's mobile market. According to the data from our telecom regulator, our mobile revenue market share climbed to a new high of 40.8%, while our subscriber share among peers rose to 39.4%, representing an encouraging 1.6 percentage point year-over-year increase, mainly driven by continued growth in the postpaid subscribers. We are pleased with this solid growth momentum. Our 5G performance was equally impressive. Based on regulators' data, our 5G subscriber market share rose to 38.8%, maintaining our industry-leading position. The 5G penetration rate among our smartphone users further increased to 44.7% by the end of the third quarter, while the average monthly fee uplift from 5G migration remained robust at approximately 40%. With the combined strength of our expanding subscriber base and growing 5G adoption, our mobile service revenue growth outpaced the industry achieving a solid 3.3% year-over-year increase. Postpaid ARPU also grew 1.8% year-over-year. We expect this positive trajectory to continue, supported by Taiwan's favorable mobile market landscape. Let's move on to Slide 6 for our outperforming fixed broadband business update. In the third quarter, our fixed broadband revenue grew by 3.2% year-over-year, driven by continued high-speed migration and the success of our high net 30th anniversary promotion package alongside our existing bundle plan that combine MOD WiFi and streaming services. We are pleased to report that the number of subscribers choosing speed of 300 megabits per second and above increased by about 14% year-over-year, while those opting for 500 megabits per second and above recorded a double-digit growth and the 1 gigabit per second and above achieved multiple for expansion. This higher speed migration contributed to strong ARPU performance. In the third quarter, our fixed broadband ARPU rose 3% year-over-year, representing an increase of TWD 23 per month, an encouraging sign of ongoing value expansion. Slide 7 provides a deep overview of highlights from our consumer application services. In the third quarter, our multi-play package integrating our mobile fixed broadband and WiFi services achieved impressive year-over-year growth of 22%, marking 15 consecutive quarters of expansion. In terms of our video services, subscription fluctuated in line with major sports broadcast declined year-over-year during the quarter, mainly due to the relative high base from -- base from last year Olympic Games broadcast is this event-driven variation. Our video subscription and ARPU sustained its expected upward trend. Noteworthy, we are proud of to highlight the success of drama investments in the third quarter. For example, The Outlaw Doctor won Best Asia content in Global OTT Award in Busan and [indiscernible] at the 30th Golden Bell Awards in Taiwan with multiple nominations and awards. With those wins, we will continue our content investment strategy to strengthen value for our subscribers. Meanwhile, our consumer cybersecurity services recorded a 17% year-over-year growth with a steady number of blocked malicious link per user more than doubling compared to the same period. Slide 8 illustrates the key highlights in our enterprise ICT business. We are pleased with 14% year-over-year increase of our group ICT revenue in the third quarter, fueled by the emerging service expansion. Recurring ICT revenue also grew by 19%, supported by our continued commitment to public cloud in the entity supply contracts in the government sector, which effectively contributed to the steady growth in the cloud service recurring revenue. Regarding core service pillars, IDC cloud and cybersecurity remain key ICT revenue growth drivers, posting year-over-year growth of 34%, 24% and 19%, respectively. driven by the strong demand from the financial and government-related sector. In addition, Big Data services surged by 130% year-over-year, largely attributable to the National Taxation System project. Among the newly secured projects during this quarter, we are glad to report the acquisition of our largest ever network infrastructure project, both by scale and the contract value from a leading life insurance company in Taiwan. This project is expected to generate both onetime and recurring revenue. We also won a landmark project from Taipower to assist in building its large-scale AMI big data analytics platform for smart grid management. Lastly, leveraging our deep expertise in smart transportation, we secured a project to assist Taiwan Railway to develop a smart real-time fleet management solution powered by the digital twin and 5G technologies, simulating training -- train control cabin dashboards, enabling railway operation hub center to proactively identify failing equipment and monitor dispatching vehicles, further enhancing operational efficiency and reducing maintenance costs. Slide 9 illustrated the performance of our international subsidiary. In the third quarter, our U.S. subsidiary delivered outstanding results by achieving 70% year-over-year revenue growth, primarily fueled by AIDC construction project of a Taiwan-based high-tech company in Texas. Together with the efforts of our Japan subsidiary, we anticipate securing additional related projects, strengthen our role in the global AI supply chain. Meanwhile, our Southeast Asia markets continue to thrive with our Singapore and Vietnam subsidiaries actively deliver plant construction services that are expected to contribute to future revenue. Excitingly, this quarter, we successfully introduced our proprietary solution to global markets. First, through close group collaboration, we introduced cybersecurity services from our newly leased subsidiary, Chunghwa Telecom Security, to overseas clients in Southeast Asia and Japan. Furthermore, we launched our Smart Poles solution in Thailand, fully powered by our proprietary operation platform and integrated AI and IoT solution. The solution delivers services, including adaptive lighting control, localized digital synergy in Thai and traffic flow analytics. We placed particular emphasis on our AI capabilities, which enable seamless replication of our success to other markets in different language. In addition, by supporting our aligned nations, in developing smart cities, we have leveraged our 5G private network and ICT capabilities to generate overseas smart city revenue from Paraguay and Eswatini. Last but not least, we are pleased to see the submarine cable SJC2 has commenced operation and is contributing revenue, while another cable Apricot is expected to follow in the fourth quarter. Now let's move on to Page 11 for the financial performance of our 3 business groups. In the third quarter, thanks to steady growth in mobile and fixed broadband service plus the higher sales driven by the iPhone demand, our CGB delivered a solid year-over-year increase of 2.2% in revenue. Additionally, last year's elevated expense related to the content broadcasting rights contributed to the relative increase of 11.4% year-over-year in CGB's income before tax, broadly supporting the group outperformance. Our EBG also performed well with strong ICT performance as revenue increased 7.4% year-over-year, while income before tax decreased owing to the reduced fixed voice revenue during this quarter as well as a decrease in sales margin related to a long-term enterprise customer engagement. As for IBG, revenue declined by 1.9% and income before tax dropped by 19.7%, primarily due to softened demand for voice services. However, we saw a robust growth in IBG, ICT and mobile services, which rose 14% and 19% year-over-year, respectively, supported by clients' global expansion and increased roaming revenue. Now I would like to hand the call over to Audrey for financial updates. Wen-Hsin Hsu: Thank you, President. Good afternoon. Please turn with me to Slide 12, income statement highlights, where I will cover our performance for the third quarter and first 9 months of 2025. The third quarter demonstrates strong execution and profitability. First, let's look at the top line. Revenue reached TWD 57.92 billion. This achieved a significant milestone of the highest third quarter revenue level in 9 years. This represents a solid 4.2% increase compared to the same period last year. This growth was primarily fueled by the successful expansion of our ICT business and also robust sales growth, while our core telecom service maintained positive momentum. Our strong operating performance is clearly reflected in our bottom line. Income from operations rose by 6.4% and net income increased 4.8% year-over-year. This performance was supported by steady growth across our mobile service and fixed broadband business, alongside the expansion of a high-value service, including Internet data center, IDC and cloud service. As a result of this performance, earnings per share increased from TWD 1.16 to TWD 1.22. This reflects consistent profitability and marks the highest third quarter EPS in 8 years. This operational efficiency also resulted in a strong quarter for EBITDA, which recorded a 4% gain, reaching TWD 22.11 billion for the quarter. The EBITDA margin of 38.17% was virtually in line with the 38.23% recorded in quarter 3 last year. This demonstrates sustained cash generation. So now moving now to our year-to-date performance through the first 9 months. Please focus on column 5 through 7 for the results. So revenue grew by 3.5% year-over-year, supported by strong momentum in our ICT portfolio and the sales contribution from our subsidiary, Chunghwa Precision Test Tech. Reflecting its top line strength, income from operations and net income rose 5.5% and 4.2%, respectively, primarily fueled by the continued expansion of ICT and cloud service, supported by sustained positive momentum from our core telecom business. Year-to-date EPS stands at TWD 3.79 compared to TWD 3.64 last year. Furthermore, EBITDA increased 3.6% to strong TWD 67.22 billion. The EBITDA margin stood at 39.43%, broadly consistent with prior year period. So in summary, the results highlighted the dual strength of our stable core telecom foundation and our successful pivot into high-growth ICT service. Now let's turn to Slide 13 for balance sheet highlights. We will review our financial position as of September 30, 2025, relative to year-end 2024. Our balance sheet continues to reflect our strong commitment to capital discipline and financial flexibility. Total assets decreased by 4%, a reduction primarily stemming from the utilization of cash and other current monetary assets to meet a debt maturity obligation during the period. In addition, property, plant and equipment declined by 2.1% as depreciation exceeded net additions, reflecting our continued focus on asset efficiency. Moving to the liability side. Total obligation decreased significantly by 10%. This net reduction resulted from the repayment of a maturing debt obligation and the subsequent partial refinancing through the issuance of our first ever sustainability bond that incorporates biodiversity feature. This reflects our commitment to ESG-based financing. As a result of this deleveraging, our reported debt ratio stood at a healthy 23.91%, showing a slight decrease compared to year-end 2024. Regarding liquidity, our current ratio remains stable and above 100%, highlighting healthy short-term financial flexibility. Meanwhile, our net debt-to-EBITDA ratio stood at an exceptionally low 4.5%. This reflects our highly deleveraged position and capacity to sustain our ongoing investment strategy within a balanced capital structure. Let's move to Slide 14, cash flow summary. We will review our year-to-year performance through the first 9 months of 2025. Cash flow from operating activities decreased by 8.6% year-over-year. This was driven primarily by the timing of the settlements, specifically increased payment for accounts payable and highly accounts receivable as of September 30. Capital expenditures rose 8% year-over-year, partly reflecting the timing of 5G, 4G deployment. This year's project were front-loaded in the early months, whereas last year's occurred later in the period. Some of this year's payment also relate to projects booked last year, so the increase mainly reflects timing rather than high investment activity. On an accrual base, CapEx has actually trended lower and full year mobile investment is expected to remain below 2024 level, consistent with our disciplined approach to capital management. As a result of these factors, free cash flow declined by 16.5% to TWD 28.19 billion year-over-year. This result is in line with expectations, given the short-term increase in working capital and the timing of our CapEx investment. We continue to maintain a strong cash position and stable operating inflows to support both business growth and shareholder return. Moving to Slide 15, performance highlights and guidance. I will summarize our key achievements for the period. In quarter 3 2025, the strength of our execution drove significant acceleration. We achieved record-setting Q3 revenue and EPS, while our key profitability metrics from income from operations, net income and EBITDA all performed strongly and met or exceeded our internal margin targets. For the full 9-month period, the cumulative results validate our strategy, all major metrics, including revenue, income from operations, net income, EPS and EBITDA performed above or on target for our full year guidance. The success was powered by the sustained profitability of our ICT service and the reliability of our core telecom business. Crucially, revenue growth outpaced operating expense, reflecting excellent operating leverage and efficiency. So this concludes our review of the financial performance for the third quarter and the first 9 months of 2025. We are now happy to open the door for your questions. Operator: [Operator Instructions] Cho-Fen Tsai: okay. We got one question from the dashboard. The question is that what is the driver of our international projects business? Okay. For international business, just as we mentioned that in the international markets, besides that, Chunghwa can play a role in the global AI supply chain. So actually, we see great potential of opportunities in the market of United States. So now our subsidiary in the United States are doing the project in Texas in those states that a lot of Taiwan high-tech company relocate there to do some plant construction and most of them are -- play a very important role for the AI supply chain globally. And in the Japan market, we also see similar opportunities in Japan, right? And in addition to that, we also try to introduce our self-development solutions to the global market. So for this quarter, our subsidiary, the CHT Security, their cybersecurity services, we successfully introduced the services to Southeast Asian markets and in Japan, okay, with the collaboration of our subsidiaries in Singapore and in Japan. For the Southeast Asia company, we also see the opportunities from the high-tech companies. That's the main driver of the business growth in Southeast Asia company. And we also try to introduce the smart city-related projects there. So in the third quarter, we see that we successfully introduced our Smart Pole project there. Although we want to notice that the Smart Pole is mainly developed and we introduced our in-house solutions, and we also collaborate with the partners to make it successful in Thailand. Operator: [Operator Instructions] There seems to be no further questions at this moment. I will turn it over to President Lin. Please go ahead. Rong-Shy Lin: Okay, everyone. Thank you very much for your participation. See you. Bye-bye. Operator: Yes. Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. You may now disconnect. Thank you again, and goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to Veolia 9 Months Key Figures Conference Call and Webcast with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO. [Operator Instructions] This call is being recorded today, November 6, 2025. I would now like to turn the conference over to Estelle Brachlianoff. Please go ahead. Estelle Brachlianoff: Good morning, everyone, and thank you for joining us for this conference call to present Veolia's 9 months key figures, and I'm accompanied by Emmanuelle Menning, our CFO. I'm on Slide 4 for all the key takeaways. Our 9-month results are once again very good with strong underlying business trends and a favorable momentum going into the end of the year. Our 9 months performance in EBITDA terms was particularly strong internationally, where the group generates 80% of its revenue as well as for our Boosters, as I will explain in a few minutes. In a rather challenging environment, this sustained performance quarter-after-quarter is really a testimony to the choices we've made in GreenUp as well as the strength of our business model of resilience and growth. Veolia can rely on a successful combination of Stronghold and Booster activities added to a diversified portfolio, both by geography and customer as well as a continued attention to performance. Moreover, we're constantly looking to create value by pruning our portfolio and have completed EUR 2.3 billion of M&A since the beginning of the year in our Boosters, Water Technology and Hazardous Waste in particular, and outside Europe, following, as you know, the disposal of nonstrategic assets last year. I can, therefore, fully and strongly confirm our guidance for the year, and we should have a very strong Q4. I'm now on Page 5, where you see that our 9-month key figures are once again very strong. Revenue reached EUR 32 billion, up plus 3.2% excluding energy prices, which are essentially pass-through for us, as you know. EBITDA increased by a substantial plus 5.4% on a like-for-like basis, fully in line with our 5% to 6% guidance and shows a margin improvement of 50 basis points. This is thanks to our strong international performance as well as our recurring efficiency gains complemented by the last synergies coming from the Suez acquisition more than 3 years ago. Current EBIT was up plus 7.9%, demonstrating strong operating leverage. Net financial debt remains well under control at EUR 19.9 billion, even after EUR 2.3 billion of net financial acquisition closed in the 9 months. We are perfectly on our trajectory to less than 3x at year-end with the usual seasonality. Our solid 9-month performance and expectations for Q4 enables us to fully confirm our guidance. In this uncertain time, Veolia's results are sustainably progressing quarter-after-quarter as we have demonstrated over the last few years. And why is that so? I would like to highlight key features on Slide 6. And I will insist on our international exposure with 80% of our revenues growing faster than the rest of the group and with very good EBITDA performance as well. Even in France, which accounts for 20% only, our results are not sensitive to the political context. And this is structural as we hold no national contracts and no public money is involved. Moreover, ForEx does not impact our businesses or margin as we just saw in the last 9 months with plus 50 basis point margin. We do not have ForEx transaction exposure, only translation. In a way, no business impact. We are a multi-local group with very limited international trade. On Page 7, you see in figures our performance outside Europe, which really stands out and explains a great deal of our resilience and growth in the last 9 months. Indeed, our Rest of the world businesses are more profitable with an EBITDA margin already at 17% versus 15% on average for the group, and they are faster growing. In growth term, you can see the detailed performance in the 9 months, which has been enhanced in Q3 compared to the first half, plus 6.2% in North America, fueled by an accelerated growth of Hazardous Waste, plus 9%. In Africa and Middle East, plus 10.5%; in Latin America, plus 9.4% and plus 5% in Asia. As you know, our value creation and EPS growth come from 3 pillars: top line growth, performance and capital allocation. And I'm going to go through them one by one as always, to illustrate how they have each contributed to our performance in the 9 months, starting with growth of our Stronghold activities on Slide 8. We've registered a very solid revenue growth of our Strongholds. Let's start with Water operations. Revenue increased by plus 3.9%. We continue to benefit from good indexations and have achieved successful tariff renegotiation in Spain as well as rate cases approvals in our U.S. regulated operations, which protects our future earnings. We just opened our first upgrade control center in North America to foster operational excellence and leveraging data. Solid Waste revenue grew by plus 0.9% or 1.5% excluding energy prices despite sluggish macro. As we have detailed in our deep dive last June, we managed to largely disconnect our waste activities for macro, thanks to a varied portfolio of customers, good pricing and quality of service, and we favor bottom line over revenue as well. Revenue from District Heating Networks increased by plus 2.7%, excluding energy price, thanks to sustained heat tariff as well as some network expansion and a favorable weather impact in H1. Q3 is not a very significant quarter for this activity. On Slide 9, one good example of the dynamism for Water operation in Q3 is certainly the signing of its first hybrid municipal and industrial desalination in Chile in Valparaíso. As you know from our Oman event on desalination a few months ago, Veolia is the world leader in desalination technologies with 18% of the world's desalination facilities having been designed and built with Veolia, and we have big ambitions. I'm very proud of this win in Valparaíso after a very intensive competitive process as we will be able to provide the highest technical, environmental and social standards to Aguas Pacifico. Let's move to our Boosters performance on Slide 10, which have performed well. The EBITDA performance is even remarkable, confirming my choices in GreenUp. Water Technology to start with, as you know, is a mix of various business models as we detailed in our deep dive last year. As you may remember, 70% of our Water Tech activities are deemed recurring, corresponding to products, mobile units or chemicals. And I'm very happy to see this base having achieved a very good Q3 with 6.8% growth and 4.8% since the beginning of the year, testimony to our technologies and commercial power. On the other hand, projects were impacted in the quarter by the timing milestone delivery and a strong comparison base last year. Quarters are always very different in this activity, and I expect a normalized Q4. Overall, and combining those different business lines, Water Tech has been up only 2%, but EBITDA progressed with 10% organically, which is excellent. Hazardous Waste revenue increased by plus 5.5%, including tuck-ins and 4.4% organically. I would like to highlight, in particular, the very strong growth in the U.S., up plus 9% year-to-date and despite planned shutdown of [indiscernible] early in the year. We have started our new operation in Saudi in the Dubai complex, and only China is lagging behind in terms of price, but we start to see some rebound in volumes. In terms of EBITDA, 9 months performance was excellent with above 10% organic growth. In Bioenergy, revenue was up plus 21.3% excluding energy price and including our new targeted acquisition. If I go to organic growth, it was still plus 8.2%, which is very good. Some illustration of the high-tech part of Veolia on Slide 11. You can see on this slide 2 good examples of the dynamism for our Boosters in Q3. First, in Water Tech, after years in the making and technical design, we were awarded a $500 million project in Saudi Arabia for the Saudi Aramco Total Energy Consortium called SATORP. We will design, build and operate a new massive plant. We're talking 8.10 million cubic meters per annum, treating the super complex affluent of this petrochemical complex. We combine here our unique set of Water Technologies and Hazardous Waste know-how, not only to offer a solution to remove pollutants, but also to recycle water in this arid region. I'm also very proud to have signed a partnership with TotalEnergies to combine our expertise and technologies to develop innovative solutions for industries, methane measure and capture, low-carbon energy for desalination facilities, strategic metal recovery from waste, et cetera. Now let's dive into our second lever of value creation after growth, which is performance and efficiency. I'm now on Slide 13, which shows our 9 months performance. In terms of our yearly efficiency plan, we achieved EUR 295 million in gains, in line with our annual target of EUR 350 million. As you know, this is a recurring lever embedded in our operations and therefore, one we can count on for years to come, not to say forever. Efficiency gains of Veolia are not discretionary cost-cutting programs, of which you could question the continuity, but they come rather from a very diversified series of initiatives in our thousands of plant, which explains the recurring element of it. Worth noting, we have already registered EUR 5 million of additional synergies coming from the combination of our 2 business units in Water Technologies after the CDPQ minority buyout closed on June 30. In terms of cost synergies derived from the Suez merger, we have achieved EUR 73 million in 9 months for a cumulative total of EUR 508 million since day 1. This is in line with our objective of EUR 530 million by year-end, which, as you know, we've raised a year ago. I'm now on Slide 14, which details the third pillar of value creation, capital allocation and portfolio pruning. You will see a powerful 9 months in that respect with EUR 2.3 billion of acquisition completed almost entirely in Water Tech and Hazardous Waste and outside Europe. This is fully consistent with our GreenUp priorities. I must say the year-to-date enhanced growth outside Europe and plus 10% EBITDA increase in those 2 Boosters confirm that these are good investments to sustain future earnings growth. Detailing those investments first in Water Technologies with CDPQ's 30% stake for EUR 1.5 billion, which you know is an operation which will be accretive and ROCE enhancing, thanks to EUR 90 million cost synergy by 2027. In Hazardous Waste, we've signed 6 bolt-on acquisitions for a combined EV of EUR 400 million and good multiples, notably in the U.S. and Japan. Of course, we maintain our strict balance sheet discipline and our leverage will remain below 3x at year-end, allowing the group to retain strategic flexibility. Our strong 9-month results, of course, allow me to fully confirm our guidance for 2025, which is reminded on Slide 14. I wish to invite you as well to join us in Poland later in the month, where it will give some color about our district heating and decarbonizing energy activities. Finally, and as a conclusion, I wanted to remind you of our long-term guidance, fueled by our 3 levers of value creation and GreenUp priorities. It includes current net income growth of 10% per year on average over the period with dividend growing in line with current EPS and ROCE above 9% in 2027. As you remember from our yearly presentation, we decided to launch a share buyback plan from '25 to '27, size to neutralize the impact of the employee shareholding program. So that going forward, current EPS will grow in line with current net income growth. I now hand over to Emmanuelle, who will detail our 9 months key figures. Emmanuelle, the floor is yours. Emmanuelle Menning: Thank you, Estelle, and good morning, everyone. Veolia's results at the end of September are very solid with strong underlying business trends and a very favorable momentum, which I would like to detail. Indeed, if we look at our EBITDA performance, we see tailwinds. First, in our international operations, notably outside Europe, where the group generates 80% of its revenue with circa double-digit EBITDA growth and second, for our Boosters with EBITDA increased by more than 10% in the 9 months. In Q4, we expect this trend to continue, and we also expect improved performance in France as we will reap the benefits of our action plan, notably in French waste. Nine months results are fully in line with our annual guidance and are also a testimony to the strength of our business model of resilience and growth with a successful combination of Stronghold and Booster activities and a diversified international portfolio. With EUR 32 billion in revenue, we experienced a solid growth of 3.2%. The operating leverage as the good delivery of efficiencies and synergies were excellent. A solid organic EBITDA growth of 5.4% at EUR 5,080 million and a current EBIT growth of 7.9%. Net financial debt reached EUR 19.9 billion at the end of September, up from December '24 due to the seasonality of working capital variation and M&A activity, down compared to the end of June '25 due to the temporary favorable impact of the hybrid bond debt issuance of EUR 850 million, which will be reversed at the end of the year. We expect the leverage ratio to be below 3x at year-end after full seasonal working capital reversal in Q4. You can also see on the slide the detailed ForEx impact, which increased in Q3 due to the weakening of the U.S. and Australian dollars as well as the Argentinian and Chilean pesos. A few things are important regarding the ForEx impact for Veolia. First, our revenue is only about 40% generated in euro. But as a multi-local group with very limited international trade, ForEx does not impact our businesses or margin. Our revenues and costs are always in the same currencies in each of our countries. The increase in currency impact in '25 reflects the improved performance of our international activities. Our guidance at EBITDA level is at constant scope and ForEx. Finally, as you saw in previous year, the ForEx impact at EBITDA level is very much offset down the line to current net income. ForEx impact was minus EUR 68 million at EBITDA level and minus EUR 44 million at current EBIT level at the end of September. Using the ForEx exchange rate at the end of September '25, the full year impact at EBITDA would be around EUR 130 million minus, but it varies every day. Our full year guidance, which is at constant scope and ForEx is fully confirmed at EBITDA and current net income level. Moving to Slide 18, you can see the revenue evolution by geography. The main feature in Q3 was the enhancement of our growth outside Europe. I will detail it in a few minutes. I will start with Water Technologies. As Estelle recalls, 70% of our Water Tech activities are recurring corresponding to products, mobile units and chemicals. While 30% is volatile, these are the projects. In Q3, project revenue was impacted by the timing milestone delivery and a strong comparison base last year, while the 3 other business lines grew double digit. Excluding project, Q3 Water Tech revenue was up 6.8% in Q3 and 4.8% in the 9 months. This was reflected in the EBITDA level. Water Technology EBITDA increased by 10% in the 9 months, benefiting also from the efficiency and synergy delivery. As Estelle mentioned, we have already generated EUR 5 million of additional synergies coming from the buyout of WTS minority interest in Q2. Rest of the world performed very well in Q3. With revenue growth accelerating from 3.7% in H1 to plus 6.6% in Q3, driven by all geographies. Europe grew by 4.1% in the 9 months, fueled by resilient waste activity, a solid Q3 in water operation and excellent performance in Southern Europe, notably in Spain, up by 7%. Finally, France and Hazardous Waste Europe benefited from good hazardous waste performance, partially offset by low growth in solid waste and good water activity. Now let's take a look at our performance by business. Let's start with Water, representing 40% of our revenues and 50% of the group EBITDA. Water revenue was up 3.4%, fueled by the strong water operation, up 3.9%, while Water Technology was up by 2%. Water Operations benefited from good indexation with continued price increases in Europe and in the U.S., while indexation was back to 0 in France due to lower electricity prices. Volumes were on a very good trend, up close to 3% in Europe. As I just explained, the underlying growth of Water Technology, excluding the timing project delivery remained quite strong. Moving to Waste, representing 35% of our revenues. Waste activities grew by 1.8%, a steady pace despite an [ helpful ] margin. Waste growth was very comparable in Q3 to previous quarters. Starting with solid waste. It's a very local, systematically adapted to the reality of the geography with a well-balanced customer portfolio across countries, and it has been demonstrating its resilience through the quarters. In terms of volumes and commercial developments, performance was mixed, resilient volumes in the U.K. and in Germany. U.K. incineration activity was impacted by planned outages, but still down in France, although better in Q3. Activity continued to progress in the Rest of the world, notably in Latin America and in Hong Kong. Hazardous Waste grew by plus 4.4% in the 9 months, plus 5.5%, including tuck-ins, thanks to continued good pricing and plant performance with EBITDA up by more than 10% year-to-date, which is outstanding. Growth accelerated in the U.S., plus 9% in Q3, fueled by excellent incineration volumes and pricing, a slower quarter in Europe due to facility outages and lower recycled oil prices. Finally, moving on to energy, and I am on Slide 21. As you know, energy revenue is sensitive to energy prices, which were down as expected again in '25, but to a lesser extent than last year. The prices were on average almost stable compared to last year and electricity prices were down as expected. Excluding the energy price impact, growth was quite good, plus 4.5%, thanks to good volumes, helped by a colder winter and fueled by a strong activity in the booster energy efficiency and flexibility, up 8.3% with strong momentum in Belgium, Southern Europe and in the Middle East. The revenue bridge on Slide 22 explains the driver of our growth in the 9 months. Scope was negative at the end of September and reached minus EUR 327 million, mainly due to the impact of last year disposal, but as expected, was neutral in Q3. The impact will turn positive in Q4 as 2024 divestiture were all closed in Q3 last year. Negative ForEx impact increased in Q3, as I mentioned earlier. The impact of energy prices was as expected, divided by 2 compared to last year at minus EUR 501 million. Recycled prices were neutral. The weather effect amounts to plus EUR 169 million due to a colder winter at the beginning of the year in Europe. The contribution of commerce and volumes were comparable to last year, plus 1.3%, driven by sales momentum and resilient volumes. Finally, price effects were as expected, lower than in 2024 due to lower inflation and contributes plus 1.4% to top line growth. On Page 23, you have the EBITDA bridge detailing our organic growth of 5.4%, in line with the annual guidance between 5% and 6%. Scope was negative at the end of September and reached minus EUR 56 million. Negative ForEx impact increased in Q3 versus Q2, as mentioned earlier. The impact of energy was minus EUR 39 million, less than last year as expected, while recycled prices were slightly up plus EUR 13 million unchanged in Q3. The commerce/volumes/works effect was positive at plus EUR 77 million, in line with revenue impact. Pricing and efficiency gains of EUR 295 million generated plus 2.3% in additional EBITDA, hence, a very good retention rate of 38%. Worth noting, we have already registered in Q3 EUR 5 million of additional synergies coming from the combination of our 2 business units in Water Technology after the CDPQ minority buyout close on June 30. The synergies amount to EUR 73 million, notably in the Water Technology activities in the U.S. and in Hazardous Waste, leading to a cumulated amount of EUR 508 million, perfectly in line with our cumulated objective of EUR 530 million. The symbolic threshold of EUR 500 million has been exceeded. Going down to current EBIT, this slide illustrates perfectly the operating leverage of our business model, 3.2% revenue growth, 5.4% EBITDA growth and 7.9% EBIT increase. Current EBIT grew to EUR 2.7 billion at a faster pace than EBITDA. Renewal expenses of EUR 231 million were comparable to '24. Amortization and OFA were slightly lower than last year due to perimeter and slightly up at constant scope and ForEx. Industrial capital gains, provision and other were down due to the high provision reversal in '24 with the ending of operational risk. Joint ventures are slightly decreasing. Before concluding, I remind you on this slide of our share buyback program, which has been launched to offset the dilution of the employee shareholding program. Our strong 9 months results allow me to fully confirm our guidance for 2025, continued solid organic growth of revenue, excluding energy prices. For EBITDA, organic growth between 5% and 6% more than EUR 350 million of efficiency gains, more than EUR 530 million of cumulated synergy at the end of 2025, current net income up 9% at constant ForEx, leverage ratio below 3x. And as usual, our dividend will grow in line with our EPS. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. And now we are ready to answer your questions. Operator: [Operator Instructions] And your first question comes from the line with Bartek Kubicki with Bernstein. Bartlomiej Kubicki: If I may ask maybe 3 very short questions. First of all, on your FX, you gave a little bit of a guidance, what could be the FX impact on EBITDA in 2025, assuming the currency rates stay where they were at the 30th of September. I just wonder what would be the impact on net income? Because in FY '24 in the first half, the impact on net income was 0. But in the past, it used to be negative, when the impact on EBITDA was negative. So I wonder what is your view on this one at the end of FY '25? Second of all, if we -- about your share buybacks, I think there was a proposal to increase a taxation on share buybacks in France, an idea. And I wonder if this was applying to share buybacks on employee shares. What would you do if you had to pay additional taxes on share buybacks in France? Just a hypothetical example. And the last point would be on your Hazardous Waste margins because I guess, with 4.4% revenues increase and 10% EBITDA increase, we are looking at margin expansion. I just wonder whether this is a structural trend and you will see a margin expansion going forward from today's levels? Or do you think you have already reached levels which you find optimal in terms of EBITDA margins in Hazardous Waste? Estelle Brachlianoff: Thank you for your 3 questions. I will start and Emmanuelle will be able to comment further, of course. Regarding guidance on ForEx, on net result, just a few elements on that. First, I can fully confirm our guidance for the year, so which means 5% to 6% EBITDA at constant ForEx. And it's fair to say you've understood from the tone of this presentation this morning that I expect to be on the upper range of this range. Two, I can fully confirm as well the net result, which is 9% growth this year. I think this is a super important element. And as you know, I just wanted to highlight a few things on ForEx. ForEx for us is very different from in many different companies, I guess, because in a way, it has no impact on our business neither positive nor negative in a way. That's exactly why we guide at constant ForEx. It's because it's exactly what we have a look at. It's the direct consequence, of course, of our being super international with 80% of international business, plus it has no impact on margin as we've demonstrated in the 9 months with a plus 50 basis points. As Emmanuelle said, we are a multi-local company. So we have no transaction impact of ForEx. It's really like we are paid in dollars, we pay our cost in dollars and same applies to euros and so on and so forth. Just want to highlight that before Emmanuelle comments on the specifics of your question. Emmanuelle Menning: Yes, you're absolutely right, Estelle. Regarding ForEx, it's the direct translation of our being 80% international and 40% outside Europe, which is growing faster. I will not come back on the fact that we are only translation impact and no transaction impact. We expect, as I mentioned, the impact at the end of 2025 at EBIT level to be around EUR 130 million -- EBITDA, taking into account the 9 months results and the closing rate at the end of September. Estelle Brachlianoff: Although it's fair to say it varies every day, as we've seen with the political situation in the U.S. meant suddenly, the dollars went up again. So I'm not so sure we expect if we were to do that calculation with the same range as end of September, which would be now the fair comment, right? Emmanuelle Menning: Absolutely. And we haven't changed our range. You know that ForEx impact at current net income level is largely attenuated. Usually, EUR 100 million at EBITDA level translates into EUR 20 million at C&I level. Estelle Brachlianoff: Your second question on share buyback, even in the -- I mean, as you have said and implied, the fiscal debate is not over yet in France like far from. Even if we were in the -- what was imagined in the last few weeks were to be voted, which is, I must say, unlikely for the majority of it, but nevertheless, even if the share buyback that we have launched would not be concerned. Actually, there is an exception in this fiscal turmoil, which is share buyback associated with employee shareholders. So we would not be impacted in any way, shape or form even if that were to be voted. And just to rehighlight that French political situation does not have any impact on our results at Veolia, not only because we're only 20% in France, but even in France, we are very local as opposed to national. We don't have national contracts. We don't have like debt -- public debt is not involved. We are really multi-local as well. Just want to highlight that again. In terms of your third question on Hazardous Waste, the margin expansion is structural. And we've highlighted that in the deep dive we've done last June. I think it was with a big ambition, in Hazardous Waste to raise the margin, the EBIT and the ROCE by plus 50% by the end of the plan, thanks to the progressive opening of the various facilities we have. We are on the way of building, which are good profitable margins apart from the ramping up of those, which could be temporary for a few months, just like not fully yet delivering the full speed. Yes, I don't expect any specific thing. It's really structural. It's a mix of like availability of our plants, plus pricing, good pricing plus good volume and increase in the industrial base in some key sectors such as micro e. This is what is structurally behind this increase in margin. Just to give you a specific figure, which was highlighted by Emmanuelle, but I want to emphasize again on. In the U.S.A. alone in Hazardous Waste, we've grown our revenue plus, plus 9% in Q3, which is even at a higher rate than the first half. So it's really sustained we don't see anything but a sustained, if not even better Q3 than the first half. So that's why I'm very confident for a very good Q4 for Veolia and a very good year. That's why I mentioned the upper end for EBITDA at constant ForEx. Operator: And your next question comes from the line of Arthur Sitbon with Bernstein (sic) [ Morgan Stanley ]. Arthur Sitbon: Can you hear me? Estelle Brachlianoff: Yes. Arthur Sitbon: It's Arthur Sitbon from Morgan Stanley. So the first one is actually on your EBIT. I've noticed that your industrial capital gains, I mean, the line of capital gains net of impairments, et cetera, is significantly lower than last year, which I suspect suggests the quality of your EBIT -- the underlying quality of your earnings in 9 months is relatively good. I was wondering, is it just a timing effect and we're going to end the year with a similar level of capital gains than last year? Or should we expect basically you to deliver on your net income guidance with a bit less gains than last year, which could be a message on the underlying quality of earnings? That's the first question. The second question, you talked already a little bit about taxes in France. I -- and as you mentioned, we don't know what will be implemented at the end of the day. But I just wanted you, if possible, to give us some information on that potential tax that would change the way -- essentially, that amendment that would change the way the corporate tax is calculated in France and will align it on your share of revenues generated in France, not PBT. I was wondering if there is a significant discrepancy between your exposure at revenue level and PBT level in France? And if you could help us understand a bit that. Estelle Brachlianoff: So capital gains and the quality of earnings, Emmanuelle. Emmanuelle Menning: Yes. Thank you, Arthur, for your comments on the quality of results, which is really good at the end of the 9 months and that we are confirming. And to be short on your question, we confirm that at the end of the year, the amount will be decreasing compared to last year, confirming the quality of our results. In terms of your second question on tax in France, the short answer is we don't expect any negative impact nor positive on the potential corporate tax that you mentioned because there is an addendum, which makes it that we would not be concerned. And we could go through the list of the various tax which we imagine in France. And for some, the answer would be, again, in conditional terms, no impact. For others, it may be EUR 5 million, EUR 10 million max. So we're really talking about things which are absolutely not significant at Veolia's group level. And as I remind you, France is 20% of our revenue, but less of our earnings. So there is no big impact of all this in our group's results. Operator: And the next question comes from the line of Olly Jeffery with Deutsche Bank. Olly Jeffery: So 2 questions for me, more kind of general beyond the results today. So the first one is just on the efficiency program that you guys have and have every year. Is there some part of the efficiency program that happens every year that you might be able to consider to be almost efficiency that could be considered as underlying growth that might be, for example, you're sharing in the benefits of efficiency targets on specific contracts. I know often this is seen a straight out cost cutting, but is there some elements of cost cutting, which actually perhaps people view as that, but you might consider internally as being more genuine growth. I'd just be interested to hear your views on that. And then secondly, there's been discussions from some investors recently about the opportunity you might have with regard to data centers, water cooling, et cetera, in the U.S. Is that something that you see as a potential growth opportunity out this decade? And if so, what are the areas where that you feel that you can operate within that and potentially might be able to see the most growth? Estelle Brachlianoff: Thank you. Do you want to take the first question, Emmanuelle, on efficiency? Emmanuelle Menning: With pleasure. So regarding efficiency program, you're absolutely right, Olly. It's fueling our underlying growth, and it will continue to fuel our underlying growth. Very happy about what we have been able to achieve in terms of efficiency for the 9 months. The element which is important also and that you have in mind is that in Q4, it will be also pushed by the results that will come, especially in France as we will reap the benefits of all the measures that we have implemented in the 9 months. So very sustainable trend completely linked with our businesses and which will fuel the underlying growth. Estelle Brachlianoff: So basically, you can count on them forever with Veolia. For the reason I mentioned in my speech, which is it's not a big cost cutting as in one-off laying off people typically. We're talking about thousands of plants, each of them having a constant way of having a look at how they could be more performing and efficient, which is very different. Therefore, you can count on them forever. In terms of data center, you're exactly right. We are building an offer on data center, which I think is very, very promising. We already have quite a few contracts actually across the globe in Europe as well as in the U.S. so far and in Australia as well, it's fair to say. And it's a way to have Veolia combining the data center needs and boom with still the access to resource and sustainable element of it. Meaning what we offer is not only reduce carbon footprint by recouping the heat as well as being even water positive as in replenishing resource. As you know, data centers consume a lot of water to be cooled down. And we have implemented a few offers there with a few customers already, and we aim at doing more of that. So yes, you're right, growth opportunity for Veolia certainly. And I count on it to fuel not only the GreenUp plan, but the next few years with a lot of assets is going to be here, I think, for a very long time. Operator: And the next question comes from the line of Juan Rodriguez with Kepler Cheuvreux. Juan Rodriguez: I have one, if I may. It's kind of a follow-up. If I'm correct, you signaled that you expect to be on the upper part of the guidance for the year. Can you please give us more clarity, as we currently see, you're in the middle part of the range? So you expect probably a strong Q4 with cost efficiencies, volume recovery? Is it both? And can you give us a first look of what has been the operational performance so far in the quarter were already at the beginning of November? Estelle Brachlianoff: Emmanuelle? Emmanuelle Menning: Yes, with pleasure. So as mentioned by Estelle, we expect a very strong Q4 and to be at the upper range. Regarding revenue, we expect -- we have some moving parts regarding, of course, the weather, but we expect a growth which is similar to what we have seen in the 9 months. And regarding EBITDA, it will be, of course, pushed by the generation of synergy from Water Tech, the performance that we will have in France, recovery -- thanks to the action plan which has been launched, which are the 2 main reasons. And as you may have seen, the October in terms of heating generation has been positive. So that's the main reason for us to be very optimistic regarding Q4. Estelle Brachlianoff: And as we -- I will comment on the Q3 was more on the plus side and then minus side in terms of trend compared to H1 as well. Everything we've seen internationally in the U.S. has this way, just to give a few examples, and we have figures in the slides, but Q3 was more on the up than the down compared to H1. So we are into a very good momentum into Q4. Operator: And the next question comes from the line of [ Mark Abe ] with Citi. Unknown Analyst: The first one I've got is on the Water Tech business. I think at the first half, you gave a number of EUR 2 billion of bookings. Can we get an updated figure of backlog at 9 months as of now? And also remind me how that converts -- how that backlog converts into revenue? And if there's any sort of large projects with definitive timing that we can think about? And then just a second one quickly on the recyclate pricing. I think at 9 months, you've seen it relatively flat, slightly positive. We saw in the U.S. Waste Management profit war, they're seeing low lower recyclate pricing. Can you just talk to if there's any kind of read across or impact for Veolia there, please? Estelle Brachlianoff: Okay. So on Water Tech, we always hesitate to give always the backlog because backlog is only on the project bit of our activity, which is roughly 30% of it. And the backlog was not very relevant in Q3, but we expect quite a few bookings in Q4. So we'll give you the over end. So it doesn't translate directly because of the proportion of projects versus more recurring things. So roughly -- and you can have a look at our deep dive on Water Tech, where we explained the full detail of that. Basically, we have 30%, which is project based, which is very linked with backlog, say, and 70%, which is more recurring. We're talking here about products, typically membrane. We're talking about services, mobile unit. We're talking about chemical products as well. And this 70%, which is more relevant to be compared quarter-on-quarter, has grown by 6.8% in Q3, year-to-date, plus 4.8%. So we are very happy about this bit. And you have the ups and downs of the project, which is that plus a very high comparison base of last year. So we expect quite a few bookings in Q4, and it starts well, it's fair to say. In terms of the recyclate pricing, I will have Emmanuelle answering, but no read across from American dry waste company. We are not in dry waste in the U.S. We are not concerned by recycling prices, which is a quite different logic from the European one, it's fair to say. But on recyclate price trends, Emmanuelle? Emmanuelle Menning: Yes. On recyclate price, you have seen the impact at the end of the 9 months, which is plus EUR 13 million at EBITDA level, we don't expect a significant impact at the end of the full year. You know that we have implemented with Estelle a huge transformation and deep transformation of our Waste business, meaning that everywhere we can, we are in a back-to-back construct. So if you want a figure for the end of the year, it's non-material. So we had a little bit of plus at 1 month, a little bit of minus the month following. So nothing very specific. And in other geographies which are concerned mainly on dry waste, we're talking Germany, France, U.K., Australia. With that, you have an 80-20 type of flow for our business. Operator: And the next question comes from the line of Philippe Ourpatian with ODDO BHF. Philippe Ourpatian: I have just one simple question is concerning your free cash flow. I mean there is no mention about where you were at the end of 9 months this year. And as you confirm, I would say, a very strong Q4 and your net debt-to-EBITDA below 3. I do suppose that the reversal on Q4 will be maybe stronger than expected. Could you just give some figure concerning the end of 9 months in order to help us to better understand how it will move concerning the working capital and some other, I would say, items, which could be your CapEx and some cash in coming from, I don't know where. But please just -- that's going to be very helpful. Emmanuelle Menning: Bonjour, Philippe. With pleasure to speak on free cash flow. You're absolutely right. The amount of free cash flow at the end of the 9 months is quite similar to what we had last year. We had a strong Q3. You remember that in Q1, we had some few timing effect and specific effects linked to Flint cash-out, scope entries and adjusting scheme Water France royalty payments. And we fully confirm that we expect the usual reversal in Q4. You know that we are very committed to free cash flow generation, which is fueling our growth and to pay our dividend. We have -- we are mobilizing the organization to invoice faster, to collect faster. We have a few projects regarding [ ERP and ER ] also to have optimized processes. So fully confirming for the year-end, the usual guidance and the debt below 3x. We'll have the reversal in Q4 with strong EBITDA growth fueled by our international activities, French recovery and the Boosters, discipline on CapEx and working capital reversal. Estelle Brachlianoff: So the usual seasonality. Operator: And I'm showing no further questions at this time. I would like to turn it back to Estelle Brachlianoff for closing remarks. Estelle Brachlianoff: Thank you very much. You understood. We are very confident, very happy about the 9-month result, very, very confident for the rest of the year and very happy that the priority we've been given in GreenUp as even being more technological oriented, more international are bearing fruits in our results as they support the growth of our earnings and will so in the next few years. Thank you very much. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Edna Koh: Okay. Good morning, everyone, and welcome to DBS' third quarter financial results briefing. This morning, we announced third quarter profit before tax up 1% to a record $3.48 billion and ROE of 17.1%. 9-month total income and profit before tax reached new highs. As per our norm, our CEO, Tan Su Shan; and CFO, Chng Sok Hui, will start by sharing more about the quarter. Both will be speaking to slides, which you will see on screen. The slides can also be found on our Investor Relations website. And thereafter, we will take media questions. So without further ado, Sok Hui. Sok Hui Chng: Thanks, Edna, and good morning, everyone. I'll start with Slide 2. We delivered a strong set of results in the third quarter. Pretax profit rose 1% year-on-year to a record $3.48 billion with ROE at 17.1% and ROTE at 18.9%. Total income grew 3% to a new high of $5.93 billion. Group net interest income was little changed as strong deposit growth and proactive balance sheet hedging mitigated the impact of lower rates. Fee income and treasury customer sales reached new highs, led by wealth management, while markets trading income increased on lower funding costs and a more conducive trading environment. For the 9 months, pretax profit rose 3% to a record $10.3 billion as total income increased 5% to $17.6 billion from growth across both the commercial book and markets trading. Net profit was 1% lower at $8.68 billion due to minimum tax of 15% that has come into effect. Asset quality remained resilient. The NPL ratio was stable at 1.0% while specific allowances were 15 basis points of loans for the quarter and 13 basis points for the 9 months. Allowance coverage was 139% and 229% after considering collateral. Capital remained strong. The CET1 ratio was 16.9% on a transitional basis and 15.1% on a fully phased-in basis. The Board declared a total dividend of $0.75 per share for the third quarter, comprising a $0.60 ordinary dividend and a $0.15 capital return dividend. Slide 3, third quarter year-on-year performance. Compared to a year ago, third quarter pretax profit was 1% or $42 million higher, while net profit declined 2% or $73 million to $2.95 billion due to higher tax expenses from the global minimum tax. Commercial book net interest income fell 6% or $238 million to $3.56 billion as the impact of lower rates was partially mitigated by balance sheet hedging and strong deposit growth. The group's net interest income of $3.58 billion was little changed. Fee income rose 22% or $248 million to a record $1.36 billion, led by wealth management, while other noninterest income increased 12% or $61 million to $578 million as treasury customer sales reached a new high. Markets trading income rose 33% or $108 million to $439 million due mainly to higher equity derivative activity. Expenses increased 6% or $144 million to $2.39 billion, led by higher staff costs as bonus accruals grew in tandem with a stronger performance. The cost-to-income ratio was 40% and profit before allowances was 1% or $35 million higher at $3.54 billion. Total allowances fell 5% or $6 million to $124 million. Specific allowances remained low at $169 million or 15 basis points of loans. $45 million of general allowances were written back mainly due to a large repayment. Slide 4, third quarter-on-quarter performance. Compared to the previous quarter, net profit was 5% or $130 million higher. Commercial book net interest income fell 2% or $67 million as net interest margin declined 9 basis points to 1.96% from lower Sora. Group net interest income was 2% or $70 million lower. Fee income rose 16% or $190 million, led by wealth management. Other noninterest income grew 11% or $56 million, driven by higher treasury customer sales. Markets trading income was 5% or $21 million higher. Expenses increased 5% or $123 million from higher bonus accruals. The cost-to-income ratio was stable. Total allowances were 7% or $9 million lower. Slide 5, 9-month performance. For the 9 months, total income and pretax profit reached new highs. Total income rose 5% or $777 million and pretax profit increased 3% or $260 million to $17.6 billion and $10.3 billion, respectively. Net profit was 1% or $111 million lower at $8.68 billion due to higher tax expenses. Commercial book net interest income declined 3% or $310 million to $10.9 billion due to a 27 basis point compression in commercial book net interest margin. Group net interest income rose 2% or $211 million to $10.9 billion as the impact of lower interest rates was more than offset by balance sheet hedging and strong deposit growth. Fee income grew 19% or $599 million to a record $3.80 billion as wealth management and loan-related fees reached new highs. Other noninterest income of $1.65 billion was only 2% or $32 million higher due to nonrecurring items in the previous year. Excluding these items, treasury customer sales grew 14% to a new high. Markets trading income of $1.22 billion rose 60% or $456 million, marking the second highest level on record. The growth was due mainly to higher interest rate and equity derivative activities. Expenses increased 6% or $377 million to $6.88 billion with a cost-to-income ratio stable at 39%. Profit before allowances grew 4% or $400 million to a record $10.7 billion. Specific allowances remained low at $439 million or 13 basis points of loans, while general allowances of $143 million were taken. Slide 6, net interest income. Group net interest income for the third quarter of $3.58 billion was 2% lower from the previous quarter and little changed from a year ago. Lower interest rates impacted net interest margin, which declined 9 basis points quarter-on-quarter and 15 basis points year-on-year to 1.96%. We continue to mitigate the impact of lower rates through two factors. The first is proactive balance sheet hedging, which has reduced our net interest income sensitivity and cushioned the impact of lower interest rates. Second is strong deposit growth, which was $19 billion during the quarter and $50 billion from a year ago. The growth in deposits exceeded loan growth, and the surplus was deployed into liquid assets. This deployment was accretive to net interest income and return on equity, though it modestly reduced net interest margin. For the 9 months, group net interest income rose 2% to $10.9 billion despite a 9 basis point compression in net interest margins to 2.04%. The resilience in net interest income reflects the combined effects of balance sheet growth and of hedging. Slide 7, deposits. During the quarter, the strong momentum in deposit inflow was sustained with total deposits rising 3% or $19 billion in constant currency terms to $596 billion. The growth was led by CASA inflow of $17 billion, most of which was in Sing dollars. The CASA ratio rose to 53%. Over the 9 months, deposits grew 9% or $48 billion, with more than half of the increase from CASA. Liquidity remained healthy. The group's liquidity coverage ratio was 149%. And net stable funding ratio was 114%, both comfortably above regulatory requirements. Slide 8, loans. During the quarter, gross loans was little changed in constant currency terms at $443 billion. Increases in trade and wealth management loans were partially offset by a decline in non-trade corporate loans from higher repayments. As deposit growth outstripped loan growth, surplus deposits were deployed to liquid assets. This deployment was accretive to net interest income and ROE while it modestly reduced net interest margin. Over the 9 months, loans rose 3% or $14 billion led by broad-based growth in nontrade corporate loans. Slide 9, fee income. Compared to a year ago, third quarter gross fee income rose to a record $1.58 billion. The increase was broad-based and led by wealth management, which grew 31% to a new high of $796 million from growth in investment products and bancassurance. Loan-related fees were up 25% to $183 million from increased yield activity. Transaction services and investment banking fees were also higher. Compared to the previous quarter, gross fee income rose 13% led by wealth management. For the 9 months, gross fee income reached a record $4.48 billion, led by new highs in wealth management and loan-related fees. Slide 10. Slide 10 shows the wealth segment -- wealth management segment income. The third quarter wealth management segment income grew 13% year-on-year to $1.54 billion. The growth was driven by a 32% increase in noninterest income, which more than offset a decline in net interest income from lower rates. For the 9 months, wealth management segment income grew 10% to a record $4.38 billion due to a 28% rise in noninterest income. Assets under management grew 18% year-on-year in constant currency terms to a new high of $474 billion. The percentage of AUM in investments also reached a new high of 58%. Net new money inflow was $4 billion. Slide 11, customer-driven noninterest income. We have introduced a new slide to provide a clearer view of noninterest income, which is driven by customer activity. This comprises two components in the commercial, both net fee income and treasury customer sales. For the fee and treasury customer sales fall under different lines of the P&L financial statements due to accounting treatment, they should be viewed equally as they are both driven by consumer and corporate customers demand for financial products. For the third quarter, customer-driven noninterest income grew 22%. Net fee income rose 22% to $1.36 billion while treasury customer sales rose a similar 21% to $581 million, both were at new highs and led by strong wealth management activity. For the 9 months, customer-driven noninterest income rose 17%, driven by record net fee income and treasury customer sales. Slide 12, expenses. 9-month expenses rose 6% from a year ago to $6.88 billion due to higher staff cost from salary increments and bonus accruals. The cost-to-income ratio was stable at 39%. Third quarter expenses were 6% higher than a year ago at $2.39 billion, led by higher staff costs as bonus accruals rose in tandem with a stronger performance. Compared to the previous quarter, expenses grew 5%. The cost-to-income ratio was at 40%. Slide 13, nonperforming assets. Asset quality was resilient. Nonperforming assets declined 1% from the previous quarter to $4.63 billion. New NPA formation at $113 million for the quarter was below the recent quarterly average and was more than offset by repayments and write-offs. The NPL ratio was stable at 1.0%. For 9 months 2025, new NPAs were $449 million, significantly lower than the $739 million from the prior period. Slide 14, specific allowances. Third quarter specific allowances amounted to $170 million or 15 basis points of loans, stable from the previous quarter. For the 9 months specific allowances were $430 million or 13 basis points of loans. Slide 15, general allowances. As at end September, total allowance coverage stood at $6.43 billion, with $2.35 billion in specific allowance reserves and $4.07 billion in general allowance reserves. The general allowance reserves comprised 2 components: baseline GP and overlay GP. Baseline GP refers to the GP set aside for base scenarios. In addition to the base scenarios, we incorporate stress scenarios for macro uncertainty and sector-specific headwinds. As at 30th September 2025, the total GP stack of $4.1 billion comprise baseline GP of $1.6 billion and overlay GP of $2.5 billion. You may recall that we had increased GP overlay by $200 million during the first quarter this year to incorporate tariff uncertainty. Slide 16, capital. The reported CET1 ratio declined 0.1 percentage points from the previous quarter to 16.9%, driven by higher RWA and partially offset by profit accretion. On a fully phased-in basis, the pro forma ratio was stable at 15.1%. The leverage ratio was 6.2%, more than twice the regulatory minimum of 3%. Slide 17, dividend. The Board declared a total dividend of $0.75 per share for the third quarter, comprising an ordinary dividend of $0.60 and a capital return dividend of $0.15. Based on yesterday's closing share price and assuming that total dividends are held at $0.75 per quarter, the annualized dividend yield is 5.6%. Slide 18, summary. So in summary, we delivered a record third quarter and 9-month pretax profit with ROE above 17%. Total income was also at a new high as we sustained the strong momentum in wealth management and deposit growth while mitigating external rate pressures through proactive balance sheet hedging. As we enter the coming year, we'll continue to navigate the pressures of declining interest rates with nimble balance sheet management and our ability to capture structural opportunities across wealth management and institutional banking. So thank you for your attention. I'll now hand you to Su Shan. Tan Shan: Thanks, Sok Hui. So hello and good morning. As you have now seen our numbers and Sok Hui's comments, I will say that the Q3 was a solid quarter. I think the team delivered a solid quarter in spite of very strong interest rate headwinds, especially in Singapore. We had a record top line total income, record fee income, record treasury sales and record PBT. Of course, tax we had to pay the minimum tax. So that took off some of our net profit upside. And I guess from my slide, the -- both the fact that we had some nimble hedging, and we were able to capture some opportunities when the market became volatile, speaks to our resiliency, so was hedging as well as some fixed rate assets. And what was also pleasing was the fact that we saw huge amount of deposits coming back to us. A large chunk of that was also CASA. So at $19 billion quarter-on-quarter growth, a lot of that surplus deposits was deployed to HQLA. And in terms of the structural growth, I think we have both structural and cyclical growth. And both the structural and cyclical growth came into gear in Q3 because the capital markets were very strong. So we saw strong momentum in wealth management fees, up 23% quarter-on-quarter, 31% year-on-year. These are very strong numbers. And whilst wealth management AUM remained very high, I think what was also pleasing is we are seeing the momentum also travel to the retail and retail wealth segment as well. We're trying to get more of that digital flows back and so we had a whole refresh of our digital wealth strategy, which is now yielding fruit. So that's also quite pleasing to see. The second market and cyclical opportunity is in capital markets in both ECM and DCM. So for DCM, as rates come down, corporates are coming back to the market and we are winning market share. I told our DCM team that I think we have a right to win in the global market. And so, to my surprise actually, starting from a very low base, we're now #6 in the Middle East. For example, in the MENA league table as of October 2025, we did 32 DCM issuances, including 13 public bond deals. And we're #1 in private placement league table for the key Middle East banks. So I think if we put our minds to it, we can execute. And I think both the capital markets, GCM, DCM, ECM pipeline looks good. The wealth pipeline looks good and the FICC pipeline looks good, right? So these are both cyclical and structural opportunities to capture more loan fees -- sorry, to capture more fees. The other momentum is in loan fees. You saw the loan fees up 20% year-on-year. That's also structural. Because as I alluded to the last 2 quarters, I think that speaks to IPG's focus on winning market share, wallet share and mind share and having expertise in the industries that we cover and we target. So both the loan-related fees and market trading as well was very strong, up 33% year-on-year. Very strong equity derivatives activities from clients, strong warehousing gains, good customer flows. Then I want to talk about additional assets. I alluded to this also in the last quarter where we talked about the whole digital asset ecosystem and how we had a head start and how we want to continue to drive this head start. And I think the GENIUS Act changed everything, as I said before. And we are still waiting to see how regulations turn out because different regulators have different priorities and different time lines and different ordinances. But we've gone ahead. I mean, for example, this quarter, we issued some structured notes. So we tokenized structured notes on the Ethereum blockchain. We've also announced that we are working with Franklin Templeton's BENJI fund to list that on our digital exchange. We're also working with Ripple to use -- to get Ripple -- to use Ripple currency, digital currency into -- in and out of the BENJI money market fund as well. So we're pretty active in the tokenized ecosystem. We've been tokenizing deposits for a while now, and that's also seeing a lot of customer interest. And we've also started to look at the potential for repo and collateralize use cases as well for tokenized money market funds. Asset quality, as Sok Hui alluded to, pretty resilient. NPL ratio at 1%. And again, I think this speaks to the discipline of the team. Many years back, before COVID, we started to watch-list industries or sectors that we felt were to come under scrutiny or under some pressure. That's worked out for us. So we have been quite early in monitoring clients that might get into problems. And in fact, if you see, we had quite a fair amount of loan repayments in Q3 this year. And surprisingly, that came out of Hong Kong, primarily in Hong Kong real estate. So I think we've been pretty disciplined in who we bank with. We've onboarded and banked really the big blue chip companies. Our LTVs against real estate is pretty conservative. And that's why I think our NPA formation remains at a multiyear low. Next slide, please. So I've been traveling quite a fair bit in Q3 for the IMF and IIF Board meetings in Washington, to the FII in Saudi, the Hong Kong MA, Monetary Authority Financial Leaders Conference this week and to visit my colleagues in IBLAC in China visiting regulators and colleagues in our core markets, Taiwan, China, I'll be in India next week, et cetera. And I will say that there's a lot of momentum in deal flow. There's a lot of momentum in the U.S., certainly in the whole tokenized, stablecoin, digital asset ecosystem. Outside the U.S., there's a lot of momentum in terms of trade -- potential trade flows, both because customers want to diversify their supply chain and also customers are looking for new markets to grow. So this shift in trade and investment flows is something that our team is very focused on, and we're looking at growing the pipeline, say, intra-regional trade between Asian countries, ASEAN countries, China to ASEAN countries, Singapore, China, et cetera. There's been a lot of two-way conversations and the upscaling of the China agreements that most countries in ASEAN have has also been put in place. China GCC trade also is projected to double to $1.9 trillion by 2025. So there's some good structural shifts in global macro flows, and we want to play into that. I talked about the capital markets revival. You all know about the long pipeline of deals in Hong Kong and China. We're trying to play to our strength there as well. Singapore also has a strong pipeline and the MAS' recent measures to rejuvenate the markets here, the equity market development program, seems to be working as well to create some liquidity and some momentum. I was struck also by the concentration of the market cap of the U.S. U.S. still is about 70% of global market cap valuation at $72 trillion, Hong Kong at $7 trillion, China at $13 trillion, Singapore at $0.6 trillion. I think there could be next year, let's see, maybe valuations will change. But the good news is, as I said, the pipeline for ECM remains very strong in our part of the world in Asia ex-Japan. Another theme I want to talk about was the internationalization of the RMB and also the revitalization of the Chinese market. You see that from the authorities talking about high-quality growth. You see also a lot of investments in AI and chips. The enterprise use of AI is formidable and their commitment to internationalizing the use of RMB for global trade, that figure has quadrupled over the last 3 years. That's also admirable. The Southbound Bond Connect is also busy. That's also quite good structural growth in wealth management onshore in China. So wealth, global net wealth reached $512 trillion in 2024. I think that's grown a lot this year because of the market moves and also some wealth creation at the high end. So we remain committed to our strong focus on wealth management. The teams that Tse Koon and his team hired over the last couple of years are starting to mature and yielding returns for us. Similarly, for IBG, the FICC focus, the institutional client focus is also yielding good returns. I've gone to see several global sovereign wealth funds with my team, pension funds with my team. And I think DBS has a role to play with these global II and FICC clients across various products from custody to FICC flows to digital flows to ECM, DCM block placements to repos, reverse repos, et cetera. So I think playing to our strengths in wealth and FICC is structural focus, I've said this time and time again, I feel like I'm a grandmother nagging, but I do believe that these two growth pillars will continue to yield returns in the next few years. And in terms of other big theme, of course, everyone is talking about AI, generative AI, agentic AI, when will agents start using -- when will customers start using their own agents to deal with bank agents, et cetera. Suffice to say, we've been at the forefront of this. We have been rolling out both horizontal and vertical use cases. Some working out quite well, some less well. But I think the momentum continues to be pretty strong. And we're working with various partners, both in the U.S. and elsewhere in Asia to accelerate the tech adoption. And what's pleasing to me is pretty much most of our staff have started to use it. They're saving time, they're taking a lot of productivity saves in the more mundane work, like writing credit memos, KYC, transaction screening. And our wealth managers are using it also to good stead in our wealth Copilot. Our tech guys are using it for coding, for developing. So I think there's good momentum there, and that will continue to evolve. Last but not least, I talked about the growing interest in tokenization of stablecoins. As you know, we had a head start in 2021. We will continue to support regulators in their quest to stay ahead of the trends. Right now, our key focus is on tokenizing deposits. For stablecoins, we will play where there is a play in different jurisdictions. But I think that regulations have to evolve there for us to have a clearer look. In the meantime, we believe that we can play a role, like more of a picks and shovels kind of role in the whole asset ecosystem, whether you want to tokenize your assets, you want to tokenize your deposits, you want to trade on our digital exchange, you want to custodize with us, you want to use it for payments, et cetera, we've learned how to do it end-to-end. So I think that's also a differentiator for us. So the right side is a short pitch of DBS as a differentiator bank, increasingly in a bifurcated volatile world with geopolitics being volatile. I think our clients are looking for a safe neutral bank for their long-term needs, right? And I think DBS plays to that. We've been recognized by Global Finance, it's Asia's safest bank now for 17 years running. And we're ranked #2 globally amongst the 50 top safest commercial banks. So I think being safe, being dependable plays to our strength, and I think we have a right to win more market share. As a diversifier bank, we are now seeing global ultra high net worth thinking they should have a bank in Europe or Switzerland, a bank in the U.S. and quite possibly a bank in Singapore and that bank should really be us. MNCs and FIs as well are looking for a diversifier bank for both the custody needs and their transaction needs, and I think that plays to our strength. As a disruptor bank being an innovative -- having an innovative head start, the fact that we can work with the likes of Franklin Templeton or Ant or JD or any of these big platform companies means we are a head start. We've been holding a lot of teach-ins for our clients. And as the world starts using more generative and agentic AI, we want to be at the forefront of that as well. As I said before, I think the fact that we've organized our data, the fact that we've organized our tech and the fact that we organized our people and processes quite a few years ago, thanks to Piyush and the team's foresight, I think we've created a digital and data moat to be able to embrace these big AI moves that are upon us. So last but not least, the digital and data capabilities I've talked about. We were just recognized the World's Best AI Bank at Global Finance Inaugural AI Awards this year. We've implemented over 1,500 AI models, 370 different use cases, and we hope to create an impact of $1 billion in AI this year. Okay. So next slide is the 2026 outlook. And we are looking for total income to hold steady to 2025 levels in spite of significant interest rates and FX headwinds. We're looking at Sora to hold at current levels of 1 -- well, to hold at the sort of the 1 month and 3-month MAS bill levels at about 1.25. That means there's a 60 basis point decline from this year's average. We're looking at three Fed rate cuts next year. And we are also looking -- well, we're also using for our forecast a stronger Sing. So there, you have significant interest rate headwinds and FX headwinds, which we want to make up for with volume growth and fee growth. So the commercial book noninterest income growth to be in the high single digits. And the reason for that is whilst we have great headwinds on the loan side, we also have tailwinds in terms of our cost of funds because of our floating liabilities as well, mostly in dollars. We are looking to continue to have mid-teens growth in wealth management and also in FICC and to maintain our cost income ratio at the low 40% range. And SP, we've assumed that it will normalize to 17 to 20 basis points. So far through cycle, this has worked and asset quality remains resilient. We're comfortable, but we're not complacent. We're still watching constantly to assessing our different exposures for impact from trade, geopolitics, real estate, et cetera. And so if the macro conditions stay resilient, we could actually also have some rooms for GP write-backs. And if conditions soften, we have quite a lot of buffer, as you heard from Sok Hui earlier on through our allowance reserve and our strong capital ratios. So we're looking for net profit to be slightly below 2025 levels or pretty flat. That's it from me. Thank you very much. Edna Koh: Thank you, Su Shan. We can now proceed to take questions from the media. [Operator Instructions] We have a question from Nai Lun from BT. Tan Nai Lun: This is Nai Lun from BT. I just want to check, right? Because I understand you have a $200 million GP already taken at the start of the year. But then are you foreseeing like you to take more of that, especially as you mentioned, you have some macroeconomic uncertainties or sector-specific headwinds? Sok Hui Chng: Yes. So let me clarify. I will say that actually our stack of total GP $4.1 billion comprise two components, right? The baseline GP and the overlay GP. And the overlay GP is quite substantial at $2.5 billion. If you look at our September last year, it will be about $2.3 billion because we did top up $200 million this year. In the second quarter, we said it's actually sufficient. So we are not topping up. So just to convey that we are actually very adequate in terms of our general provision levels. Tan Shan: I would say even more than adequate. Sok Hui Chng: Yes, more than adequate because we actually exceeded the MAS 1%. Edna Koh: Okay. A question from Goola. Goola Warden: Congratulations on the very good results in the current environment. Can I ask at least three questions. Okay. So the first one would be on the capital return and the share buyback? Because I think that Sok Hui has said that you are committed to paying $3 in total dividends for this year and next year and 2027, is it, could you just correct me on that if that's wrong? So -- and then there is -- there was a share buyback program and how much of that have you completed? Because it looks like a very low percentage based on -- I must have missed out, I look back, 10% to 12%, I'm not quite sure. So what -- I mean what happens if you don't complete it within the time frame? And what are the other avenues for management to return the earmarked amount to shareholders. That's one question. Should I carry on? Okay. Then you mentioned that your deposits -- because you've got more deposits than -- a lot more excess deposits will be deployed into HQLA, are these local government bonds, are these U.S. government bonds or are they corporate bonds? And what's the currency and duration like? I mean you don't have to say the company or the country, but just an idea of whether they're Sing dollars or non-Sing dollars. And the last question is funding related. But again, you have no AT1s anymore based on your current -- your third quarter. So what are your funding plans? AT1s, are they cheap now? Or is there any reason -- is there any regulatory reason why you don't have any? That's it. I think that's it. I mean two more general questions, but only when everyone else is answered. Tan Shan: Thanks, Goola. I'll take the first one, this is Su Shan and then Sok Hui will take the HQLA and AT1 question. So on the dividends, we've always said that our stock, we had $8 billion of excess stock of capital to return. We remain committed to returning that. $3 billion was allocated to share buybacks. We've done about 12% of that. And our philosophy is to buy it when the market is bad, right? So that's the philosophy. We don't want to chase it up. And the $5 billion is to be returned to shareholders through capital, the capital return dividends. So as you can see, we've got many different things in our toolbox to pay our shareholders back. You've got your normal dividend, of course. You've got step up dividend, then you've got the capital returns dividend and then you have the stock buyback and so based on that we intend to keep to that $8 billion commitment. Goola Warden: How much of that $8 billion has been returned? Sok Hui Chng: The share buyback, 12% would be $371 million. Tan Shan: Yes. And then the dividend return was $850 million. It's $0.15 per share per quarter, if you remember. Goola Warden: I mean, how much of the $8 billion is just... Tan Shan: So in total, we basically use 15% of the $8 billion. Goola Warden: Oh, okay. So there's a lot more. 1-5 percent. Tan Shan: No, but the $5 billion is committed, right, because it's $0.15 per quarter. So that $0.60 a year. So that's committed. So over 3 years, that will be all paid back. Goola Warden: Okay. And the 3 years is '24 -- '25, '26, '27, right? Tan Shan: Yes, correct. Sok Hui Chng: We started in '25 for the capital return dividend. Tan Shan: '25, '26, '27. So we will end by end '27. Sok Hui Chng: Correct. Maybe the only thing I would add is that we also communicated that we would be able to step up ordinary dividends $0.06 in the fourth quarter for 2025 year and then 2026 year. Goola Warden: By $0.06 is it on the... Sok Hui Chng: By $0.06 in the fourth quarter, which means the full year impact is $0.24. Goola Warden: And the full year impact will be next year, right? Sok Hui Chng: No, we'll step up end of this year. So you get it approved at the AGM in March 2026. And then it will actually flow through. So the full year impact is $0.24 for ordinary dividend. So what you see on the slide as $0.60 would then step up to $0.66 per quarter. And then you still have your $0.15 on the capital return dividend, which we have committed up to FY 2027. Goola Warden: HQLA and the AT1, yes. Sok Hui Chng: Okay. So your next question was about the HQLA. So you see on my slide, in the loan slide, you see that loan, actually, the growth rate was slower than the deposit growth. And for 9 months, our HQLA, which you can also see in the Pillar 3 disclosure is actually up $30 billion, and these are all in high-quality liquid assets. So they are in government securities, they are in U.S. government securities. These are the main items where we have seen the increase. So very, very safe assets. And then you had a question on the AT1 because the -- our CET1 is already at such a high level. Transitional basis, we're at 16.9%. So there's no point raising AT1. The CET1 currently doubles up. So for AT1, the spec is already quite a lot. So we don't intend to actually sort of pay up for AT1 until the need arises because you see on the slides as well. Goola Warden: Look, it's not a regulatory thing with the stuff that's going on with Credit Suisse and UBS and what Basel I doesn't want, right? Tan Shan: It's just AT1s because they don't have enough CET1s, right? Sok Hui Chng: So regulators set CET1 minimum, AT1 and Tier 1 and then total. So it's a stack. So if your CET1 is really well above the minimum, they can come towards Tier 1 capital. Goola Warden: Okay. Okay. That's all I have on that. I'm just wondering what's the difference between your structural tailwinds and your cyclical tailwinds. That's the other sort of general question. And the other one is you said that bancassurance was one of the reasons why you have a fee income. You've got a bancassurance agreement with Manulife. And I'm just wondering, that one is 15 years. How much longer does that have to run? And what is the state -- I mean is it performing to what Manulife wants? Tan Shan: Okay. So on your question around what are the difference between a structural and cyclical tailwinds. So cyclical tailwinds to me are what are cyclical. So when markets are strong, stock markets are up, money supply is up, et cetera, that's sort of cyclical. Structural is more long term. So where you have demographics, demographic reasons or structural reasons for the growth. So for me, the cyclical tailwinds was the markets were very strong, right? Q2, Q3, the markets were strong after Liberation Day, the rally was a lot higher than most people expected. The structural tailwinds I talked about was the fact that there is structural wealth creation. So the wealth management team remains structural growth for Asia and frankly, for the rest of the world, for the U.S., particularly. And then the structural growth in FICC, II, assets under management, quite a lot of these funds. There are clients, they've seen trillions of dollars in asset growth. So you've got these two growth pillars that are structural. On Manulife, I think we signed in 2015, it was 15 plus 1, so 16 years in total. Sok Hui Chng: So it was till 2023. Tan Shan: 2023. So the partnership has been growing really well. It's been fantastic actually. Tse Koon, you want to say anything? Shee Tse Koon: Yes, I think it's gone very well. So I mean, earlier on, when we talk about our wealth fees, right, the wealth fees growth has been a factor of both investments and insurance at the same time. Tan Shan: So there is a need for insurance like state planning, et cetera. And that is another structural theme, Goola, because you look at China, silver economy, Singapore, Hong Kong, all these people need to plan. And actually, that's our USP, right? We're good at onboarding these clients, discussing their long-term plans, putting it in a state planning, helping to plan for the next generation, for their own life, et cetera. And that creates a very sticky long-term relationship for your wealth clients. And Manulife has been a great partner in helping us to design suitable products for our customers, having a portfolio approach and thinking very long term. They're long-term investors in Asia, good credit rating, et cetera. So they've been a very good partner. Edna Koh: Next question from Bloomberg, Rthvika. Rthvika Suvarna: So I'm with Bloomberg. My name is Rthvika, and I had two questions for Su Shan. You've talked about wealth as a structural growth pillar with mid-teens growth targeted. Given recent high-profile wealth scandals in the region involving RMs and client fund misappropriations, what safeguards do you have in place? Are you seeing any reputational or compliance headwinds? And what do you think of extra regulatory scrutiny off the back of these scandals? How does this affect Singapore as a wealth hub? Tan Shan: Okay. I'll start and then Tse Koon is going to weigh in. So I think by the way, we have well presence in all our core markets. So it's not just Singapore, right? But of course, Singapore is a major financial hub for us and for many of our peers. And I will say that it's -- the bar has been set very, very high right now in Singapore and in all the major jurisdictions. The bars are set very high for KYC and AML, number one. Number two, there's been very rigorous source of wealth declarations and we all need to triangulate with proof of documents, et cetera. And there's no let up in these high standards. It still takes a fair amount of time to onboard a new client because of these. And transaction surveillance remains a key part of triangulating for bad money, right? Every bank sees what they see, right? So if you don't see the flows between the Middle East and the U.S., for example, and you will only see the flows from your bank to another party. And so when you have big scandals like this, it beholds multiple countries and jurisdictions to work together to be able to triangulate the global flows because otherwise, most banks will see their own bilateral flows, and they don't see the other flows. And you need to put the pieces of the jigsaws together to see that, oh, there is a trend or there's scams or there are all these patents. So I will say that it's these kind of global transaction surveillances remain a challenge. In Singapore, we set up with the regulator something called COSMIC, which has been a good platform on which we can look at sort of -- the banks can work together to weed out the bad actors. And I think that that's been working. It's just -- it's pretty new, but that's been working. But it takes multiple parties to work together to be able to catch these -- and catch them early. Shee Tse Koon: Can I just add to that. And I would say that Singapore is clearly a very, very strong wealth management hub, all right? And it has been growing very, very steadily over the last couple of years. If we look at the standards that we have, right, I would say that it's something that is aligned with those that are global wealth hubs, right? If you look at whether or not there are issues that have been -- that have risen, I'll say there's nowhere where you will never -- there will never be a zero kind of situation. The important thing is that there is robustness from which the typologies, new typologies that we see will lead us to continue to sharpen our capabilities. And we can see in Singapore, the big difference in Singapore is that when things happen, I think the industry comes together very, very quickly between regulators, law enforcement and the industry to just handle it. And I think that in itself speaks volumes of the strength of Singapore as a continued wealth hub. So I don't see any of these being a hindrance to Singapore becoming a world hub. In fact, this speaks to the very strength of Singapore being a wealth hub. Rthvika Suvarna: Are there any other broader risks that DBS is weighing out that could affect Singapore's reputation as a wealth hub globally? Shee Tse Koon: Sorry, I don't quite get that question. Rthvika Suvarna: Yes, like any other -- I mean any other like threats, I suppose, aside from the scandals? Shee Tse Koon: I'm not sure if you are specifically asking about DBS per se. Tan Shan: He's asking about Singapore. I will say I beg to defer. I think your question, you're asking if there's any risk, I would say that Singapore's status as a clean hub has been reinforced by the swift action taken by [Technical Difficulty], number one. The rule of law here is strong, right? We are open for -- Singapore as a hub is open for business. It's a diversifier hub, as I said to you earlier on, and it's a digital hub. And there's enough wealth practitioners here of high quality and standards. And I believe that the authorities are protecting the reputation and the standards here rigorously. The bar is high. I'll tell you the bar is high for KYC and sort of wealth verification. So I don't know where you're going with this question, but I will say that the fact that -- and we're very open, right? When the scammers are caught, it's open, it's all declined. So I will say that it should reinforce the seriousness that Singapore takes in keeping the standards high. Shee Tse Koon: I guess there are -- so I say risk, right? When we're talking about risk, I think the inherent risk is no different in the financial industry wherever you operate, right? The difference is we have robust standards, and we deal with it swiftly. If you're asking for further the risk of Singapore being a wealth hub, I think actually what we have done as a nation will enhance that. And in my interactions with clients, I think there continues to be a very, very strong interest. And as you can see, the performance of the wealth management business, I think that speaks volumes as to the robustness of the continued growth. And if you ask me whether there's a risk of us being a wealth hub, the answer is no. Edna Koh: We are now at 11:42. I think that might be all the time that we actually have because we have an analyst briefing at 11:45. So I think we will wrap things up here right now. Thank you, everyone, and we'll dial out here. Tan Shan: Thank you. Sok Hui Chng: Thank you. Edna Koh: Thank you.
Operator: Good afternoon, and welcome to Safehold's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Pearse Hoffmann, Senior Vice President, Head of Corporate Finance. Please go ahead, sir. Pearse Hoffmann: Good afternoon, everyone. Thank you for joining us today for Safehold's earnings call. On the call today, we have Jay Sugarman, Chairman and Chief Executive Officer; Brett Asnas, Chief Financial Officer; and Tim Doherty, Chief Investment Officer. This afternoon, we plan to walk through a presentation that details our third quarter 2025 results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with a confirmation code of 53142. [Operator Instructions] Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call, which are not historical facts may be forward-looking. Our actual results may differ materially from these forward-looking statements and the risk factors that could cause these differences are detailed in our SEC reports. Safehold disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. Now with that, I'd like to turn it over to Chairman and CEO, Jay Sugarman. Jay? Jay Sugarman: Thanks, Pearse, and thanks to all of you for joining us today. We saw steady activity in our ground lease business in the third quarter with the recent decline in rates and a somewhat less steep yield curve, helping to provide a more constructive backdrop. This was offset by deals needing longer time frames to close. And as a result, we expect more will likely close in the fourth quarter or first quarter of next year. The drop in rates has also helped boost the NAV of the existing portfolio and drive more activity in real estate markets more generally. In terms of sectors, our modern ground lease continues to help customers trying to meet affordable housing needs in heavily populated markets throughout the country. And while deal sizes are smaller, we like the repeat customer dynamics we are seeing in this area, and we are investing resources accordingly. Giving customers products that enable them to move quickly and adjust to market conditions remains a focus, and we will continue to innovate with ways to provide speed, certainty and flexibility around our core ground lease solution. One-Stop Capital solutions, custom pricing solutions and other enhancements will continue to expand the ground lease market for new and existing relationships. And it's important that we find ways to generate attractive asset level returns for us while also meeting our customers' evolving needs. All right. Let's turn it over to Brett to review the quarter. Brett? Brett Asnas: Thank you, Jay, and good afternoon, everyone. Let's begin on Slide 2. During the third quarter, we originated 4 multifamily ground leases for $42 million. In the fourth quarter to date, we have originated an additional 4 multifamily ground leases for $34 million. These combined 8 assets are all within our affordable housing subsegment and located in the Los Angeles and San Diego markets with credit metrics in line with portfolio targets and a weighted average economic yield of 7.3%. Six of these transactions were with a new customer added to our program, while the other 2 were with an existing customer who has now originated a total of 7 transactions with us since inception. We have additional LOIs signed with both customers for deals expected to close through year-end and into 2026. We're pleased to see growing product adoption and repeat business in this sector as we expect it to be a meaningful growth channel for Safehold. At quarter end, the total portfolio was $7 billion and UCA was estimated at $9.1 billion. GLTV was 52% and rent coverage was 3.4x. We ended the quarter with approximately $1.1 billion of liquidity, which is further supported by the potential available capacity in our joint venture. Slide 3 provides a snapshot of our portfolio growth. In the third quarter, we funded a total of $58 million, including $33 million of ground lease fundings on new originations that have a 7.4% economic yield, $15 million of ground lease fundings on pre-existing commitments that have a 7.5% economic yield and $10 million of existing leasehold loans that earn interest at an approximate rate of SOFR plus 499 basis points. At quarter end, our ground lease portfolio had 155 assets, including 92 multifamily properties and has grown 21x by both book value and estimated unrealized capital appreciation since our IPO. In total, the unrealized capital appreciation portfolio is comprised of approximately 37 million square feet of institutional quality commercial real estate, consisting of approximately 21,500 multifamily units, 12.6 million square feet of office, over 5,000 hotel keys and 2 million square feet of life science and other property types. Continuing on Slide 4, let me detail our quarterly earnings results. For the third quarter, GAAP revenue was $96.2 million, net income was $29.3 million and earnings per share was $0.41. The increase in GAAP earnings year-over-year was primarily due to a nonrecurring $6.8 million noncash general provision taken 1 year ago. Excluding nonrecurring items, Q3 earnings per share increased $0.04 year-over-year or approximately 12%, primarily driven by new investment activity. On Slide 5, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield, up slightly from last quarter due to organic growth, higher yields on new investments and a fair market value reset on one of our ground leases. Our annualized yield earns 5.4% and includes noncash adjustments within rent, depreciation and amortization, which is primarily from accounting methodology on IPO assets, but excludes all future contractual variable rent, such as fair market value resets, percentage rent or CPI-based escalators, which are all significant economic drivers. On an economic basis, the portfolio generates a 5.9% economic yield, which is an IRR-based calculation that conforms with how we've underwritten these investments. This economic yield has additional upside, including periodic CPI look backs, which we have in 81% of our ground leases. Using the Federal Reserve's current long-term breakeven inflation rate of 2.25%, the 5.9% economic yield increases to a 6.0% inflation-adjusted yield. That 6.0% inflation adjusted yield then increases to 7.5% after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in CARET at its most recent $2 billion valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company that remains largely unrecognized by the market today. Turning to Slide 6. We highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets by gross book value are called out on the right, representing approximately 65% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type. Portfolio GLTV, which is based on annual asset appraisals from CBRE, remained flat quarter-over-quarter at 52%. Portfolio rent coverage declined very slightly quarter-over-quarter from rounding up to 3.5x previously to now rounding down to 3.4x. Lastly, on Slide 7, we provide an overview of our capital structure. At quarter end, we had approximately $4.8 billion of debt comprised of $2.2 billion of unsecured notes, $1.5 billion of nonrecourse secured debt, $881 million drawn on our unsecured revolver and $270 million of our pro rata share of debt on ground leases, which we own in joint ventures. Our weighted average debt maturity is approximately 19 years, and we have no maturities due until 2027. At quarter end, we had approximately $1.1 billion of cash and credit facility availability. We are rated A3 stable outlook by Moody's, A- stable outlook by Fitch and BBB+ positive outlook by S&P. We have benefited from an active hedging strategy and remain well hedged on our limited floating rate borrowings. Of the $881 million revolver balance outstanding, $500 million is swapped to fixed SOFR at 3% through April 2028. We received swap payments on a current cash basis each month. And for the third quarter, that produced cash interest savings of approximately $1.7 million that flowed through the P&L. We also have $250 million of long-term treasury locks at a weighted average rate of approximately 4.0% and current gain position of approximately $29 million, which is currently recognized on the balance sheet, but not the P&L. We are levered 2.0x on a total debt-to-equity basis. The effective interest rate on permanent debt is 4.2%, and the portfolio's cash interest rate on permanent debt is 3.8%. So to conclude, we're encouraged by good traction in the affordable sector, which we believe will help buoy origination volume while other sectors work their way back into the pipeline, and we have a strong balance sheet and liquidity position that we'll look to take advantage of to be more offensive with our customers. And with that, let me turn it back to Jay. Jay Sugarman: Thanks, Brett. I mentioned earlier our focus on finding ways to meet our customers' needs. Of course, it's also important for our customers to live up to their obligations. So let me provide a brief update on the Park Hotel master lease. We recently sent this tenant a lease termination notice for all 5 hotels governed by the master lease, and we'll be pursuing all our contractual rights under the lease. We believe the tenant has breached the master lease covenants and has not upheld their contractual obligations under the lease, which includes specific maintenance and operating standards. Because this is now active litigation, we are limited in what else we can say publicly. As I'm sure you understand, we can't provide assurance that we will prevail in litigation or that the future financial impacts will be positive. Okay. With that, let's go ahead and open it up for questions. Operator: [Operator Instructions] The first question comes from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Great. Just 2 quick ones for me. Just starting with the originations, I think all multifamily looks like all on the West Coast, if I'm looking at this correctly. I did notice the rent coverage ticked down a little bit. I don't know sort of if you could talk through that. And maybe just while you're on that, just talk about sort of the appetite and the potential for more of these sort of affordable housing deals. Timothy Doherty: Ron, it's Tim Doherty. Yes, you see that the assets were out in California on the affordable side, as Brett and Jay both mentioned, we're seeing great traction there in that space. On the affordable side, the team is doing a great job of expanding that throughout the country, which I think we'll see results in the quarters ahead. Right now, we've seen the great results on some of these sponsors we have, repeat sponsors in California. As for coverage, as you probably have seen in our transactions on development in particular, not only this is our underwriting, and we take a haircut to actually our underwriting to show what that coverage is. So if you actually took the sponsors' cash flows, those coverages are in line with our metrics, if not even a little bit above. If you take our underwriting without the haircut, it's probably more in line. So we're pretty conservative on the development deals since those are a little bit more time to get to stabilization. We just want to be able to show those as conservatively as possible. But in terms of the -- your question on transactions and deal flow, look, we're seeing great momentum. I think you're seeing that with the closings here even post quarter end. We're seeing great momentum even going forward with more transactions under LOI currently. Ronald Kamdem: Great. That's really helpful. And then my second one was just -- I appreciate you can't comment on anything on the Park Hotel. Any color on just timing on how long these usually take to be resolved high level? Jay Sugarman: Ron, it's Jay. Yes. I think it's unfortunate when things end up in litigation, we try pretty hard to find the solutions where both sides can win. But when we can't, obviously, we need to enforce our contractual rights to protect shareholder value. And these things don't happen overnight. That's why we typically would try to avoid it. But in this case, we think it's the right thing to do for shareholder value protection, and it will play it out. It's going to take a little bit of time. Operator: The next question comes from Anthony Paolone with JPMorgan. Anthony Paolone: Just trying to understand more just on Park Hotel, understanding the sensitivity. But what exactly did you claim was brief? I assume they're still paying rent? Or was there some change there? Jay Sugarman: It's not a rent issue, Anthony. It's a standard of care and maintenance. I can't really go into it, but we think the contract is clear and just couldn't find an agreement on that. Anthony Paolone: Okay. And then just more broadly on your deal pipeline and so forth. As we see like office, industrial and other types of transactions start to come back to the market, are you seeing more of that? And would you do more of those types of transactions if those opportunities come around? Timothy Doherty: Anthony, it's Tim. Yes, definitely. We're actually -- we track front of the funnel all the way through, of course, to closing. And when we look quarter-over-quarter, the opportunities we're seeing, it's pretty well diversified now and spreading out into the hospitality, retail, office side in addition to the traction you're seeing on the affordable space, conventional multifamily construction and recapitalization that's been there. So we're seeing opportunities there. And when the right ones come up, we're right on top of them. We think that as you're seeing from some of the other announcements in this quarter, the transaction flow has definitely increased. I think what Jay mentioned with the yield curve not as steep is starting to release some transactions, which is great for the market. And it just takes time to work those deals through the system and for us to start to close on some of those. Operator: The next question comes from Kenneth Lee with RBC Capital Markets. Kenneth Lee: I think you mentioned that some of the economic yields ranged up to 7.5% on some of the more recent deals there. Wondering if you have any expectations for economic yields going forward? I know that in the past, you talked about long-term bonds plus anywhere from 75 to 85 basis points. Any change there? And more importantly, as potentially short-term rates move around, do you expect any kind of indirect impact to economic yields going forward? Timothy Doherty: Sure, Kenneth. Those yields, look, it depends on the timing of these closings, right? We're based off the 30-year treasury. So over the quarter, it was a variable rate there higher in the beginning towards the end. So those closing on those closings happened earlier, some of them happened towards the end and then the ones that closed earlier this month -- or sorry, last month now. What we expect is, yes, there's that spread to the long-term bond, but also we expect now where treasuries are high 6s, low 7s is pretty consistent right now with where the treasury seems to be at. So -- and the deals that were in our pipeline are in that range. Kenneth Lee: Got you. And one follow-up, if I may. You touched upon within the prepared remarks, seeing some extended time frames, it sounds like to close some of the deals going to fourth quarter or even the first quarter. Any particular factors driving the extended out time frames? Timothy Doherty: The extended time frame, a lot of these deals are development deals. So those do take a little bit more time to close. I think in the portable space, a lot of those are development deals. Most of those are development deals on the conventional side, we closed a few in that space versus a recap that could take 4 weeks to 8 weeks to close. So nothing abnormal in the market for those to take a little bit more time, but we're seeing good momentum on that front and pretty consistent deal flow and LOIs being signed. Operator: The next question comes from Harsh Hemnani with Green Street. Harsh Hemnani: Maybe just a clarification. Did I hear correctly that for the Park litigation, it's against all 5 of the hotels in the master lease? Or is it just against the 2 that they plan on not renewing? And then second part is, what's the sort of near-term financial impact of this? Is Park going to continue to pay rent during the period of time the legal battle goes on in the background? Or is there going to be some near-term impact from that? Jay Sugarman: Harsh, yes, the litigation is around all 5 hotels, not just the -- and we're obviously working to find a way to continue the hotel's operations as smoothly as possible. So I don't have any more detail I can share on that, but that's certainly our goal. Harsh Hemnani: Okay. So I guess, is the goal here to try to treat the master lease as a package, all or nothing? Jay Sugarman: Yes, it is a master lease and the provisions are backed by a corporate entity. So we certainly treat it as a master lease. Harsh Hemnani: Got it. Okay. Last one for me. I guess, maybe higher level on the transaction side. As you mentioned, sort of broader real estate transaction activities are broadly in line with, call it, pre-'21 levels. And at the same time, rates haven't necessarily gone back to what it was in '21 and '22, but we've stabilized. Volatility has come down. We're in the low 4s almost consistently. Did those bigger check size transactions start to come back? Are you seeing more of those? Or is it still smaller check size multifamily? Timothy Doherty: I would agree with you on the consistency part. I think that is driving some of the market now. Everyone has a lot more visibility. So transactions are getting done. On the size, the affordable deals tend to be on the smaller side. You saw all the deals that have closed -- all the deals that closed in the third quarter, deals that closed quarter-to-date were affordable. They're on the smaller side. These are actually, I'd say, on the smaller side of those even. The larger transactions, you're seeing a lot of the trades now starting to happen on the larger deals. Our pipeline has some larger transactions in it than these affordable deals. But multifamily transactions on the conventional side tend to be somewhere between $40 million of total value to $85-ish million of value. So 1/3 of those, you can kind of figure out what our ground leases are typically sized. And then office and hospitality tend to be a little bit bigger asset size in those. But again, not much different from what you've seen in the past from quarters past where you were mentioning 2021. Operator: The next question is from Rich Anderson with Cantor Fitzgerald. Rich Anderson: Have you stated what this sort of forward pipeline, it looks like in dollar terms? You mentioned activity got pushed out, but I don't believe you sort of put a number on what the pipeline looks like on a go-forward basis, if you were willing to share. Timothy Doherty: Yes. I guess we wouldn't share the exact number, but I guess to give you an idea of what we have today under LOI that will close in the coming quarters, I would say it's over -- about over 15 deals and over $300 million of transactions that will, again, close in the coming quarters, and it's a mix between the affordable transactions and conventional multifamily. Rich Anderson: Okay. Great. And as far as -- I'm not going to ask specifically about Park, I understand you can't talk about that. But just to be clear, a lease termination successfully completed means reversion rights and you get the keys that's one possible outcome, speaking generally about how this works. Is that correct? Jay Sugarman: That's correct, Chris. Operator: The next question comes from Ravi Vaidya with Mizuho. Ravi Vaidya: Just wanted to ask another follow-up on the Park Hotel litigation here. Does this impact your potential interest in maybe pursuing hotel originations going forward? And is there any additional corporate costs that we should be considering for the model, more G&A, legal fees or any other onetimers as should we think about Q4 and '26? Jay Sugarman: Yes, I'll take the first part, and maybe Brett can take the second part. Look, this is an anomalous outcome. It's not what we expected. This is a master lease form that we didn't create 30 years ago when it was put in place. And I don't think it impacts our view on any part of the ground lease ecosystem that we're working in. So we'll get through it. And I don't think you should think of this as an indicator of anything or a precedent for anything. Brett Asnas: Yes. And on the on the economic side or for the P&L, obviously, as Jay mentioned, it's too early to tell where this will head. Obviously, we wanted to make this decision on behalf of our shareholders and make sure that we protect value. So I think over the coming quarter, we'll have better visibility and can certainly update you in the market as to what that looks like. But for the time being, we feel like we're in a good spot in terms of the consistency of what we've been making. And then moving forward, as Jay mentioned, with the termination, any costs associated with that, et cetera, we'll be able to give the market better visibility. It just -- it's pretty early and premature at the moment. Ravi Vaidya: Got it. I appreciate the color there. Just one more. How do you guys think about the recent New York City Mayor win yesterday and the impact surrounding rent stabilization and maybe broadly how this could impact affordable housing. You guys have done a lot of deals with affordable housing and just wanted to see how this type of news and this type of language impacts underwriting those deals. Jay Sugarman: Look, I think we fundamentally follow supply and demand wherever it goes. And obviously, if you reduce the incentives to create supply, you're going to choke off supply, which is in many cases, just leads to even tighter market conditions. We're seeing that more generally across the market. Those areas that didn't have supply are starting to recover, and there's not a lot of supply in the pipeline. And you see what happens, rent start to move. So I'm not sure how the administration is thinking about that, but it's certainly our belief that the way to keep rents down is to have supply meet demand. So I'm not sure exactly how this is all going to play out, to be honest. We believe we have a solution for the affordable housing problems in this country that's very powerful. We'd like to deploy it in more places. I will tell you a lot of the friction costs are created by government regulations that we would just assume help solve the problems quicker, faster and better, but we're kind of being held back a little bit by the nature of government regulations in that area. So we're hopeful that people recognize this is a problem that ground leases can be a major part of the solution and creating new supply is long term, in my mind, a better solution for most municipalities than trying to arbitrarily decide where rent should be. That just sounds like a tough long-term economic solution. Operator: The next question comes from John Petersen with Jefferies. Jonathan Petersen: Can you remind us how much of your multifamily portfolio is affordable housing today? I know it's 41% of gross book value. And then do you guys have a long-term target or cap of where you'd want that number to be as a percent of your portfolio? Timothy Doherty: John, we'll get back to you on some more definitive number, but it's a pretty low number now. We just -- the business really just began 18 months ago or so with the team being dedicated to it and getting deals closed after being I would call the lab to learn more about the space prior to that. So the team is -- as you can see, has great momentum going forward. In terms of where we like it to be, look, we're growing a massive portfolio here. So the number on how large it could be in dollars, we're striving to make it very large, I guess, I would say without throwing a number out there. On a percentage, you can see over time, different asset classes are active at different times. So to say what percentage of the portfolio would be pretty difficult. But you're seeing that the housing sector of our portfolio, that's why we label it under all and multifamily is a majority of the assets that we've closed on the books to date, and we see that trend continuing in terms of the ratio of housing as a part of our portfolio. Jonathan Petersen: And outside of California, I guess, which states do you think are most likely to see some of these affordable originations next? Timothy Doherty: Well, the capital by the government is allocated by the size of the state. So California being the largest is the one that allocates the most. It's actually the most efficient system, at least in our opinion. So we're seeing great traction there as that system works quite well. And look, I think the expansion there is into the larger states. So a lot of those are in the Sun Belt and coastal. You see a lot there. So our team is working on all of them. As time goes on, I think in the coming quarters and year, you'll see us penetrate those markets as well. Operator: Up next is Chris Muller with Citizens Capital Markets. Christopher Muller: So I guess following up on that prior line of questioning. Is any of your New York City multifamily exposure to rent stabilized units? And if so, how would a rent freeze even play out given your contractual CPI escalators? Would that burden just solely fall in the sponsors? Jay Sugarman: We haven't really cracked the New York nut yet, and that you're asking one of the questions that we would have to grapple with. The goal, as always, is to put ourselves in a very safe position where we don't have to worry too much about the last dollar risk or even the middle of the capital stack. So that's what we love about the business is the safety and the predictability about it. we have not seen that opportunity present itself across the New York market. But look, there's got to be a solution. We think additional supply is going to be needed. And ultimately, we don't want to play in the equity part of that solution. We want to play in the land part of that solution, which we think goes a long way to helping stretch the subsidy dollars that are available. This is a big opportunity for efficiency to come to the fore, and we think ground leases are -- can be a big part of that. Christopher Muller: Got it. And then I guess changing gears a little bit. The 30-year treasury rate increased from a recent low of 4.55% to current 4.75%-ish. There was a similar 20 basis point drop in rates during the third quarter. So my question is how sensitive is your guys' pipeline to these types of moves? Do you see a material change in demand from those 2 examples? And then just a follow-up on that is what level of the 30-year do you think would really get things moving for your business? Timothy Doherty: Yes, it's a similar event that occurred last year, right, where the treasury dipped down somewhere around September, October time frame, and it came back up in November. So it's sort of deja vu a little bit the last couple of days what happened there. And you saw the increase in -- just in terms of the market chatter of deals when the rates were going down, a lot of deals trying to close at the exact moment. I think a lot of people knowing that where rates are trending is in this higher level for longer. So when it does dip down, people want to transact quickly. So when it was there, it was -- the flow really in terms of the chatter because deals can't close in days, it can take weeks and months was heavier. So I think we're testing this last year and now this year where the 10-year dips closer to 4% and the 30-year dips below 4.50%. You start to see a lot more transactions where it really flows. We don't know. We haven't seen it as a whole market, right, where acquisition flow really picks up. We paid a lot of attention to that side of the market, not just recapitalizations. People have to refinance their debt. It's really the acquisition flow that shows you the market is fully healed. And -- but when those rates were hitting those levels, you started to see a lot more talk about sales and acquisitions. Jay Sugarman: I mean this is a longer-term perspective, when we started this business in 2017, we said the sweet spot is sort of 3% to 5%. We've been at the lows. We've seen the highs. If you wanted a true middle of the road, I think 4% on the 30-year is a great place for both sides to feel good about. I think this is as much about psychology as anything else. When the market thinks rates are topping and headed back down, it's harder to want to lock in 99-year capital if you have that belief. We think we've got some flexibility in terms of when customers can lock rates that could be a useful tool for them to maybe open that door a little wider for them to make a good decision, both in the near term and the long term. So it's one of the things we're watching very carefully. I think Tim said, uncertainty is the worst thing of all. And when markets don't know which direction things are headed, that tends to put a freeze on things. What we're hoping for is a little more stability in '26, a little bit lower rates, a little bit less steep yield curve. Those are all positive factors for us. Operator: We have a follow-up coming from Rich Anderson with Cantor Fitzgerald. Rich Anderson: I felt like I short changed myself. So I'm going to ask Jay you a question that I want you to sort of get your take on a common criticism, I guess, of ground leases. For everything that's good about them, as you close in at the -- to the end of the lease term, you can argue that the incentive of a leasehold owner is lessened to maintain a level of capital investment because they see sort of the end of the road in terms of the lease. And one thing or two, well, two will happen there. The lease will expire, they'll get the keys back or they'll renew the lease and have to pay a bigger rent to you. So what's the -- what do you -- how do you take this as a sign of the criticism of ground leases that the closer you get to the end of it, the less incentivized your customer is to invest because they see the writing on the wall coming. I'm just curious how you would respond to that. Jay Sugarman: Yes. I think the fallacy in all that for me, Rich, is we're always looking for solutions that can create value. So the market tells you what things are worth. And if somebody wants an extension, it's pretty easy to price the value of that. And that's certainly -- if you like the assets you're running, that's always going to be a good solution. And I think the markets will reward longer-term ground lease solutions for that leaseholder with a value increase that goes a long way to creating a business deal between the landowner and the building owner that can extend for a new 99 years. So that's what we think in most cases is a very likely solution is extensions. Good operators who are doing a good job and meeting the contractual terms of their leases, there's a lot of places to create win-win solutions. So we're very careful in terms of our standard agreement has maintenance standards. But this is more about just doing smart business. We want to create long-term customers. And we think we have lots of solutions at the end that will work for them. So again, as I said, I'm not sure the current condition we're in is a precedent in any way. We've seen plenty of other situations not end like this. So I still feel pretty confident that the economics of continuing to run a good property will always trump sort of that dynamic you mentioned. Rich Anderson: Or if it -- but if it's not a good property, they'll be willing to walk and go through something like this. That's the point. I hear you. But if they've fallen out of love with whatever they are running, perhaps that's -- but anyway, we could talk about another time. Operator: Mr. Hoffmann, we have no further questions. Pearse Hoffmann: Thanks, everybody, for joining us today. If there are any additional questions on the release, please feel free to contact me directly. Operator, would you please give the conference call replay instructions once again? Thank you. Operator: Absolutely. Thank you. There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with the confirmation code of 53142. This concludes today's call, and you may disconnect your lines at this time. Thank you for your participation.
Operator: [Operator Instructions] Good afternoon, everyone, and welcome to the Klaviyo Third Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Also, today's call is being recorded. With that, I would like to turn the call over to Andrew Zilli, Vice President of Investor Relations. Please go ahead, sir. Andrew Zilli: Good afternoon, and thanks for joining Klaviyo's Third Quarter 2025 Earnings Call. Our earnings press release, investor presentation, SEC filings and a replay of today's call can be found on our IR website at investors.klaviyo.com. With me on the call today are Andrew Bialecki, Co-Founder and CEO; and Amanda Whalen, CFO. As a reminder, our commentary today will include non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in today's earnings press release or earnings release supplemental materials, which can be found on our Investor Relations website. Additionally, some of our comments today contain forward-looking statements that are subject to risks, uncertainties and assumptions, which could change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. With that, I'll now turn it over to Andrew. Andrew Bialecki: Thanks, Zilli, and thank you all for joining us today. We had an outstanding third quarter, delivering revenue of $311 million, up 32% year-over-year. These results demonstrate our ability to build products that create more engaging relationships between consumers and businesses, get those products in the hands of businesses around the world and build a high-growth software business at scale. We're now serving more than 183,000 customers in over 100 countries, including more than 6,000 enterprise and mid-market global brands like TailorMade, Mattel, Unilever and Reebok. A few highlights from the last quarter. We delivered another quarter of record net adds in our $50,000-plus ARR customer cohort. We grew revenue in EMEA and APAC by 43% and our Klaviyo service product line, which reached general availability 6 weeks ago, has the fastest adoption rate of any of our products, including text messaging. We're firing on all cylinders and see a lot of opportunity ahead, especially with the addition of Agentic AI to our products. On this note, I'd like to take a few minutes to explain how AI fits in with the products we're building and how it's helping our customers grow faster. The B2C CRM we offer is made up of 3 vertically integrated components: a highly scalable, fast database, restoring everything a business knows about its consumers and making that data available in real time, a set of applications and infrastructure to market, message and serve consumers across every channel and modality and an intelligence layer that finds opportunities to market or serve customers better and can automatically create, deliver and optimize those marketing and service experiences, leveraging the consumer data we have for real-time personalization. AI and LLMs have fundamentally changed and leveled up what is possible in real-time personalization, the intelligence layer and made the entire stack more effective at driving results for our customers. And we then share in that accelerating value creation with our customers. The more valuable we make each relationship between a business and an end consumer, the better for that business and the better for us. AI is improving this intelligence layer in 3 ways. First, it's making it faster and easier for our customers to leverage our integrated database and applications because AI can do the work businesses don't have the time or the bandwidth to do. We'll share a few examples of this in a minute. Second, AI is making the quality of the marketing and service experiences our customers are creating much better. This is a win-win for both businesses who see greater engagement and revenue and end consumers who get more relevant marketing and service experiences, thanks to AI integrated into our stack. Third, as a result of AI, we're able to make Klaviyo more available to more businesses on more platforms because they can interact with Klaviyo through natural language and new applications like ChatGPT. Let me give some examples of products we've delivered and real customer use cases for each of these elements. And many of these are a direct result of products and features we've built in the last few months and released at our largest customer and partner event of the year, Klaviyo Boston back in September. Let's start with making it faster and easier to do marketing and service. We've reimagined how marketing will happen in the Agentic AI era and launched an entirely new workflow for our customers to do marketing, and we're calling it marketing agent. This agent, which is a team of task-specific agents, can augment or do the work our customers don't have the time to do. Klaviyo customers have access to an always-on research, strategy, creative, execution and brand safety team powered by AI agents running in the background that will suggest and build complete marketing campaigns for businesses to then review, edit and run. We're progressively rolling out this new technology and experience to our customers, but we're already seeing customers adopting our recommended campaigns and executing them with minimal or no editing on behalf of our users. Now let's talk about making the quality of experiences better. We're already seeing the quality of campaigns our agent creates is surpassing what some businesses have time to create on their own. For example, a customer in the health industry using marketing agent saw a 41% better open rate and generated 24% higher average revenue for Klaviyo attributed value per campaign compared to campaigns they created on their own. Another customer saw a 50% better open rate compared to campaigns they create on their own and 40% lift on KAV per campaign. These results show the real revenue impact agents can have, and we're quite early in what agents are capable of. Today, agent is like adding a solid marketing intern to your team. We're developing its skills to be at the level of a marketer with over a decade of experience and instant memory of all previous marketing campaigns and results. This is a paradigm shift in how marketing will happen, where businesses and teams can lean on agents to augment their work, and we are leading and excited to accelerate. We hear from our customers and partners, while they love our products, they want to do more with them. And with Agentic AI, we're delivering this. Agentic AI is also improving where businesses can connect with consumers. Our investments in building messaging and deliverability infrastructure and applications that support rich experiences across channels and modalities are paying off. Our Customer Hub and customer agent products, which are both part of our Klaviyo service product line, which we made generally available last month, now allow businesses to use AI to chat and message with their consumers across the web, e-mail, text messaging and WhatsApp, and we plan to add more channels next year. This expansion of services is resulting in more consumer engagement and incremental sales for the businesses we serve. For example, by surfacing favorative products and tailored recommendations with Customer Hub, ThirdLove has driven more than $200,000 in incremental revenue so far this year and enables over 40,000 self-serve interactions that offloaded work from their support team, incredible results for ThirdLove. And finally, as a result of AI, we're able to make Klaviyo more available to more businesses on more platforms. The launch of our Model Context Protocol or MTP server allows companies to seamlessly integrate Klaviyo into AI clients and applications. We launched this a few months ago, built on top of our comprehensive and integrated data, marketing and service API infrastructure. And we are seeing a lot of engagement from customers who are using it on major AI platforms like ChatGPT and Cloud. This is transforming how our customers and partners use Klaviyo. For example, one of our agency partners built a reporting workflow using the Klaviyo MCP server to dramatically reduce the time their account managers needed to prepare for client updates. Instead of spending hours pulling data manually, they now have an AI application using our MCP server that reviews last month's performance, summarizes results and find campaigns that over underperform historical trends, diagnoses the probable causes and suggests next best actions. This saves them hours of manual work for each client relationship and allows them to spend more time leveling up their conversations with clients. Another partner's creative team is using our MCP server to review past campaigns and identify creative assets that are high performing and can be reused. They're then creating new campaigns with those assets and mapping specific creative to different consumer segments. This is not only saving an enormous amount of time, it's allowing them to do better marketing with their clients and produce better results. We're uniquely able to capitalize on these opportunities for a few reasons. First, vertical integration matters. And our bet on an architecture that allows for low latency coupling is paying off. The tight integration of our database and marketing, service and analytics applications allows for rich personalization by using profile data as context in real time and engagement and behavioral data from each application is automatically available to other applications. For example, product recommendations derived from marketing campaign engagement, service conversations and browsing behaviors are richer by using all available inputs and instantly available across all of our products. On top of that, our ability to measure and calculate attribution natively creates a closed-loop system AI can train on the outcomes of marketing campaigns and service experiences to improve its performance. And lastly, we have an incredible ecosystem of thousands of agencies, developers and system integrators who are building agents around our products and agents that extend functionality and improve customer results, like the example we mentioned a minute ago. Klaviyo Boston, the anchor event of our worldwide tour for customers and partners, put this on full display with over 1,400 attendees sharing how they're using our products and what they're building on top of them. As a result of all of the above, AI is providing tremendous tailwinds to our mission of bringing businesses and consumers closer together and huge opportunities for our growth. We're rapidly moving towards a world where every business will have access to the technology that can present their products and services in the best possible way, personalized to the individual consumer and available wherever consumers are and doing this autonomously through AI with human oversight and intervention where the business wants it, not because it's required. This is our vision for the B2C CRM and why we believe defining and delivering the customer experience will be autonomous, and we couldn't be more excited. I'd like to conclude by commenting on a few recent AI developments and why we see them as clear tailwinds for Klaviyo. Businesses win when the friction between a consumer finding them and buying from them is reduced. That's why we're very excited about Agentic commerce and various protocols that are being developed, such as the Agentic Commerce Protocol or ACP from OpenAI and the Agent Payments protocol, AP2 from Google. It drives additional sales in the short run and another consumer relationship businesses can build upon in the long run. One of our core metrics is the number of digital relationships that exist between businesses and consumers. And so any new channels that accelerate discovery bodes very positively for Klaviyo. Also, as brands prepare for the rise of GPT commerce, they need solutions for maintaining direct connection with their customers. Klaviyo protects that connection by unifying first-party data in the Klaviyo data platform, which allows brands to maintain visibility and turn engagement on agentic services into meaningful, measurable customer experiences across all channels. We also believe agentic commerce and commerce through natural language interfaces will become more common, and we're excited to integrate those protocols into our messaging infrastructure and marketing and customer agent products. We're offering consumers an alternative to browsing a website or a store and instead chatting or talking to an AI agent from a brand that can handle queries and transactions on its own across multiple channels. We're also excited to see more infrastructure built to create agents and agentic workflows where customers can use Klaviyo outside of our own user experience. While we'll provide customers with agents and algorithms within Klaviyo that are excellent at various aspects of marketing, service and analysis, we're also building Klaviyo as an open platform so other developers and companies can build agents that integrate into ours. We're successful when our customers are successful, and we're excited to expand our already large partner ecosystem to include more AI-first developers and builders. To our customers and partners, thank you for the trust and support. We're very excited about what we'll build together. And to Klaviyos around the world, thank you for your hard work and dedication to supporting our customers. We're still only 1% done on our mission to empower creators to own their destiny. We're excited to build, invest and lead and bring this AI-powered future to businesses of all sizes around the world. And with that, I'll turn it over to Amanda. Amanda Whalen: Thanks, Andrew. Q3 was another outstanding quarter for Klaviyo. Demand is strong across every growth engine. AI is amplifying our impact, and we are driving innovation for our customers as the definitive CRM for B2C businesses. Revenue grew 32% year-over-year to $311 million, reflecting robust demand from new customers and continued multiproduct expansion from our existing ones. International revenue growth accelerated for the sixth straight quarter. We had record net adds into our $50,000-plus customer cohort. NRR accelerated to 109% and adoption of our new service product is already outpacing what we saw from SMS at this same stage just 6 weeks after launch. The results are clear. Our growth engines are delivering and AI is a force multiplier. We're investing for high growth while maintaining strong unit economics. Non-GAAP operating margin this quarter was 14.5%, meaning our Rule of 40 performance was nearly 47%, our highest in 4 quarters. There are fewer than 10 public software companies who are growing more than 30%, over $1 billion in revenue run rate and achieving the Rule of 40. We're proud to be among that top-performing group. At our Investor Day, we outlined 3 engines driving Klaviyo's long-term growth: multiproduct expansion, international acceleration and mid-market and enterprise momentum, all fueled by AI, which creates tailwinds for our business and positions Klaviyo to be the platform of choice for brands everywhere. In Q3, each of these engines delivered meaningful progress, which underscores the power of our model. Starting with our multiproduct platform. The foundation of our growth is our large and growing customer base. In the third quarter, we added 7,000 new customers, bringing us to more than 183,000 customers, up 17% year-over-year. Companies are choosing Klaviyo as their B2C CRM because we help them grow their businesses by unifying their customer data, marketing, service and analytics applications and now by bringing Agentic AI into that same connected platform. And as we drive success for our customers, they in turn are growing their business with us. NRR rose to 109% in the third quarter, driven by e-mail expansion, strong text messaging cross-sell and momentum from newer products, including marketing analytics. At Klaviyo Boston in September, we accelerated innovation across the platform. In addition to the marketing and customer agents Andrew talked about, we enhanced Klaviyo marketing with new omnichannel capabilities and new channels, including WhatsApp. We also released to general availability our new product line, Klaviyo Service with Customer Hub, customer agent and help desk. Our product velocity is accelerating, thanks in part to internal AI efforts, and we're now deploying product updates 270 times a day and have over 50 AI models in production that are predicting customer behavior, surfacing insights and marketing analytics and helping personalize experiences across Klaviyo Marketing and Klaviyo Service. Our new Klaviyo service products are off to a fast start, increasing penetration faster than SMS did at the same point in its launch. Adoption is strong across all sizes of customers, from entrepreneurs all the way up to the mid-market and enterprise. In fact, last week, one of our customers, a large fashion business, signed a 7-figure renewal with us that included adding customer agent and customer hub across 6 of their portfolio brands. We view Klaviyo service as a long-term revenue engine with the potential to rival and exceed our marketing products as it scales. These launches further expand our multiproduct platform, making Klaviyo even more powerful for our customers. We consistently hear from customers about the importance of having one unified platform for engagement, and that's driving continued growth across the entire platform, including text messaging, WhatsApp and marketing analytics as well. Because our pricing model scales with the value we deliver, not with seats, our success grows directly alongside our customers. We price on a per profile, message and resolution basis, which lines up perfectly with the outcome-oriented business models AI is enabling. Today, more than half of our ARR comes from multiproduct customers, which is clear proof that customers want to have everything running off of one platform. This deepens our relationships with customers, improves retention and drives long-term growth. Turning now to international. Growth continues to accelerate. Revenue outside the Americas grew 43% year-over-year, our sixth consecutive quarter of faster international growth, with EMEA up 48% and gaining momentum from Q2. In Q3, we added 4 new languages to the platform, expanded text messaging coverage to 22 countries and introduced WhatsApp, which was a highly anticipated channel for our global customers. EMEA and APAC now represent more than 35% of total revenue, reflecting the strength of our international strategy. Our focused investments abroad are doing exactly what we intended. They're driving strong growth and expanding Klaviyo's global opportunity. Momentum in the mid-market and enterprise continues to build. We now serve 3,563 customers with over $50,000 in ARR. That's up 36% year-over-year, including a record 272 net adds this quarter. This was driven by a record number of new lands directly into the cohort. We're proud to welcome and expand with iconic mid-market and enterprise brands such as Bissell, Rhone, Books and Proper Hotels, brands that trust Klaviyo to deepen customer relationships and drive growth. Another global brand that exemplifies the power of what we're building is Meshki, an Australian-founded women's fashion brand now selling in over 190 countries. Meshki has embraced Klaviyo as its system of action, recently adding marketing analytics to power their omnichannel marketing. With Klaviyo, they're personalizing every touch point from product recommendations and campaigns to customer journeys and interactions, all powered by their own first-party data. Meshki also relies on Klaviyo as a central source of truth. As they scaled their U.S. presence, the team used Klaviyo to guide where to invest in infrastructure, shipping and local distribution, transforming customer data into operational decisions. It's a great example of what Klaviyo's B2C CRM is built to do, help brands grow faster and turn every interaction into long-term loyalty at global scale. Turning to the P&L. Non-GAAP gross margin was steady at 76%, in line with Q2 as benefits from scaling infrastructure balanced out the continued growth of text messaging. Importantly, non-GAAP gross profit growth accelerated, underscoring how we drive operating leverage as we scale. Non-GAAP operating expenses also saw broad-based leverage this quarter, improving 170 basis points year-over-year as a percentage of revenue, reflecting the power in our operating model and our ability to deliver strong growth while investing to capture an even larger AI-driven opportunity. Non-GAAP operating income for the quarter was $45 million with a 14.5% margin, up slightly year-over-year. This performance exceeded our guidance, driven by strong top line outperformance and disciplined execution. We generated $47 million in free cash flow for a 15% free cash flow margin, which was also up year-over-year. Turning now to guidance. We are entering the peak holiday season from a position of strength, supported by robust customer demand. For the fourth quarter, we are increasing our revenue expectations to $331 million to $335 million, representing 23% to 24% year-over-year growth. We expect fourth quarter non-GAAP operating income of $43.5 million to $46.5 million, representing a non-GAAP operating margin of 13% to 14%. As a reminder, we implemented profile enforcement earlier this year, which reduces seasonality in our Q4 and Q1 revenue, making quarter-on-quarter growth steadier over the course of the year. We do expect our fourth quarter non-GAAP gross margin to experience typical seasonal impact from increased text messaging volumes. Based on our strong third quarter and our momentum heading into Q4, we are raising revenue guidance for the full year by $18 million at the midpoint to $1.215 billion to $1.219 billion for year-over-year growth of 30%. We expect non-GAAP operating income of $161.8 million to $164.8 million, representing a non-GAAP operating margin of 13% to 14%. This will be another year of delivering results above Rule of 40. Rule of 40 is an important metric for us because it represents our commitment to strong growth with good unit economics. We will continue to invest to be the definitive CRM for B2C businesses, and we strive to deliver Rule of 40 as we do so. Looking ahead to 2026, we're confident in our growth trajectory and in the results we are seeing from our AI-powered growth engines. Based on that progress, we expect to deliver at least 21% to 22% revenue growth next year. Our core marketing products continue to deliver a strong foundation for growth. We expect to drive further adoption and expansion, particularly in mid-market, enterprise and international. And we're seeing meaningful early traction from our new AI-powered products. Our 2026 outlook currently assumes limited near-term revenue from these launches. That said, given the pace of adoption, the upside ahead of us is significant and creates clear long-term runway as these products scale. From a profitability standpoint, we expect to increase our 2026 non-GAAP operating margin by at least 1 percentage point from our updated 2025 guidance. To close, Q3 demonstrated Klaviyo's strength, high growth, strong unit economics and continued progress across our 3 growth engines: multiproduct expansion, international growth and mid-market and enterprise momentum. AI is accelerating our business. It is unlocking new possibilities for customers to use Klaviyo to connect with their consumers in smarter, more personalized ways. It amplifies our growth, and it strengthens our foundation for sustained leadership. We believe this is just the beginning. With our unique combination of first-party data, relentless product velocity and Agentic AI as a force multiplier, Klaviyo is positioned to be the definitive winner in the next era of consumer engagement. With that, we'll open up the call for questions. Operator? Operator: [Operator Instructions] And our first question comes from Derrick Wood from TD Cowen. James Wood: AB, this is for you. I guess, at your conference, Accenture talked about fatigue in the legacy MarTech market, and there's a lot of desire to change out legacy tech and leverage new AI tech. You talked about seeing a robust replatforming cycle over the next 2 years to 3 years. I know your new products in AI and CRM are still early. But now that you do have these agents in market, are your conversations or pipelines evolving more around replatforming and AI adoption? And I mean, do you see 2026 as a step function and these type of engagements? Or how do you view this cycle playing out? Andrew Bialecki: Yes, sure. So in the mid-market and enterprise segments, we're obviously seeing some really good numbers. We added the most 50,000-plus customers in this past quarter. And I think there's really -- there's 2 things going on that are forcing these conversations. So yes, I do see there's a real acceleration there for 2 reasons. The first is a traditional reason, which is what we're doing by combining the underlying data infrastructure with then the marketing service analysis, application stack and infrastructure, handling things like deliverability on the messaging side, creative design and on the service side, providing that real-time infrastructure can have conversations with consumers wherever they are. I think what's happening on top of that is then when you layer in agents and really here, we mean agents and agentic workflows, we're finding a lot of large enterprises say, look, there's opportunities I can't get to. I can't do this data analysis. There's creative and design that I wish could get checks by agents so we can do more of it. Can you help me find more opportunities to execute against those. And then obviously, on the customer service side, I think a lot of people look at customer service is not just a, hey, when customers have issues, how do I help them? But also how can I proactively give them guidance and look at that as a growth engine. So there was this traditional reason of like, look, my software isn't really talk to each other very well. And now you layer on what LLMs give us in terms of a better logic engine, a better -- smarter way to use the tech that we've built. I think this is the future of how CRM is going to work for consumer companies. It's going to be agentic at its core, which means that instead of the operators of that software having to decide, make every decision, drive the software all on its own, -- it's going to be done in part by agents. And I think increasingly, some of the work they can't get to or don't want to do is going to get handed off. And the fact that Klaviyo provides us like closed loop where, hey, it's not just that we store the data, hey, it's not just that we help you find the ideas and execute them. It's then we can then tell you what's working so you can use machine learning and AI to improve, to optimize over time. That's where this is all going. But I have those conversations with our enterprise customers today and then folks that we're talking to that are in our pipeline, they're very excited about this future. And I think we're in the driver's seat to go deliver for. Operator: Our next question today comes from Samad Samana from Jefferies. Samad Samana: So I wanted to stick on the AI theme. And I know that you guys talked about the Shopify relationship. But I was wondering if you could dig deeper into how the large platforms like OpenAI working more closely with Shopify and giving them access to maybe millions of consumers and how that ultimately benefits Klaviyo as you think about how those could potentially become -- empower the merchants that you're helping and become more profiles, especially given how embedded you are in the Shopify ecosystem. How are you thinking about that in particular? Andrew Bialecki: Yes, for sure. So let's talk -- let me touch on a little bit on the AI ecosystem. Klaviyo, since we started, has been very partner-oriented. We've looked at the ecosystem and how do we plug in, how do we work together to build a better experience for the businesses that we serve, ultimately drive better outcomes for them. So let me touch on a couple of things. First, let's talk about as it relates to commerce and acquiring and building more consumer relationships. Obviously, that's a big part of our business model is we want more businesses connected to more consumers. We think that's an asset that's very important to the businesses we serve. And obviously, that's one of our core monetization axes. So we look at things like the ability to do commerce through products like ChatGPT is great. It's a way for more consumers to find more businesses. It's a more streamlined experience. And ultimately, like we said in the prepared remarks, it results in this like medium- and long-term growth for them because they now have another connection to another consumer. In fact, we're so excited about the idea of like commerce through conversations through chat. It's something we're also working to embed inside of our customer agent. We look at the future, we think that every business is going to have its own customer agent, its own digital, like the best most knowledgeable person about your products, who has all the answers in real time 24/7. We want to build that technology. And obviously, once we answer a question, like, for instance, product [ recommendations ] built in, we want to let consumers then buy directly from that experience. I think in the future, you'll see these agents rather than browse a website, you could just chat with an agent provided by a business and then it could help you consummate that transaction. And the last thing I'll say is when we think about the platforms that are out there, both in terms of end users, like each of us using chat interfaces, we look at that as another way to interact with Klaviyo. We're very excited about that. In fact, we've already seen and we talked a little bit about in some of the remarks upfront, our customers, partners using some of these AI clients to interact with Klaviyo. It might be -- to date, it's been largely to do data analysis. But in the very near future, we think that's going to be actually designing marketing campaigns and getting going on that. And one of the things I talked to a lot of our customers about, they feel rate limited mostly by their time and how quickly they can scaffold and build and do marketing and service and analysis inside of Klaviyo. We think these new chatter base are a great way to speed up that loop, allow them to use more of Klaviyo. We benefit when businesses have more connections and also when they're doing more marketing, delivering more experiences to customers. And that's why we're going to build into those. And finally, I think it's early, but a lot of the platforms are now building out these agent builder type experiences. And we look at that, that's great. That's another way we imagine there's going to be workflows in the very near term where folks are building Klaviyo campaigns, optimizing them through some of these workflows and agents that they're building both inside of Klaviyo, but also outside of Klaviyo. And again, that's great. We think if businesses are able to do more marketing, build more customer experiences, understand who their customers are better, wherever they do that, that's valuable to them and that's valuable to us. Operator: The next question is Matt VanVliet from Cantor Fitzgerald. Matthew VanVliet: I wonder if you could help us think about the attachment of service already and the fact that it's tracking so far ahead of even some of your best products in history. Are these customers that are replacing something on kind of the legacy marketing stack? Were they doing things sort of haphazardly and this brings it all together? And then maybe more importantly, how is the new product like service helping the conversation of multiproduct expansion, knowing that you can bring it all on a single platform and have that single source of truth? Andrew Bialecki: Yes. I've been really impressed by what our product engineering teams have done for all 3 of our K service, Klaviyo service products in that product line. So let's talk through a little bit about each of them. And just so everybody knows, we put the general availability -- we released the general availability just over a month ago. So we're watching the tracking literally week over week. And like I said, the trajectory is awesome. In terms of what they're replacing or augmenting, let me take it product by product. So for our Customer Hub and customer agent products, those were finding a lot more greenfields. Our Customer Hub product now takes a lot of the personalization that you could do with Klaviyo and messaging on various session channels and now brings it directly into a business's website or even in the future, maybe even their mobile application. It gives consumers a way when they go visit website that the entire web experience is now personalized to them. It's generating incremental revenue, as we talked about. And so it's actually a fairly easy conversation with customers who say, look, we can take the same goodness that you've seen from us in messaging, you can now bring it to your website. It's accretive to your growth. Why wouldn't you do that? A lot of these businesses, they just -- there was no product there before. Integrated into Customer Hub is our customer agents. So if a consumer has a question and they want to chat, both to get help, but also critically to get advice. We're seeing some really amazing conversations inside of our dataset where consumers are coming and having long conversations about what products would be best, best fit for them and offering them recommendations. So really service is no longer this sort of like, hey, if you have an issue, talk to me, it's now more even presales -- and that's, again, that's a bit different. People weren't thinking that way before. So we're finding a lot of businesses wanting to add that in because, again, it becomes a revenue engine. It helps offload some of the support volume, but it's also a revenue engine for the business. And then the third product is we've also built a customer service help desk product, which also has AI natively integrated. So we have some great features in there, things where if a conversation happens with our AI agent, maybe does some tool calls to pull in product recommendations and associate information, that all gets passed back to whoever that support rep is that then decides that handles the conversation if it makes its way to a human. That's a really great integration, speeding up response times and resolution rates. That is a more traditional like first time small businesses, they might be the first time, but that's more we're replacing some of the customer service software that's out there that might just only have traditionally solved that like, hey, we help your support team manage the support workload. So I think it's -- we're very excited about the trajectory in the first 40 days. We're obviously talking a lot about the impact of artificial intelligence. I think one of the things we want people to take away is we're expanding where we can use and leverage AI to not just marketing, but also include what happens on your website and what happens in customer service and as part of our building out the entire consumer CRM as part of our strategy there. Operator: Siti Panigrahi from Mizuho is up next... Sitikantha Panigrahi: That's great. Congrats on a great quarter. And AB, thanks for all that commentary on AI. That's helpful. Amanda, I want to ask you about your '26 guidance of that 21% to 22% growth. So you have a lot of products announcement there and also there are pricing model changes as well. But what gives you that confidence for next year growth? What is embedded into that guidance? Amanda Whalen: Yes. And the way that I think about it is we are incredibly confident in our growth trajectory. And that preliminary '26 outlook that we gave is a strong baseline for growth next year with clear upside ahead. So we have just launched some very exciting new products in AI and expansion into new products and new service categories. We are very excited about the traction that we're seeing. As AB mentioned, you have service off to an even faster start than SMS was at this stage, but we're really early in the journey. And so at this point, we're not factoring significant revenue in there for next year. So there's even more upside to that number as those products continue to grow. And I think the other thing that gives us incredible confidence heading into next year is that our existing growth engines are really delivering. They have strong momentum as we head into the international or into next year. In international, we saw our sixth straight quarter of increasing revenue growth rates outside of the Americas, which shows that we are really growing and increasing that global opportunity that we have to build the business. In mid-market this quarter, we had a record high number of adds into the 50,000 customer cohort, which really shows what we talked about at Investor Day, which is that customers are pulling us up into that mid-market and enterprise space because as we just talked about earlier with AB, they want to replace those legacy tech stacks and have a more modern AI-driven way for interacting with their consumers. And then in multiproduct, over half of our ARR is coming today from customers who are multiproduct, which shows us that those customers really want to consolidate their platforms and they really want to consolidate their platforms with Klaviyo. So we have a huge opportunity ahead of us there with service. We think service could be as big, if not bigger, than our marketing products are today. And then, of course, AI accelerates all of that. AI makes it faster and easier for our customers to use the product. It opens up new surfaces and new places where we can generate demand and interactions with the product. And importantly, it drives even better results. You heard some of the examples that Andrew shared around marketing agent and the uplift that it's driving in open rates and in KAV or the revenue that our customers drive. So again, those products are early in market. We're already monetizing customer agent today. We're going to start pricing pilots for marketing agent in the next few months. And as they continue to grow and expand in adoption and usage, again, we see upside there. So bottom line is that what gives us confidence is that our growth engines are firing on all cylinders, and we're in the early innings of massive AI and multiproduct opportunities that are ahead of us. Operator: The next question is from Tyler Radke, Citi. Tyler Radke: A lot of great discussions around AI and Service Hub. I wanted to double-click on international, pretty impressive subsequent consecutive quarters of accelerating growth. Do you think that acceleration could continue going forward? And could you just help us understand like what we're going to -- what we should expect in terms of future unlocks in that? I know you talked about adding new languages to the platform, expanding text message capability, but sort of what inning of sort of those product unlocks are we? And any view on sort of the durability of that acceleration? Andrew Bialecki: That's great. I'll give you some commentary on some of the things we're doing, and I'll let Amanda speak to -- the numbers. But 43% year-on-year growth. We're very proud of that, and we believe that we can continue to have that grow at very high rates over the next several years. And let me give you a little color on why. What we found is we're still relatively early in working in both Europe, and I'd say Europe is even a little bit further ahead than where we are in Asia. There's a lot that we've done in the last 12 months, 24 months to get us ready for that. We've expanded our presence in Europe and in Asia and continue to do so, especially in like key markets. From a product side, we've done a lot of work. You did mentioned internationalization -- very proud of the work that we've done there, both for our products, but also then to just make the various channels that we're in more available. So having SMS now in so many languages obviously helps a lot. We just rolled out WhatsApp globally, and that's obviously very, very important in the European and Asian markets. And we have some more channels now that will be coming online following that, that are more region-specific. So it addresses more of the places that where consumers and businesses meet. And then finally, we're expanding our presence, not just for our customer teams and go-to-market teams, but also just our infrastructure. We already have infrastructure all the way around the world. We're setting up new data centers and planning those out in both Europe and in Asia. And I think that will also help, especially for some of our larger customers. So will overlap with some of our enterprise strategy. So just very excited. We've got a great set of customers. We're also expanding the weight of the partners that we have there in key markets. So I think we've got a long way to go. We're nowhere near saturated. Amanda Whalen: Yes. And in terms of what helps drive that consistency in growth going forward and our outlook in international, it's the product expansion that AB talked about. And it's also the progress that we have on the go-to-market side around building out all of the surround sound around those product innovations. It's getting the local partner network set up, both agency partners and the platform partners as well, great platform partners, not only Shopify, who we have an incredibly strong relationship with, but partners like PrestaShop in France and Shopware in Germany and then also continuing to build out the customer experience, including the website, the local customer case studies. And so all of that contributes to making this a really strong, consistent growth platform for us going forward. Operator: The next question comes from Rob Oliver from Baird. Robert Oliver: I think at the Analyst Day, you guys called out, I think it was over 600 legacy replacements in the last couple of years. And there's been a few questions, [ Garek's ], and one other that have tried to touch on, I think, this opportunity, which is, I think, so exciting for many of us, which is that this combination of service, marketing and commerce has actually been tried before and there's buying there. And so maybe you can talk about as we look into the next year and the next couple of years, the pipeline you have building right now, some of the customer examples you called out, the fashion brand, 7-figure renewal, how should we think about that opportunity increasing over that kind of 600 number over the last couple of years? Andrew Bialecki: Great. We don't have any numbers to share today, but the momentum is awesome. And similar to international, I think there's things we're doing now that have -- that we'll finish doing that will now bear even more fruit. So as an example, we've only recently spun off our Analyst Relations program. We're now starting to work with more SIs and global system integrators, which is introducing us to more large enterprises. I think, obviously, enterprise and international go hand in hand. We've already worked with a number of large multinationals, but that will get only better as we do some of the work that we talked about on the international side. And look, the bedrock of this for us is, I think, really the 2 things I said. The first is since the beginning, this idea of your data infrastructure should have a tight linkage to how you do marketing messaging, the infrastructure there and then now what we're doing with service, customers love the idea -- the enterprise actually love this idea of one database now with -- that's getting more intelligent via LLMs and AI that is then distributing that experience to all possible channels. This really, really matters to them that they want this one unified experience. So this idea that like you can use the data you have at scale to generate things like recommendations and then make those available on all services, websites, mobile apps, messaging inside of a chat or in a voice conversation with the customer, all delivered via AI. That's a really enticing value prop. And so I think that there's just -- there's a lot we're doing now that the results we're seeing are a little bit of the actions that we've taken in the last 12 months, 24 months. But I think there's even more that we can do. And frankly, like there's even an element of social proof to all of this. I talked to businesses that said, hey, 12 months, 24 months ago, they didn't think of Klaviyo as an enterprise brand that we are quickly changing that perception, and I expect to see that snowball. Operator: Ryan MacWilliams from Wells Fargo has the next question. Ryan MacWilliams: Great to see continued strong new customer additions. This question is more in regards to your customers. So we're hearing SEO struggles come up more for SMB. And I was wondering, are you seeing customers look to Klaviyo as a way to support new market activities to combat SEO efficiency getting more challenging? Or are you seeing existing customers look to add new use cases as a result? Andrew Bialecki: Yes, it's a great question. So I'll say 2 things. We look at Klaviyo as really as the bedrock of how a business operates and works with maintains and grows its engagement with its most important asset, its customers. those end consumers. So we're noticing actually like 2 trends. The first is for some businesses, they're seeing a lot of growth through AEO and effectively like getting discovered through some of the AI applications that are out there. And so that's driving more consumer relationships. For other businesses, we find them -- they're actually -- when it's uncertain what their strategy is, they're coming back to Klaviyo to say, "Hey, how can I do more with my existing consumer relationships? How can I nurture those harder? And this is where AI really plays in. I mean one of the things we want to deliver them is like, look, we automatically, agentically give every single business for every single one of their consumers a path on like what is the absolute best experience they can deliver to that consumer. So when they do acquire them that those consumer relationships are more valuable, more durable, higher LTV. So it's a bit bifurcated, but I think when there's uncertainty and revenue is really on the blind, we find people come back to us. Just as an example of that, we're about to enter the holiday season. We find that for most of our businesses we work with, especially in retail, this is when they see the highest percentage of return consumers coming to their business. They know the consumers when they're shopping for the holidays come back to businesses they already know. And that's why you see so much more incremental usage of Klaviyo. And we're excited actually to have all these -- some of the AI functionality we've delivered now help them do a better job connecting those customers to the exact right product or the exact right service in the most critical time of the year for them. Operator: The next question is from Scott Berg, Needham & Company. Scott Berg: Really nice quarter here. I guess one question for me is we've been to a lot of sales and marketing conferences in the last month or 2. And we're seeing a ton of customer interest in the space, but budgets tend to be just a little bit light right now. And your commentary suggests that there should be a lot of expansion of budgets on some of this newer AI functionality as we get into the new calendar year. Does that track with what you all are seeing today? Or are you seeing customers more emphatically kind of spend on some of this functionality here even in the third or fourth quarters? Andrew Bialecki: Yes. Let me make 2 comments on that because I think it's probably a bit of a clarification too, like how we think about our role in the awareness buying process, what we think of like the marketing and sales cycle. So the first is every product that Klaviyo builds -- at its core, we make sure that like it needs to show its ROI, there needs to be revenue directly attributable back to that product. I think that's the case that not a lot of sales and marketing products can make. Oftentimes, there are tools that you might have a sales team use or a marketing team use. And it's not only like its productivity to that person, but you can't -- you might be able to measure the hours saved, but you can't see the dollars that, that product is generating. And I guess the second point is like, so what's the difference between how we build products for marketing, for sales for revenue generation versus a lot of what's out there in the market. And this is why we started to attach to this word agentic. I think there's a big difference between AI products that sort of assist a person doing a job. That's great, and we should want those products. But ultimately, they're just kind of -- they're not doing the work for you. They're just helping you do the work. What we found with a lot of the AI applications inside of Klaviyo. And if you look at what, for instance, our marketing agent is doing, the goal is to help -- assist a little bit, but it's really doing the job that we find the business we work with, they don't have the time or maybe the skills to get done or maybe they just don't want to do it. And so we've now changed this paradigm where instead of using software as a tool to help somebody do their job, but still ultimately, it's the person who you're really measuring the ROI on, we're now literally building algorithms agents that can do a big chunk of the process and a human can review the results. So an example we talked about with marketing agent, we're now generating not just creative or content, but entire campaigns, who you should send to, what's the purpose. We're giving that to our customers to then review. And then they're telling us, hey, whether that's good enough, maybe making some small tweaks and then they're deploying it. That's a totally different way of doing marketing than having a tool that helps somebody ultimately have to do all the different steps. And then we're learning from that and seeing what the results are and automatically optimizing the content that we show them next, right, or the next campaigns that we generate. This is just a different way about thinking about leveraging AI. I think it's even more ROI driving. And so the conversations, I've talked about, you are the normal things of, hey, how do we make sure that the quality meets a certain bar that you can trust that AI is actually doing the right thing. So we've built so many checks into our marketing agent. We have a whole quality agent that runs that vets everything. People actually are so excited about that. They want to apply it to their human created content as well. They want to put on everything they're doing inside of Klaviyo. So I think that's the big difference there is there's a difference between driving actual revenue and actually doing the work versus just being a tool that's part of the process. Operator: Up next is Arjun Bhatia from William Blair. Arjun Bhatia: I just had a couple of quick ones. First, Amanda, I think you mentioned you're going to start running sort of pricing pilots for marketing agent coming up here. Can you just maybe touch a little bit on what that might look like and what you're starting to experiment with? And then second, we're heading into Q4, important holiday season, as you pointed out, just would love to get your sense on how you think that's shaping up relative to last year? Amanda Whalen: Sure. So on marketing agent, we're seeing great results. We talked about on the call some of the outstanding results that our customers are seeing in terms of improvements in open rates, improvements in the KAV that they're generating per campaign. It's really helping amplify the work that they were doing and enable them to do more work at higher quality in less time. So there's a lot of excitement about it and generating a lot of value. And so we're going to start experimenting over the next couple of months with what does that look like in terms of a pricing pilot of how do we monetize it. Some of it, we're going to continue to build into the product natively, the things that we think are really important for all brands to have access to. And a great example of that is some of the image work that we talked about on our last quarterly call. But again, in those places where customers are really seeing that incremental value, we're working on how do we charge it. And we've got great confidence in that because of the results that we're seeing from some of our other areas where we're already using AI in the product, right? So we're live right now with customer agents and customers are seeing great results from that, and it's driving paid revenue. And then we're also seeing great results from marketing analytics, which incorporates a lot of AI-driven insights and analytics into helping our customers better target. So examples we've had recently are customers -- one customer who's using marketing analytics and its predictive gender feature, which is an AI-enabled feature to predict the gender of a given consumer and better target the campaigns that get sent to them, which is helping them generate higher KAV. So again, seeing great traction there, which gives us real optimism about our ability to monetize it. And then as it turns to outlook and how we're thinking about holiday, the way that we think about holiday is this is the most important time for our customers. This is where many of them generate a huge portion of their revenue over the course of the year. And so they're hyper focused on what will it take to make those -- make that holiday successful. Tough to predict exactly how the holiday is going to unfold. We've seen a lot of news out there recently. But what we can say with confidence is what we've seen over the last couple of years, which is during this holiday season, consumers go back to the brands that they know and love. And so as our brands and the customers we work with are thinking about getting ready for the holiday, they're thinking about how do I strengthen those relationships with the loyal consumers who I've already got so that I can make my holiday as successful as possible. And the great news is that is exactly what Klaviyo helps these brands do. It's historically been and how do we help them with marketing to them. But importantly, we're becoming even more critical to their businesses as they also add in service as well and really create this end-to-end consumer experience. So as we look forward to the holiday, what we believe is we've got confidence in how customers are going to turn to us across whatever, however the holiday unfolds. Operator: And our final question today comes from Terry Tillman, Truist Securities. Connor Passarella: This is Connor Passarella on for Terry. I want to follow up on the previous commentary on the holiday season and specifically how that relates to service product adoption. Just for the 3 service products, there's introductory promotional pricing through December 31. Is there typically interest from the customer base to committing to these new -- or to new products during the holiday period of Q4? Or do you kind of often have customers that just want to focus on executing into the end of the year? Andrew Bialecki: Yes. It's a good question. So among the 3 Klaviyo service products in that product line, it's a little -- we're seeing some differential in behavior. So let me just walk through them. So the first is for our Customer Hub product. We've made the integration onto our customers' websites, into their stack so seamless, like literally just a few clicks, and it's already leveraging and trained on all of the data inside of a Klaviyo account. We're finding a lot of customers want to adopt that even up leading into the holiday season because they know it will drive incremental revenue. So we're seeing really good uptake there. I think similarly, where you find where customers that have not used a customer agent and AI that can automatically resolve conversations or help guide consumers. There are some folks that want to test that out and have larger deployments, but we're also seeing really good uptake there. And I'd say maybe for larger -- and then finally, for our help desk, that sometimes depending on the size of the team can be more of a bigger build of, hey, I up the learning new system. We've already -- we had a lot of conversations with folks say like, "Hey, this is great. Just talk to me later in December, early January, once I get through the holiday rush. So that product might be a little bit -- that may be delayed a few months. But in general, actually, one of the things I'm really excited about is if you think about we launched all these products at the end of September, there's a lot of companies that would say, hey, our technology stack is set for the end of the year. And already, we're seeing really good growth in a time when you might not expect it. And then just to wrap up the call, look, we've been a public company now for 2 years, and I just want to reflect a little bit on some of the accomplishments we've had. Amanda touched on these. We've been growing logos. We've now expanded our product portfolio from beyond e-mail and text messaging to now incorporate a lot of marketing channels, customer service, analytics, our Klaviyo data platform products. We truly are building out the CRM stack. We've done a lot of growing in international and with larger accounts in the enterprise. These are all things we said we'd set out to do when we went public. I think we're executing really well against those. And we also believe that we want to be one of the highest growth software companies at scale and prove you can do it profitably. And I think we're doing a great job of that. And then finally, when we think about AI, we look at that as a total unlock for our business and for our customers. When you give our software, a logic engine, a brain that it can work on top of, customers, our businesses, they're going to do better marketing, build better experiences that is going to drive LTV with consumers. And that's ultimately what we index for our customers -- when our customers win, that's how we win. So anyway, thank you, everybody, for taking the time, and we're going to get back to building. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
Magnus Ahlqvist: Good morning, everyone, and welcome to our Q3 report. We continue to develop on a good path, execute on our strategic focus areas and are glad to report a solid set of results for the third quarter. The organic growth in the quarter was 3% and North America and Ibero-America both contributed with solid growth. And now to a highlight. The operating margin was 8.1% in the quarter. We had solid improvements across all segments as well as in the Services and Technology & Solutions business lines. And as announced last quarter, we are closing down the government business within Critical Infrastructure Services. And adjusted for this business, the organic sales growth was 4% and the operating margin was 8.3%. EPS real change was strong at 19%. And the operating cash flow is above 100% in the quarter, and we continued to improve the leverage and the net debt-to-EBITDA ratio is now at 2.2. The business optimization program that we initiated at the beginning of this year is contributing and the vast majority of the cost savings have now been executed. So shifting then to the performance just for an overview in the business lines and the segments. And as stated, we are recording significant margin improvements in both business lines. Continued strong Technology & Solutions margin development with 50 basis points to 11.7%. And the sales growth in Technology & Solutions was 4% in the quarter. This is below our target, but we have a strong offering, and we have taken actions to increase the focus on client engagement and commercial development, and I expect these actions to generate stronger momentum in the coming quarters. The margin in Security Services improved 30 basis points to 6.9% and this was supported by high margin on new sales, portfolio management and strong development of the Aviation business, while the SCIS business hampered. Growth in Security Services was 1% in the quarter, and the growth rate in Services is negatively impacted by active portfolio management and the SCIS business. But important, we expect to finalize the active portfolio management work in Europe and Ibero-America during the first half of 2026 and that work is progressing according to our plans. So with that, let's move then to the segments. And as always, we start with North America, where we are pleased to report solid organic sales growth at 6% and a record Q3 operating margin. Healthy portfolio volume development and price increases in the Guarding business were key drivers of the growth and continued double-digit growth in the Pinkerton business contributed and the performance in the Technology business also supported. Technology & Solutions growth was 2% in the quarter. And similar to the previous quarter, growth in Technology was decent, but we had lower Solutions growth. And we are fine-tuning our go-to-market approach with Solutions in North America, where we leverage our in-house technology capabilities in a much better way than before. And with these changes now being in place, I expect improved growth in the coming quarters. We improved the operating margin in the Guarding and Technology business units to 9.5%, and this was supported by good cost control and leverage. So all in all, very strong performance and a record Q3 operating margin in North America. And moving then to Europe, where the operating margin improvement stands out as the highlight of the quarter. The organic growth was 2%. Price increases, impact from Turkey and aviation supported, while active portfolio management had a clear negative impact on the growth in the quarter. Sales growth in Technology & Solutions was 4% and slightly below our expectations. The operating margin improved with 70 basis points to 8.4%, and this is a significant improvement and is the result of strong execution on all strategic priorities by our European teams. And as commented, we continue to address and renegotiate the low-performing contracts in the services business in Europe. This has a clear negative impact on the growth in the short term, but it's fully in line with our strategy and the plans that we set a couple of years ago. And we expect the work where we're addressing the low-margin contracts to be completed during the first half of 2026. So all in all, very good development by European teams and also here an operating margin at a record level. We then shift to Ibero-America, where we're also pleased to report good organic growth and solid margin improvement. The organic growth was 5%. This was driven by high single-digit growth in Technology & Solutions and price increases in the Services business. And similar to Europe, there is a negative impact on the growth from active portfolio management, but we're making good progress and driving conversions to Technology & Solutions. The operating margin improvement was solid in the quarter, and the majority of the improvement is related to improvement in the services business, but some temporary one-offs also contributed. So all in all, a very good quarter also in Ibero-America. And looking then at the performance across the group, we are driving disciplined execution of the strategy, and I'm really pleased to see strong execution across all segments and from all the teams. Our customer offer is stronger than ever before, and we're also glad to report improving client retention. So with that overview, turn to the finance update and handing over to you, Andreas. Andreas Lindback: Thank you, Magnus. And we start with the income statement, where we had organic sales growth of 3% and improved the operating margin with 60 basis points, leading to a currency adjusted operating profit growth of 11% in the quarter. As we communicated in Q2, we have introduced 2 new KPIs, which are adjusting our organic growth and our operating margin for the government business to be closed down within SCIS. In the third quarter, the adjusted organic growth was 4% and the adjusted operating margin was 8.3%. And this is higher than our target to have an adjusted operating margin of 8% in the second half year of 2025 and puts us in a good position to achieve the target as we are closing the year in the fourth quarter. The close down of the government business itself is progressing according to the plan that we laid out in the second quarter and had limited impact on the operating result in Q3. Looking then below operating result, there are no material developments in amortization of acquisition-related intangibles nor in the acquisition-related costs. Items affecting comparability was SEK 1.5 billion, where we in the third quarter have made a provision of USD 154 million for the government business close down, in line with what we communicated in Q2. The remaining SEK 65 million of IAC is related to the ongoing transformation and business optimization programs. Both programs are running according to plan and the full year forecast of SEK 375 million for both programs combined remains unchanged to our previous guidance. And as Magnus mentioned earlier, we have executed the business optimization program well and the vast majority of the target SEK 200 million run rate cost savings by the end of 2025 has been executed in the third quarter. And as we're looking into 2026, we are planning to continue to reduce the investments under IAC in comparison to the SEK 375 million this year. I will come back with more details to you in Q4. Our finance net came in at SEK 419 million, which is a reduction of SEK 158 million compared to last year, and we continue the positive trend of reduced financing costs as interest rates and our debt levels are going down. For the full year, we expect the finance net to land in the range of SEK 1.8 billion to SEK 1.9 billion, which is a material decrease compared to the SEK 2.3 billion we had in 2024. Moving to tax. Here, our full year forecasted tax rate is 29.2%. The increase compared to our full year 26.7% estimate in the second quarter is mainly due to the $154 million closedown cost where we expect around 60% of the total cost to be tax deductible over time. Adjusted then for the closedown impact, the full year forecasted tax rate is 26.8%, in line with our previous communication in Q2. All in all, a strong quarter where our currency adjusted EPS growth, excluding IAC, was 19% in Q3 and 18% for the first 9 months of 2025. We then move to cash flow, where our operating cash flow was solid at SEK 3.3 billion or 106% of the operating income. This despite some negative timing impacts from Q2, as I mentioned in the previous quarter. Both our DSO and our general working capital position continued to improve and supported a good outcome in the quarter. The free cash flow landed at SEK 2.7 billion, supported by solid operating cash flow, the reduced interest payments due to the lower interest rates and debt levels and temporary positive tax timing impacts in the U.S., and we expect a majority of the positive timing impacts to reverse in the fourth quarter. For the first 9 months of the year, we have strengthened our operating cash generation, having an operating cash flow of 74% of our operating income compared to 58% last year. We are in a good position to meet our full year target of an operating cash flow of 70% to 80% of operating income, where we always target to be at the upper end of that interval. This despite that we have one additional payroll in our U.S. Guarding business in Q4, which will impact the fourth quarter cash flow negatively approximately USD 40 million. This is a negative timing impact that we have every fifth or every sixth year in the U.S., and this timing impact is relevant for Q4 as well as for the full year 2025. In 2026, we will then be back to the normal payroll pattern with 1 less payroll compared to this year. We then have a look at our net debt, which was SEK 33.4 billion at the end of the quarter. This is a reduction of SEK 2.6 billion compared to Q2, mainly supported by the strong free cash flow generation. In the quarter, we also had SEK 308 million of total IAC payments, where SEK 175 million of this was the second payment related to the U.S. government and Paragon settlement. The residual is mainly related to the ongoing transformation and business optimization program and the government business close down, which was SEK 43 million in the second quarter. And as a reminder, the total Paragon settlement amount is USD 53 million, which we pay in 3 approximately equal installments. We have now made 2 payments and the third and final payment has been made in the fourth quarter. Moving then to the right-hand side, where the net debt to EBITDA was 2.2x. This is 0.5 turn improvement compared to Q3 last year, where the positive EBITDA development, good cash generation and the strength in Swedish krona all supported positively. And we are well below our target net debt-to-EBITDA of less than 3x and expect to continue to deleverage our balance sheet in the short term. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, strong liquidity, and we remain without any financial covenants in our debt facilities. And after a period of important refinancing focus, our main focus in the second half of 2025 is to use the strong cash generation from the business to amortize debt. In the quarter, we have repaid SEK 1.4 billion of debt. And in the fourth quarter, we plan to amortize approximately SEK 2 billion on the term loan maturing next year. This will continue to support our cost of financing going forward, and we will have very limited refinancing needs throughout 2026. And as always, we remain committed to our investment-grade rating. So with that, I hand over back to you, Magnus. Magnus Ahlqvist: Very good. Thanks a lot, Andreas. And before we open up the Q&A, I'd just like to share a few reflections regarding the longer-term development and also a little bit looking ahead. So back in 2022, when we did the STANLEY acquisition, we accelerated the work to change the profile of Securitas to create a company with the strongest technology and digital offering to our clients in combination with high-quality Guarding services. We also shared the ambition to improve the operating margin from the prior decade, where we have been around 5% to achieve around 8% by the end of 2025. And we outlined the main focus areas to drive this improvement to 8%. And I think those of you who are following us, you're familiar with the bridge here. We exceeded 8% operating margin in Q3, and Q4 is seasonally somewhat lower margin, but we're on a good track to deliver on this ambition in the second half of this year. And while the impact from M&A activity has been limited in recent years, we have made considerable progress in the other areas. And we're about to finalize the heavy lifting work with active portfolio management and strategic assessments. But this work has been very important to create a sharper and more focused company where all the business that we are running is fully aligned with our strategy. And when you're looking at SCIS, and this is more related to a question we received a couple of times, -- the close down here and the result doesn't really represent a significant part of our overall business. It is only around 1% of the operating result. So while large in volume, very limited in terms of the operating result impact from that close down. And when I look at the strategic assessments, the remaining assessments that we have under consideration now represent approximately 1% of group sales. So we are nearing the completion of an important phase with important work. It has been rigorous and hard work, but it's been important to shape a stronger and a more focused company. And just to repeat the message also from the second quarter, we have received a question on a number of occasions on what basis we consider reaching the 8%. And as communicated earlier, if we reach the 8% operating margin in the second half of this year, excluding the SCIS business that we're closing down, we will have achieved the ambition. And delivering on this ambition is an important milestone since it represents a historical shift in the profitability profile of Securitas. But having said that, it's just a milestone on a longer journey. And talking about that journey, we have come a long way in shaping the new Securitas to be a sharper and a much stronger company. And when you take a little bit of a longer-term perspective, we are operating in a market with good growth, which is spurred by increasing threat levels, increased demand for digital and technology solutions and where we are uniquely positioned with the investments we have done in the last 5 to 6 years. And we have intentionally transformed and repositioned our portfolio to the parts of the market where there is good underlying growth and the real security needs are more important than the price per hour. And we partner with our clients for the long term, investing into the relationship, and we are building the best security solutions based on the client needs, leveraging technology, digital people and more and more real-time insights. And all of this has also led to much more profitable Securitas today compared to the 5% company we were for many years. Today, we're executing on our plan to get to 8%, as stated in the second half of this year. And we have also been able to lift the margin for 19 consecutive quarters and at the same time, deliver strong EPS growth to our shareholders. And in the increasingly complex and volatile macro environment, we're also a resilient business with the majority of our revenue is recurring and with an excellent client retention of 90%. And all of this has also been elevated or translated into higher cash flows where we are now delivering cash flow above our financial targets, and this has also contributed to an accelerated deleveraging after the STANLEY acquisition. So we're now in a position that is much, much stronger, and we can continue to invest into the growth of our business. So as we're finalizing the strategic phase, we're a much stronger company, very well positioned in an attractive market to increase our focus on profitable growth. And as more and more units reach the required profitability levels, so that means for good sustainable business, they also gained the right to shift focus on driving profitable growth. And looking at the longer term, we will continue to improve the margin as we are building scalable solutions to our clients. So we stay focused, confident and also very excited about our longer-term opportunities, and we're looking forward to sharing more in the Capital Markets Day in June. So with those perspectives, we can conclude this Q3 presentation. We're executing according to our plans, deliver strong margin with 8.1% in the quarter, EPS improvement of 19%. So with that, let us open up the Q&A session. Operator: [Operator Instructions] The next question comes from Raymond Ke from Nordea. Raymond Ke: A couple of questions from me. First one on Technology & Solutions or T&S, you had 4% in real sales growth this quarter. And on paper, the target the Board stated out for Securitas to achieve a growth within T&S of 8% to 10% sounds like it's congruent with its target of achieving 8% in EBITDA margin with the T&S having higher margins. But the outcome since your CMD seems to show that you've been forced to prioritize portfolio management at the expense of growth within T&S, at least short term. Is that a fair description, would you say? And your position now at sort of 8%, would that allow you to shift your focus more towards T&S growth? Magnus Ahlqvist: Thanks, Raymond. Well, we -- just to put some context on the Technology & Solutions growth, this is obviously a long-term target. I believe that we are very well positioned. We've spent a couple of years doing very diligent and robust work in terms of the integration. When you're looking forward, we feel confident that we're going to be able to drive the growth here at a really healthy pace. Where are we right now on that? Well, we're mostly, as we've communicated before, done with the integration work. What we are doing now based on the strength in the offering is that we're investing more in commercial capability based on the strong offering that we have. And we're also fine-tuning in a number of parts of the organization. And some of that fine-tuning is related to how we become better at cross-selling, how we start to become better at actually leveraging the combined client base. We're also aligning incentives. I should also say that it's a little bit of a mixed picture when you look at the growth rate in technology, if you look at the growth rate in solutions. Solutions, we've had really strong traction in North -- sorry, in Ibero-America, good traction in Europe. But in North America, as I've explained in the last couple of quarters, we also under new leadership, did a little bit of a reboot in terms of the organization setup. And it was the right time to do that because historically, when we didn't have strong technology capability, we're also working with other companies to help us with the technology part of the solution. Today, our own technology team is the main partner and provider. And that enables us to build a much more efficient and also much more scalable platform for the longer term. And there, why growth has been flat now in the last couple of quarters in North America, I expect that now based on the actions that we've initiated to really improve in terms of the growth. So I believe that we are in a good phase and also in really, really good shape to drive this one, but also some fine-tuning and optimization is needed and also some of the commercial investments. Andreas Lindback: In relation to the 8% target, we should say that in 2023 and 2024, we had stronger Technology & Solutions growth that have supported us on our journey to 8%. And although it is 4% now in the quarter, we still have a positive mix effect compared to the Guarding business and how that is growing as well. But one final lens on it. When we said 8% to 10%, that also included one part of M&A activities where we have said that we have done less as well. So that is one of the reasons then why we are not coming all the way up to the 8% to 10% target because it's mainly within Technology & Solutions which our M&A activities would be geared against. Raymond Ke: Right. That's very helpful. And then maybe sort of a follow-up, if you could maybe provide a bit more color with regards to how you intend to accelerate T&S growth, mainly to help us analysts better understand the pace of growth acceleration that we should be expecting across your segments going forward? Magnus Ahlqvist: Yes. So if you look at that, it is very much related to what I mentioned. So strengthening and investing a bit more in the commercial capability. We have really strong offering. I've recently also been with a number of our clients in the U.S. a couple of weeks ago. Feedback is strong. partnerships are strong and our clients and also new clients are also looking at Securitas as the main partner. So we are well positioned. And I think that is the key point. So our offering is strong, but I think that we will benefit from also investing a little bit more in the commercial resources and capability as we go forward. And then as I mentioned, we're also working in a much more diligent and intentional way now in terms of how we are leveraging existing client base for cross-selling. These are things that also relate a little bit to the work that we've done in the last couple of years to also have the right types of tools and digital platforms to enable that together with incentives as well to be able to drive it at scale. So I feel that we are in a good position here to drive this at a healthy clip going forward. Raymond Ke: Just one final, maybe sort of a detail on this, but could you elaborate on -- you mentioned the positive one-offs that boosted the margins in Ibero-America. Maybe I missed that, but how big were they? And how should we think about them going forward? Andreas Lindback: This is related to some reduced provisions related to legal cases. So there was a positive impact to the operating margin in the Ibero division. Normally, we mentioned something when it impacts at least 0.1% margin-wise in Ibero in the segment Ibero. In this case, it was a bit more than 0.1%. But just to help out there. But then important to say as well that the majority of the margin improvement in Ibero-America was driven by operational improvements, not this one-off related items. And on a total group level, it doesn't have any material impact whatsoever. Operator: The next question comes from Daniel Johansson from SEB. Unknown Analyst: I am [ Andreas ]. I'll limit myself to 2 questions here, I think. Maybe starting a bit on the cash flow. You had another quarter here with a very strong cash flow, and you're in a very good position from a balance sheet perspective. And all else equal, you probably deleveraging further here going into Q4. So I'm wondering a little bit on how you think about capital allocation here for the coming quarters and year. I mean you have a target of 3x net debt to EBITDA. There's a wide margin to that target already. You're through a quite heavy investment period. You're planning to amortize debt. So do you have enough interesting M&A in the pipeline that you would like to pursue? Or is there an opportunity for higher shareholder remuneration through extra dividends or share buybacks? Yes, if you can help me a little bit to understand on how you think about the balance sheet from here. Andreas Lindback: Thank you. When it comes to capital allocation priorities, number one, as you say as well, is to below 3%, which we are with good headroom as well when it comes to our leverage point. Priority #2, invest to drive the growth in our Solutions business. We have a CapEx guidance of around 2.5% of sales, and that we will continue to do. Priority #3 for us is the dividend to our shareholders, 50% to 60% of net income to be paid out on an annual basis. And then priority thereafter is related to bolt-on M&A activities. And here, as you rightfully say, there has not been so much activity. We have opened up for it, but we have also been focused really on driving the organic improvements in the business. We have also been focused on the strategic assessment program. So that is something that we will work on accelerating, although like you say as well, there is not a big, huge pipeline right now today, but that will, over time, start to increase. And then after that, I mean, if we don't find enough acquisitions, so to say, then we will continue to deleverage our balance sheet here. And over time, we can consider any other shareholder returns, but it's not a topic today and in the short term. And then we will have to come back to you on a more longer-term view in our Capital Markets Day here in June. Unknown Analyst: Understood. And then maybe a smaller question on the other segment. If I understand it correctly, SCIS still hampering you on a year-to-year basis. But when I look at the other segment, the loss is only SEK 56 million, so quite in line with last year. Is that due to continued good performance in AMEA and lower group costs or anything more of a one-off nature in there? Or yes, what explains that you don't have a bigger loss given SCIS is still negative, it seems? Andreas Lindback: No big one-offs. You're right. Our business in AMEA -- Africa, Middle East and Asia and the Pacific are performing well, which is supporting other. Group cost is under control. So there is no major changes there. And then we have the residual performance in the SCIS business. Operator: The next question comes from Allen Wells from Jefferies. Allen Wells: A couple from me, please. Just mindful of the kind of portfolio management comments, you said that they will continue in Europe, America into the first half. So is it right to assume that, that kind of very low single-digit growth kind of profile that we've seen for this year in those regions, but at least continues in the first half next year? I'm just keen to understand how you see the potential timing and shape of growth recovery there? And that's the first question. Secondly, just a quantification question on the tax timing comment that you made in terms of the unwind in the fourth quarter. Exactly what does that mean in terms of the impact on cash flow? And as I just think about the 3% organic growth number that you posted in Q3, what is the pricing component of that versus volume, just at an average group level? Just keen to understand where pricing is. Magnus Ahlqvist: Thanks, Allen. So on the active portfolio management, if you're looking at the current trading, it's a several percent type of impact that we're seeing on the numbers that we're reporting in the last couple of quarters. So that's the reason we highlight that there is a significant impact. We don't provide guidance, but we continue to work as we've done before. It's obviously to take care of our clients in a good way, do this in an orderly fashion. But I also call it out because it is important that we also complete that work and get that work behind us because the sooner that we do that, we can also start to focus more on profitable growth again. So that's really the perspective. But we don't provide any guidance. But I think going back a number of years, a lot of people were wondering, okay, does this mean that you're going to shrink significantly in business, et cetera? Well, as you know, over many, many years, that hasn't happened because we also have had a healthy intake in terms of new business. So we're on the right path, but we also need to finish that job, very important in Europe and Ibero-America. Then if you compare a little bit to North America, you also see the benefit there. We were done with this work earlier in North America, and they're obviously also back to much healthier growth levels, and that really contributes. So this is all part of the plan, but good thing now is that we're now kind of nearing completion of that work in the next couple of quarters. Andreas Lindback: When it comes to the 3% growth, the majority of that is price. And where we do have volume increases is in our North American business, where we have seen a good portfolio development. And it's also a very good place to have a good growth given the margin profile that we are having in our North American business. They have been through the [ APM ] program, as Magnus has just talked about. And now we are turning that business more and more into growth focus. So it's really good to see the growth numbers and the volume development in the North American business. But all in all, on the group level, most of the 3% is price. When it comes to the cash question related to tax, we have had some positive timing impacts both in Q2 and Q3 in the U.S., and we expect that to reverse in Q4. And we have talked about USD 30 million, USD 40 million of negative impact in Q4 on the cash flow related to that. Allen Wells: Can I maybe just one quick additional follow-up. Just mindful of U.S. government shutdown at the moment. Is there any impact in your business there? I guess most of it might be in SCIS, which is closing down. But I'm just wondering if there's any impact over the last month or so in terms of Securitas there. Magnus Ahlqvist: No, there is no significant impact. Operator: The next question comes from Viktor Lindeberg from DNB Carnegie. Viktor Lindeberg: Only one question from my side. Looking at the business you've reshaped now quite impressively in the past 3 years in my book at least. And looking now forward in the market, if you could help us pin down the, let's say, tendering activity that you see. How is the market in light of all the uncertainty we see with the headlines every now and then and tweets and so forth. So curious to understand the overall market tendering activity and where you see yourself in light of your profitability journey now when it comes to maybe win ratios that you have seen or foresee going forward to not only defend the 8% margin, but in light of being able to propel further upwards? Magnus Ahlqvist: Thanks, Viktor. I think this is a part that we are very excited about, and I appreciate your comment. It's been quite heavy lifting within the business over the last 4, 5 years in terms of shaping the company into the profile that we now start to become. Very intentional work. We followed by the book, most of the things that we set out to do internally 5, 6 years ago and executed on those. So I think that we are -- as a company, we're in a much stronger position. And when I look at the market, we're also -- I mean, we're operating in large, growing, attractive markets. So we're in a very good position also to tap into that and to leverage that with the strength of the offering that we have. The kind of uncertainty that we're seeing around the world, and this is obviously related to geopolitical uncertainty. It's also related to increasing crime and risk levels. My clear takeaway from a number of the client discussions, and I mean we are serving many of the most reputable companies in the world. They are looking in light of that for a strong partner, a really, really trustworthy and reliable partner that has strong capabilities. And those capabilities to us are very much focused on technology, digital and our services capabilities that we have in our portfolio. So I think that we are really well placed in that, and there is also a healthy market. An important shift that we have been able to achieve in the last 5, 6 years is that we have been much more granular and also much firmer in terms of what are the profitability levels that we need for the business to be sustainable. And I think that has been as the market leader in our industry, that has been really, really important work for us to carry out. But then when you're looking at the market because that's obviously more on a macro level, we also then have a strong position. We know the market is growing, but we're also in the last 4, 5 years, also focusing in on the segments where we see that there is a very clear security need. There is a focus on quality. And some of those that -- where we're also enjoying very, very good growth today. Examples are in technology segments. It's in the data center segments, pharmaceuticals, defense, just to mention a few. And what I'm seeing here is that the positions that we have built a few years ago we just continue to expand and grow those ones. And that gives me a lot of confidence that we are really in a much better position today, much more intentional and in a good position as well to now after we get a lot of the heavy kind of lifting work behind us to also optimize a little bit more in terms of continuous margin improvement, but also then really doubling down on more profitable growth because we have a strong offering and we want to grow, but we need to get some of that work done. But the good thing now is that now it's not 4 or 5 years out. It's a couple of quarters out. And I think that is the exciting position that we are in right now. So I believe we're in a good position, Viktor, and also a good market. Viktor Lindeberg: And by your comment, it does not really sound that clients are waiting to make decisions. It seems the market is progressing as it usually does. No incremental hesitation. Is that a fair assumption? Magnus Ahlqvist: I think so. This is a fairly slow moving and fairly conservative industry from my perspective. But it's also based on security is so important that most of our clients, they are also very deliberate in terms, okay, what are the things that we need in our security solutions and who is the partner going to be. And for that reason, some of the selling cycles are a bit longer, but the way that we build our business is very much focused on long-term value creation. So once we are in a relationship with a client, we usually develop that continuously and over time, and that is a real position of strength for us. But I wouldn't say that there is a hesitancy in that sense. It's rather the question, how can you help us and really leverage technology and digital capabilities that we have and that are also out there in the market to be able to run a more effective and more efficient security program. And there, I feel that the kind of the increasing complexity from that perspective it is clearly in our favor because then most customers also realize that it doesn't make any sense for them to invest in all of that capability. It requires real deep know-how that we have in our technology business that we're building digital capabilities and also much stronger guarding capabilities. So it's matching in a really good way. And that's the reason I'm saying I think we're in a really good position when I look at the next 5 to 10 years after a period of really reshaping the company. Operator: [Operator Instructions] The next question comes from Simon Jönsson from ABG Sundal Collier. Simon Jönsson: I just have a follow-up question on the M&A in Technology & Solutions specifically, of course. Just wondering where you think or where you see that the market is currently in terms of multiples paid for acquisitions of the kind of assets that you are looking for ballpark figures would be fine. Andreas Lindback: Thank you. Given that we have not been so active in the market, I would not really comment upon that today, to be honest, as well. That's something I need to come back to. But the things that we have done have been more or less on the same levels as -- I mean, same levels as we have done bolt-ons before. I think we should take out the STANLEY transaction that was one big transaction, generally speaking, where we have said that we paid a premium to get that down. So the multiples in the technology market is lower than that for sure. But I haven't seen any trend of reduced multiples later over the last years. So normally, in the technology space, you would pay double-digit multiples -- low double-digit multiples. And then it all depends on what kind of cost synergies that we have and, of course, revenue synergies as well. So those are the comments I would like to give at this point in time, Simon. Operator: There are no more questions at this time. So I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments. Magnus Ahlqvist: Very good. Thanks a lot, everyone, for joining us today. We continue on a good path as stated and excited about the next phase in our journey. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Veolia 9 Months Key Figures Conference Call and Webcast with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO. [Operator Instructions] This call is being recorded today, November 6, 2025. I would now like to turn the conference over to Estelle Brachlianoff. Please go ahead. Estelle Brachlianoff: Good morning, everyone, and thank you for joining us for this conference call to present Veolia's 9 months key figures, and I'm accompanied by Emmanuelle Menning, our CFO. I'm on Slide 4 for all the key takeaways. Our 9-month results are once again very good with strong underlying business trends and a favorable momentum going into the end of the year. Our 9 months performance in EBITDA terms was particularly strong internationally, where the group generates 80% of its revenue as well as for our Boosters, as I will explain in a few minutes. In a rather challenging environment, this sustained performance quarter-after-quarter is really a testimony to the choices we've made in GreenUp as well as the strength of our business model of resilience and growth. Veolia can rely on a successful combination of Stronghold and Booster activities added to a diversified portfolio, both by geography and customer as well as a continued attention to performance. Moreover, we're constantly looking to create value by pruning our portfolio and have completed EUR 2.3 billion of M&A since the beginning of the year in our Boosters, Water Technology and Hazardous Waste in particular, and outside Europe, following, as you know, the disposal of nonstrategic assets last year. I can, therefore, fully and strongly confirm our guidance for the year, and we should have a very strong Q4. I'm now on Page 5, where you see that our 9-month key figures are once again very strong. Revenue reached EUR 32 billion, up plus 3.2% excluding energy prices, which are essentially pass-through for us, as you know. EBITDA increased by a substantial plus 5.4% on a like-for-like basis, fully in line with our 5% to 6% guidance and shows a margin improvement of 50 basis points. This is thanks to our strong international performance as well as our recurring efficiency gains complemented by the last synergies coming from the Suez acquisition more than 3 years ago. Current EBIT was up plus 7.9%, demonstrating strong operating leverage. Net financial debt remains well under control at EUR 19.9 billion, even after EUR 2.3 billion of net financial acquisition closed in the 9 months. We are perfectly on our trajectory to less than 3x at year-end with the usual seasonality. Our solid 9-month performance and expectations for Q4 enables us to fully confirm our guidance. In this uncertain time, Veolia's results are sustainably progressing quarter-after-quarter as we have demonstrated over the last few years. And why is that so? I would like to highlight key features on Slide 6. And I will insist on our international exposure with 80% of our revenues growing faster than the rest of the group and with very good EBITDA performance as well. Even in France, which accounts for 20% only, our results are not sensitive to the political context. And this is structural as we hold no national contracts and no public money is involved. Moreover, ForEx does not impact our businesses or margin as we just saw in the last 9 months with plus 50 basis point margin. We do not have ForEx transaction exposure, only translation. In a way, no business impact. We are a multi-local group with very limited international trade. On Page 7, you see in figures our performance outside Europe, which really stands out and explains a great deal of our resilience and growth in the last 9 months. Indeed, our Rest of the world businesses are more profitable with an EBITDA margin already at 17% versus 15% on average for the group, and they are faster growing. In growth term, you can see the detailed performance in the 9 months, which has been enhanced in Q3 compared to the first half, plus 6.2% in North America, fueled by an accelerated growth of Hazardous Waste, plus 9%. In Africa and Middle East, plus 10.5%; in Latin America, plus 9.4% and plus 5% in Asia. As you know, our value creation and EPS growth come from 3 pillars: top line growth, performance and capital allocation. And I'm going to go through them one by one as always, to illustrate how they have each contributed to our performance in the 9 months, starting with growth of our Stronghold activities on Slide 8. We've registered a very solid revenue growth of our Strongholds. Let's start with Water operations. Revenue increased by plus 3.9%. We continue to benefit from good indexations and have achieved successful tariff renegotiation in Spain as well as rate cases approvals in our U.S. regulated operations, which protects our future earnings. We just opened our first upgrade control center in North America to foster operational excellence and leveraging data. Solid Waste revenue grew by plus 0.9% or 1.5% excluding energy prices despite sluggish macro. As we have detailed in our deep dive last June, we managed to largely disconnect our waste activities for macro, thanks to a varied portfolio of customers, good pricing and quality of service, and we favor bottom line over revenue as well. Revenue from District Heating Networks increased by plus 2.7%, excluding energy price, thanks to sustained heat tariff as well as some network expansion and a favorable weather impact in H1. Q3 is not a very significant quarter for this activity. On Slide 9, one good example of the dynamism for Water operation in Q3 is certainly the signing of its first hybrid municipal and industrial desalination in Chile in Valparaíso. As you know from our Oman event on desalination a few months ago, Veolia is the world leader in desalination technologies with 18% of the world's desalination facilities having been designed and built with Veolia, and we have big ambitions. I'm very proud of this win in Valparaíso after a very intensive competitive process as we will be able to provide the highest technical, environmental and social standards to Aguas Pacifico. Let's move to our Boosters performance on Slide 10, which have performed well. The EBITDA performance is even remarkable, confirming my choices in GreenUp. Water Technology to start with, as you know, is a mix of various business models as we detailed in our deep dive last year. As you may remember, 70% of our Water Tech activities are deemed recurring, corresponding to products, mobile units or chemicals. And I'm very happy to see this base having achieved a very good Q3 with 6.8% growth and 4.8% since the beginning of the year, testimony to our technologies and commercial power. On the other hand, projects were impacted in the quarter by the timing milestone delivery and a strong comparison base last year. Quarters are always very different in this activity, and I expect a normalized Q4. Overall, and combining those different business lines, Water Tech has been up only 2%, but EBITDA progressed with 10% organically, which is excellent. Hazardous Waste revenue increased by plus 5.5%, including tuck-ins and 4.4% organically. I would like to highlight, in particular, the very strong growth in the U.S., up plus 9% year-to-date and despite planned shutdown of [indiscernible] early in the year. We have started our new operation in Saudi in the Dubai complex, and only China is lagging behind in terms of price, but we start to see some rebound in volumes. In terms of EBITDA, 9 months performance was excellent with above 10% organic growth. In Bioenergy, revenue was up plus 21.3% excluding energy price and including our new targeted acquisition. If I go to organic growth, it was still plus 8.2%, which is very good. Some illustration of the high-tech part of Veolia on Slide 11. You can see on this slide 2 good examples of the dynamism for our Boosters in Q3. First, in Water Tech, after years in the making and technical design, we were awarded a $500 million project in Saudi Arabia for the Saudi Aramco Total Energy Consortium called SATORP. We will design, build and operate a new massive plant. We're talking 8.10 million cubic meters per annum, treating the super complex affluent of this petrochemical complex. We combine here our unique set of Water Technologies and Hazardous Waste know-how, not only to offer a solution to remove pollutants, but also to recycle water in this arid region. I'm also very proud to have signed a partnership with TotalEnergies to combine our expertise and technologies to develop innovative solutions for industries, methane measure and capture, low-carbon energy for desalination facilities, strategic metal recovery from waste, et cetera. Now let's dive into our second lever of value creation after growth, which is performance and efficiency. I'm now on Slide 13, which shows our 9 months performance. In terms of our yearly efficiency plan, we achieved EUR 295 million in gains, in line with our annual target of EUR 350 million. As you know, this is a recurring lever embedded in our operations and therefore, one we can count on for years to come, not to say forever. Efficiency gains of Veolia are not discretionary cost-cutting programs, of which you could question the continuity, but they come rather from a very diversified series of initiatives in our thousands of plant, which explains the recurring element of it. Worth noting, we have already registered EUR 5 million of additional synergies coming from the combination of our 2 business units in Water Technologies after the CDPQ minority buyout closed on June 30. In terms of cost synergies derived from the Suez merger, we have achieved EUR 73 million in 9 months for a cumulative total of EUR 508 million since day 1. This is in line with our objective of EUR 530 million by year-end, which, as you know, we've raised a year ago. I'm now on Slide 14, which details the third pillar of value creation, capital allocation and portfolio pruning. You will see a powerful 9 months in that respect with EUR 2.3 billion of acquisition completed almost entirely in Water Tech and Hazardous Waste and outside Europe. This is fully consistent with our GreenUp priorities. I must say the year-to-date enhanced growth outside Europe and plus 10% EBITDA increase in those 2 Boosters confirm that these are good investments to sustain future earnings growth. Detailing those investments first in Water Technologies with CDPQ's 30% stake for EUR 1.5 billion, which you know is an operation which will be accretive and ROCE enhancing, thanks to EUR 90 million cost synergy by 2027. In Hazardous Waste, we've signed 6 bolt-on acquisitions for a combined EV of EUR 400 million and good multiples, notably in the U.S. and Japan. Of course, we maintain our strict balance sheet discipline and our leverage will remain below 3x at year-end, allowing the group to retain strategic flexibility. Our strong 9-month results, of course, allow me to fully confirm our guidance for 2025, which is reminded on Slide 14. I wish to invite you as well to join us in Poland later in the month, where it will give some color about our district heating and decarbonizing energy activities. Finally, and as a conclusion, I wanted to remind you of our long-term guidance, fueled by our 3 levers of value creation and GreenUp priorities. It includes current net income growth of 10% per year on average over the period with dividend growing in line with current EPS and ROCE above 9% in 2027. As you remember from our yearly presentation, we decided to launch a share buyback plan from '25 to '27, size to neutralize the impact of the employee shareholding program. So that going forward, current EPS will grow in line with current net income growth. I now hand over to Emmanuelle, who will detail our 9 months key figures. Emmanuelle, the floor is yours. Emmanuelle Menning: Thank you, Estelle, and good morning, everyone. Veolia's results at the end of September are very solid with strong underlying business trends and a very favorable momentum, which I would like to detail. Indeed, if we look at our EBITDA performance, we see tailwinds. First, in our international operations, notably outside Europe, where the group generates 80% of its revenue with circa double-digit EBITDA growth and second, for our Boosters with EBITDA increased by more than 10% in the 9 months. In Q4, we expect this trend to continue, and we also expect improved performance in France as we will reap the benefits of our action plan, notably in French waste. Nine months results are fully in line with our annual guidance and are also a testimony to the strength of our business model of resilience and growth with a successful combination of Stronghold and Booster activities and a diversified international portfolio. With EUR 32 billion in revenue, we experienced a solid growth of 3.2%. The operating leverage as the good delivery of efficiencies and synergies were excellent. A solid organic EBITDA growth of 5.4% at EUR 5,080 million and a current EBIT growth of 7.9%. Net financial debt reached EUR 19.9 billion at the end of September, up from December '24 due to the seasonality of working capital variation and M&A activity, down compared to the end of June '25 due to the temporary favorable impact of the hybrid bond debt issuance of EUR 850 million, which will be reversed at the end of the year. We expect the leverage ratio to be below 3x at year-end after full seasonal working capital reversal in Q4. You can also see on the slide the detailed ForEx impact, which increased in Q3 due to the weakening of the U.S. and Australian dollars as well as the Argentinian and Chilean pesos. A few things are important regarding the ForEx impact for Veolia. First, our revenue is only about 40% generated in euro. But as a multi-local group with very limited international trade, ForEx does not impact our businesses or margin. Our revenues and costs are always in the same currencies in each of our countries. The increase in currency impact in '25 reflects the improved performance of our international activities. Our guidance at EBITDA level is at constant scope and ForEx. Finally, as you saw in previous year, the ForEx impact at EBITDA level is very much offset down the line to current net income. ForEx impact was minus EUR 68 million at EBITDA level and minus EUR 44 million at current EBIT level at the end of September. Using the ForEx exchange rate at the end of September '25, the full year impact at EBITDA would be around EUR 130 million minus, but it varies every day. Our full year guidance, which is at constant scope and ForEx is fully confirmed at EBITDA and current net income level. Moving to Slide 18, you can see the revenue evolution by geography. The main feature in Q3 was the enhancement of our growth outside Europe. I will detail it in a few minutes. I will start with Water Technologies. As Estelle recalls, 70% of our Water Tech activities are recurring corresponding to products, mobile units and chemicals. While 30% is volatile, these are the projects. In Q3, project revenue was impacted by the timing milestone delivery and a strong comparison base last year, while the 3 other business lines grew double digit. Excluding project, Q3 Water Tech revenue was up 6.8% in Q3 and 4.8% in the 9 months. This was reflected in the EBITDA level. Water Technology EBITDA increased by 10% in the 9 months, benefiting also from the efficiency and synergy delivery. As Estelle mentioned, we have already generated EUR 5 million of additional synergies coming from the buyout of WTS minority interest in Q2. Rest of the world performed very well in Q3. With revenue growth accelerating from 3.7% in H1 to plus 6.6% in Q3, driven by all geographies. Europe grew by 4.1% in the 9 months, fueled by resilient waste activity, a solid Q3 in water operation and excellent performance in Southern Europe, notably in Spain, up by 7%. Finally, France and Hazardous Waste Europe benefited from good hazardous waste performance, partially offset by low growth in solid waste and good water activity. Now let's take a look at our performance by business. Let's start with Water, representing 40% of our revenues and 50% of the group EBITDA. Water revenue was up 3.4%, fueled by the strong water operation, up 3.9%, while Water Technology was up by 2%. Water Operations benefited from good indexation with continued price increases in Europe and in the U.S., while indexation was back to 0 in France due to lower electricity prices. Volumes were on a very good trend, up close to 3% in Europe. As I just explained, the underlying growth of Water Technology, excluding the timing project delivery remained quite strong. Moving to Waste, representing 35% of our revenues. Waste activities grew by 1.8%, a steady pace despite an [ helpful ] margin. Waste growth was very comparable in Q3 to previous quarters. Starting with solid waste. It's a very local, systematically adapted to the reality of the geography with a well-balanced customer portfolio across countries, and it has been demonstrating its resilience through the quarters. In terms of volumes and commercial developments, performance was mixed, resilient volumes in the U.K. and in Germany. U.K. incineration activity was impacted by planned outages, but still down in France, although better in Q3. Activity continued to progress in the Rest of the world, notably in Latin America and in Hong Kong. Hazardous Waste grew by plus 4.4% in the 9 months, plus 5.5%, including tuck-ins, thanks to continued good pricing and plant performance with EBITDA up by more than 10% year-to-date, which is outstanding. Growth accelerated in the U.S., plus 9% in Q3, fueled by excellent incineration volumes and pricing, a slower quarter in Europe due to facility outages and lower recycled oil prices. Finally, moving on to energy, and I am on Slide 21. As you know, energy revenue is sensitive to energy prices, which were down as expected again in '25, but to a lesser extent than last year. The prices were on average almost stable compared to last year and electricity prices were down as expected. Excluding the energy price impact, growth was quite good, plus 4.5%, thanks to good volumes, helped by a colder winter and fueled by a strong activity in the booster energy efficiency and flexibility, up 8.3% with strong momentum in Belgium, Southern Europe and in the Middle East. The revenue bridge on Slide 22 explains the driver of our growth in the 9 months. Scope was negative at the end of September and reached minus EUR 327 million, mainly due to the impact of last year disposal, but as expected, was neutral in Q3. The impact will turn positive in Q4 as 2024 divestiture were all closed in Q3 last year. Negative ForEx impact increased in Q3, as I mentioned earlier. The impact of energy prices was as expected, divided by 2 compared to last year at minus EUR 501 million. Recycled prices were neutral. The weather effect amounts to plus EUR 169 million due to a colder winter at the beginning of the year in Europe. The contribution of commerce and volumes were comparable to last year, plus 1.3%, driven by sales momentum and resilient volumes. Finally, price effects were as expected, lower than in 2024 due to lower inflation and contributes plus 1.4% to top line growth. On Page 23, you have the EBITDA bridge detailing our organic growth of 5.4%, in line with the annual guidance between 5% and 6%. Scope was negative at the end of September and reached minus EUR 56 million. Negative ForEx impact increased in Q3 versus Q2, as mentioned earlier. The impact of energy was minus EUR 39 million, less than last year as expected, while recycled prices were slightly up plus EUR 13 million unchanged in Q3. The commerce/volumes/works effect was positive at plus EUR 77 million, in line with revenue impact. Pricing and efficiency gains of EUR 295 million generated plus 2.3% in additional EBITDA, hence, a very good retention rate of 38%. Worth noting, we have already registered in Q3 EUR 5 million of additional synergies coming from the combination of our 2 business units in Water Technology after the CDPQ minority buyout close on June 30. The synergies amount to EUR 73 million, notably in the Water Technology activities in the U.S. and in Hazardous Waste, leading to a cumulated amount of EUR 508 million, perfectly in line with our cumulated objective of EUR 530 million. The symbolic threshold of EUR 500 million has been exceeded. Going down to current EBIT, this slide illustrates perfectly the operating leverage of our business model, 3.2% revenue growth, 5.4% EBITDA growth and 7.9% EBIT increase. Current EBIT grew to EUR 2.7 billion at a faster pace than EBITDA. Renewal expenses of EUR 231 million were comparable to '24. Amortization and OFA were slightly lower than last year due to perimeter and slightly up at constant scope and ForEx. Industrial capital gains, provision and other were down due to the high provision reversal in '24 with the ending of operational risk. Joint ventures are slightly decreasing. Before concluding, I remind you on this slide of our share buyback program, which has been launched to offset the dilution of the employee shareholding program. Our strong 9 months results allow me to fully confirm our guidance for 2025, continued solid organic growth of revenue, excluding energy prices. For EBITDA, organic growth between 5% and 6% more than EUR 350 million of efficiency gains, more than EUR 530 million of cumulated synergy at the end of 2025, current net income up 9% at constant ForEx, leverage ratio below 3x. And as usual, our dividend will grow in line with our EPS. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. And now we are ready to answer your questions. Operator: [Operator Instructions] And your first question comes from the line with Bartek Kubicki with Bernstein. Bartlomiej Kubicki: If I may ask maybe 3 very short questions. First of all, on your FX, you gave a little bit of a guidance, what could be the FX impact on EBITDA in 2025, assuming the currency rates stay where they were at the 30th of September. I just wonder what would be the impact on net income? Because in FY '24 in the first half, the impact on net income was 0. But in the past, it used to be negative, when the impact on EBITDA was negative. So I wonder what is your view on this one at the end of FY '25? Second of all, if we -- about your share buybacks, I think there was a proposal to increase a taxation on share buybacks in France, an idea. And I wonder if this was applying to share buybacks on employee shares. What would you do if you had to pay additional taxes on share buybacks in France? Just a hypothetical example. And the last point would be on your Hazardous Waste margins because I guess, with 4.4% revenues increase and 10% EBITDA increase, we are looking at margin expansion. I just wonder whether this is a structural trend and you will see a margin expansion going forward from today's levels? Or do you think you have already reached levels which you find optimal in terms of EBITDA margins in Hazardous Waste? Estelle Brachlianoff: Thank you for your 3 questions. I will start and Emmanuelle will be able to comment further, of course. Regarding guidance on ForEx, on net result, just a few elements on that. First, I can fully confirm our guidance for the year, so which means 5% to 6% EBITDA at constant ForEx. And it's fair to say you've understood from the tone of this presentation this morning that I expect to be on the upper range of this range. Two, I can fully confirm as well the net result, which is 9% growth this year. I think this is a super important element. And as you know, I just wanted to highlight a few things on ForEx. ForEx for us is very different from in many different companies, I guess, because in a way, it has no impact on our business neither positive nor negative in a way. That's exactly why we guide at constant ForEx. It's because it's exactly what we have a look at. It's the direct consequence, of course, of our being super international with 80% of international business, plus it has no impact on margin as we've demonstrated in the 9 months with a plus 50 basis points. As Emmanuelle said, we are a multi-local company. So we have no transaction impact of ForEx. It's really like we are paid in dollars, we pay our cost in dollars and same applies to euros and so on and so forth. Just want to highlight that before Emmanuelle comments on the specifics of your question. Emmanuelle Menning: Yes, you're absolutely right, Estelle. Regarding ForEx, it's the direct translation of our being 80% international and 40% outside Europe, which is growing faster. I will not come back on the fact that we are only translation impact and no transaction impact. We expect, as I mentioned, the impact at the end of 2025 at EBIT level to be around EUR 130 million -- EBITDA, taking into account the 9 months results and the closing rate at the end of September. Estelle Brachlianoff: Although it's fair to say it varies every day, as we've seen with the political situation in the U.S. meant suddenly, the dollars went up again. So I'm not so sure we expect if we were to do that calculation with the same range as end of September, which would be now the fair comment, right? Emmanuelle Menning: Absolutely. And we haven't changed our range. You know that ForEx impact at current net income level is largely attenuated. Usually, EUR 100 million at EBITDA level translates into EUR 20 million at C&I level. Estelle Brachlianoff: Your second question on share buyback, even in the -- I mean, as you have said and implied, the fiscal debate is not over yet in France like far from. Even if we were in the -- what was imagined in the last few weeks were to be voted, which is, I must say, unlikely for the majority of it, but nevertheless, even if the share buyback that we have launched would not be concerned. Actually, there is an exception in this fiscal turmoil, which is share buyback associated with employee shareholders. So we would not be impacted in any way, shape or form even if that were to be voted. And just to rehighlight that French political situation does not have any impact on our results at Veolia, not only because we're only 20% in France, but even in France, we are very local as opposed to national. We don't have national contracts. We don't have like debt -- public debt is not involved. We are really multi-local as well. Just want to highlight that again. In terms of your third question on Hazardous Waste, the margin expansion is structural. And we've highlighted that in the deep dive we've done last June. I think it was with a big ambition, in Hazardous Waste to raise the margin, the EBIT and the ROCE by plus 50% by the end of the plan, thanks to the progressive opening of the various facilities we have. We are on the way of building, which are good profitable margins apart from the ramping up of those, which could be temporary for a few months, just like not fully yet delivering the full speed. Yes, I don't expect any specific thing. It's really structural. It's a mix of like availability of our plants, plus pricing, good pricing plus good volume and increase in the industrial base in some key sectors such as micro e. This is what is structurally behind this increase in margin. Just to give you a specific figure, which was highlighted by Emmanuelle, but I want to emphasize again on. In the U.S.A. alone in Hazardous Waste, we've grown our revenue plus, plus 9% in Q3, which is even at a higher rate than the first half. So it's really sustained we don't see anything but a sustained, if not even better Q3 than the first half. So that's why I'm very confident for a very good Q4 for Veolia and a very good year. That's why I mentioned the upper end for EBITDA at constant ForEx. Operator: And your next question comes from the line of Arthur Sitbon with Bernstein (sic) [ Morgan Stanley ]. Arthur Sitbon: Can you hear me? Estelle Brachlianoff: Yes. Arthur Sitbon: It's Arthur Sitbon from Morgan Stanley. So the first one is actually on your EBIT. I've noticed that your industrial capital gains, I mean, the line of capital gains net of impairments, et cetera, is significantly lower than last year, which I suspect suggests the quality of your EBIT -- the underlying quality of your earnings in 9 months is relatively good. I was wondering, is it just a timing effect and we're going to end the year with a similar level of capital gains than last year? Or should we expect basically you to deliver on your net income guidance with a bit less gains than last year, which could be a message on the underlying quality of earnings? That's the first question. The second question, you talked already a little bit about taxes in France. I -- and as you mentioned, we don't know what will be implemented at the end of the day. But I just wanted you, if possible, to give us some information on that potential tax that would change the way -- essentially, that amendment that would change the way the corporate tax is calculated in France and will align it on your share of revenues generated in France, not PBT. I was wondering if there is a significant discrepancy between your exposure at revenue level and PBT level in France? And if you could help us understand a bit that. Estelle Brachlianoff: So capital gains and the quality of earnings, Emmanuelle. Emmanuelle Menning: Yes. Thank you, Arthur, for your comments on the quality of results, which is really good at the end of the 9 months and that we are confirming. And to be short on your question, we confirm that at the end of the year, the amount will be decreasing compared to last year, confirming the quality of our results. In terms of your second question on tax in France, the short answer is we don't expect any negative impact nor positive on the potential corporate tax that you mentioned because there is an addendum, which makes it that we would not be concerned. And we could go through the list of the various tax which we imagine in France. And for some, the answer would be, again, in conditional terms, no impact. For others, it may be EUR 5 million, EUR 10 million max. So we're really talking about things which are absolutely not significant at Veolia's group level. And as I remind you, France is 20% of our revenue, but less of our earnings. So there is no big impact of all this in our group's results. Operator: And the next question comes from the line of Olly Jeffery with Deutsche Bank. Olly Jeffery: So 2 questions for me, more kind of general beyond the results today. So the first one is just on the efficiency program that you guys have and have every year. Is there some part of the efficiency program that happens every year that you might be able to consider to be almost efficiency that could be considered as underlying growth that might be, for example, you're sharing in the benefits of efficiency targets on specific contracts. I know often this is seen a straight out cost cutting, but is there some elements of cost cutting, which actually perhaps people view as that, but you might consider internally as being more genuine growth. I'd just be interested to hear your views on that. And then secondly, there's been discussions from some investors recently about the opportunity you might have with regard to data centers, water cooling, et cetera, in the U.S. Is that something that you see as a potential growth opportunity out this decade? And if so, what are the areas where that you feel that you can operate within that and potentially might be able to see the most growth? Estelle Brachlianoff: Thank you. Do you want to take the first question, Emmanuelle, on efficiency? Emmanuelle Menning: With pleasure. So regarding efficiency program, you're absolutely right, Olly. It's fueling our underlying growth, and it will continue to fuel our underlying growth. Very happy about what we have been able to achieve in terms of efficiency for the 9 months. The element which is important also and that you have in mind is that in Q4, it will be also pushed by the results that will come, especially in France as we will reap the benefits of all the measures that we have implemented in the 9 months. So very sustainable trend completely linked with our businesses and which will fuel the underlying growth. Estelle Brachlianoff: So basically, you can count on them forever with Veolia. For the reason I mentioned in my speech, which is it's not a big cost cutting as in one-off laying off people typically. We're talking about thousands of plants, each of them having a constant way of having a look at how they could be more performing and efficient, which is very different. Therefore, you can count on them forever. In terms of data center, you're exactly right. We are building an offer on data center, which I think is very, very promising. We already have quite a few contracts actually across the globe in Europe as well as in the U.S. so far and in Australia as well, it's fair to say. And it's a way to have Veolia combining the data center needs and boom with still the access to resource and sustainable element of it. Meaning what we offer is not only reduce carbon footprint by recouping the heat as well as being even water positive as in replenishing resource. As you know, data centers consume a lot of water to be cooled down. And we have implemented a few offers there with a few customers already, and we aim at doing more of that. So yes, you're right, growth opportunity for Veolia certainly. And I count on it to fuel not only the GreenUp plan, but the next few years with a lot of assets is going to be here, I think, for a very long time. Operator: And the next question comes from the line of Juan Rodriguez with Kepler Cheuvreux. Juan Rodriguez: I have one, if I may. It's kind of a follow-up. If I'm correct, you signaled that you expect to be on the upper part of the guidance for the year. Can you please give us more clarity, as we currently see, you're in the middle part of the range? So you expect probably a strong Q4 with cost efficiencies, volume recovery? Is it both? And can you give us a first look of what has been the operational performance so far in the quarter were already at the beginning of November? Estelle Brachlianoff: Emmanuelle? Emmanuelle Menning: Yes, with pleasure. So as mentioned by Estelle, we expect a very strong Q4 and to be at the upper range. Regarding revenue, we expect -- we have some moving parts regarding, of course, the weather, but we expect a growth which is similar to what we have seen in the 9 months. And regarding EBITDA, it will be, of course, pushed by the generation of synergy from Water Tech, the performance that we will have in France, recovery -- thanks to the action plan which has been launched, which are the 2 main reasons. And as you may have seen, the October in terms of heating generation has been positive. So that's the main reason for us to be very optimistic regarding Q4. Estelle Brachlianoff: And as we -- I will comment on the Q3 was more on the plus side and then minus side in terms of trend compared to H1 as well. Everything we've seen internationally in the U.S. has this way, just to give a few examples, and we have figures in the slides, but Q3 was more on the up than the down compared to H1. So we are into a very good momentum into Q4. Operator: And the next question comes from the line of [ Mark Abe ] with Citi. Unknown Analyst: The first one I've got is on the Water Tech business. I think at the first half, you gave a number of EUR 2 billion of bookings. Can we get an updated figure of backlog at 9 months as of now? And also remind me how that converts -- how that backlog converts into revenue? And if there's any sort of large projects with definitive timing that we can think about? And then just a second one quickly on the recyclate pricing. I think at 9 months, you've seen it relatively flat, slightly positive. We saw in the U.S. Waste Management profit war, they're seeing low lower recyclate pricing. Can you just talk to if there's any kind of read across or impact for Veolia there, please? Estelle Brachlianoff: Okay. So on Water Tech, we always hesitate to give always the backlog because backlog is only on the project bit of our activity, which is roughly 30% of it. And the backlog was not very relevant in Q3, but we expect quite a few bookings in Q4. So we'll give you the over end. So it doesn't translate directly because of the proportion of projects versus more recurring things. So roughly -- and you can have a look at our deep dive on Water Tech, where we explained the full detail of that. Basically, we have 30%, which is project based, which is very linked with backlog, say, and 70%, which is more recurring. We're talking here about products, typically membrane. We're talking about services, mobile unit. We're talking about chemical products as well. And this 70%, which is more relevant to be compared quarter-on-quarter, has grown by 6.8% in Q3, year-to-date, plus 4.8%. So we are very happy about this bit. And you have the ups and downs of the project, which is that plus a very high comparison base of last year. So we expect quite a few bookings in Q4, and it starts well, it's fair to say. In terms of the recyclate pricing, I will have Emmanuelle answering, but no read across from American dry waste company. We are not in dry waste in the U.S. We are not concerned by recycling prices, which is a quite different logic from the European one, it's fair to say. But on recyclate price trends, Emmanuelle? Emmanuelle Menning: Yes. On recyclate price, you have seen the impact at the end of the 9 months, which is plus EUR 13 million at EBITDA level, we don't expect a significant impact at the end of the full year. You know that we have implemented with Estelle a huge transformation and deep transformation of our Waste business, meaning that everywhere we can, we are in a back-to-back construct. So if you want a figure for the end of the year, it's non-material. So we had a little bit of plus at 1 month, a little bit of minus the month following. So nothing very specific. And in other geographies which are concerned mainly on dry waste, we're talking Germany, France, U.K., Australia. With that, you have an 80-20 type of flow for our business. Operator: And the next question comes from the line of Philippe Ourpatian with ODDO BHF. Philippe Ourpatian: I have just one simple question is concerning your free cash flow. I mean there is no mention about where you were at the end of 9 months this year. And as you confirm, I would say, a very strong Q4 and your net debt-to-EBITDA below 3. I do suppose that the reversal on Q4 will be maybe stronger than expected. Could you just give some figure concerning the end of 9 months in order to help us to better understand how it will move concerning the working capital and some other, I would say, items, which could be your CapEx and some cash in coming from, I don't know where. But please just -- that's going to be very helpful. Emmanuelle Menning: Bonjour, Philippe. With pleasure to speak on free cash flow. You're absolutely right. The amount of free cash flow at the end of the 9 months is quite similar to what we had last year. We had a strong Q3. You remember that in Q1, we had some few timing effect and specific effects linked to Flint cash-out, scope entries and adjusting scheme Water France royalty payments. And we fully confirm that we expect the usual reversal in Q4. You know that we are very committed to free cash flow generation, which is fueling our growth and to pay our dividend. We have -- we are mobilizing the organization to invoice faster, to collect faster. We have a few projects regarding [ ERP and ER ] also to have optimized processes. So fully confirming for the year-end, the usual guidance and the debt below 3x. We'll have the reversal in Q4 with strong EBITDA growth fueled by our international activities, French recovery and the Boosters, discipline on CapEx and working capital reversal. Estelle Brachlianoff: So the usual seasonality. Operator: And I'm showing no further questions at this time. I would like to turn it back to Estelle Brachlianoff for closing remarks. Estelle Brachlianoff: Thank you very much. You understood. We are very confident, very happy about the 9-month result, very, very confident for the rest of the year and very happy that the priority we've been given in GreenUp as even being more technological oriented, more international are bearing fruits in our results as they support the growth of our earnings and will so in the next few years. Thank you very much. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the Curaleaf Holdings, Inc. Third Quarter 2025 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Camilo Lyon, the Chief Investment Officer. Please go ahead. Camilo Russi Lyon: Good afternoon, everyone, and welcome to Curaleaf Holdings Third Quarter 2025 Conference Call. Today, I'm joined by Chairman and Chief Executive Officer, Boris Jordan; and Chief Financial Officer, Ed Kremer. Before we begin, I'd like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States securities laws, which, by their nature, involve estimates, projections, plans, goals, forecasts and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on SEDAR and EDGAR. During today's conference call, in order to provide greater transparency regarding Curaleaf's operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf's liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measure under the heading Reconciliation of non-GAAP Financial Measures in our earnings press release issued today and available on our Investor Relations website at ir.curaleaf.com. With that, I'll turn the call over to Chairman and CEO, Boris Jordan. Boris? Boris Jordan: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our third quarter 2025 results. The return to our roots plan we initiated 12 months ago, which is focused on enhancing product quality, driving growth, expanding margins and optimizing cash flow is delivering tangible results. Over the past year, we have completed significant foundational work to reset the business, leveraging our Dark Heart genetics program, investing in our supply chain and realigning our retail operations. These actions have positioned our domestic business for renewed growth while supporting rapid international expansion. I'm encouraged to report that we're seeing positive momentum across the organization despite ongoing macro pressure from price compression. In the third quarter, we generated $320 million in revenue, up 2% sequentially. Price compression continued to be a headwind consistent with last quarter, yet our domestic segment remained stable and achieved modest growth. Our International segment continued its strong trajectory, delivering 12% sequential growth and 56% year-over-year growth. Adjusted gross margins improved to 50%, an increase of 115 basis points, both sequentially and versus the prior year. Adjusted EBITDA was $69 million, representing a 22% margin, inclusive of a 200 basis point drag from our international and hemp businesses. Our balance sheet remains healthy with a quarter end cash position of $107 million after paying $28 million in principal and interest debt obligations. We generated $53 million in operating cash flow from our continuing operations and $37 million in free cash flow. Subsequent to quarter end, we made a $30 million in acquisition-related debt payments primarily to Tryke, thus completing our obligation and leaving approximately $70 million payable over the next 2 years. We also closed on an upsized $100 million revolving credit line with Needham Bank, giving us greater flexibility to manage our business and pay down more expensive debt. The U.S. segment grew modestly compared to the second quarter, reinforcing the stability we've achieved and positioning the business for a return to growth. Many of our markets delivered solid sequential growth, including Ohio, New York, Utah and Massachusetts, partially offset by seasonal softness in Arizona, muted tourism in Nevada and an ongoing pressure in New Jersey. We've made significant progress strengthening our supply chain, starting with cultivation. I can't overstate the improvement we've seen in our garden yields continue to rise across the network and potencies have steadily increased. This quarter, our average flower potency surpassed 30% for the first time in our history. That's a direct result of our team's focus, discipline and support from the Dark Hart Genetics team. Strong genetics, sound techniques and quality equipment form the winning formula we're now deploying across all markets. On the retail side, we've implemented data-driven analytics tools that are improving assortment planning, merchandising and inventory flow. With better data quality, our teams are operating with greater precision and stronger discipline, driving better connectivity throughout the supply chain. As a result, customers are finding the right product in the right place at the right time and price, which is leading to higher visits, stronger loyalty and greater lifetime value. To build on that momentum, we're leveraging our database of more than 2.1 million loyalty members to enhance customer engagement, deepen brand affinity and drive long-term sustainable demand. We're still in the early innings of this refreshed playbook with just 3 states onboarded, but the results are already starting to show. On the innovation front, our new Anthem pre-roll brand continues to gain strong traction with both customers and retailers. Since its April launch, adoption rates and customer feedback have been exceptional. In our initial launch states, the response was overwhelmingly positive, and in Illinois, Anthem Classic has already become a top 10 pre-roll brand according to BDSA. The brand is off to a fast start and continues to build awareness and momentum. To complement the Classic line, we introduced Anthem Bold, our infused pre-roll offering in September across New York, New Jersey, Illinois and Arizona. While early feedback has been outstanding, in Illinois, the addition of Anthem Bold to our in-store lineup has propelled Anthem to nearly 30% of total pre-roll sales while also expanding the overall category. We're seeing similar strength in other launch states. Given the success, our operations team is rapidly scaling production to meet growing demand and support continued momentum. ACE, our proprietary aqueous cannabis extraction oil launched last quarter continues to gain strong traction with consumers. The message of an ultra-clear, ultra-smooth oil with minimal plant extract is resonating, driving solid sell-through and reorders in New York. In Massachusetts, ACE is flying off the shelves, contributing to improved state performance. Next, we plan to introduce ACE in Florida, where we believe it has the potential to reshape the distillate market. Innovation remains at the core of our strategy and products like ACE are proving to be powerful drivers of traffic, customer engagement and sustainable growth. The Curaleaf International segment delivered another outstanding quarter with revenue up 12% sequentially and 56% year-over-year, driven primarily by continued strength in the U.K. and Germany. In the U.K., sustained patient growth in our Curaleaf Clinic, coupled with solid wholesale performance reinforced our #1 market share position. In Germany, demand for our brands remained robust despite near-term challenges tied to regulatory delays in lifting import permit caps. That issue has now been resolved as import caps were raised last week, allowing the market plenty of supply headroom for the next couple of quarters. In September, we launched the world's first medically certified liquid inhalation device, the QMID in the U.K. and Germany. Developed over several years in partnership with Jupiter Research, the QMID is currently the only Class IIa medical device of its kind available in the European market, offering patients precise and consistent dosing through advanced vaporization technology. Pharmacist feedback has been highly positive and adoption continues to grow across both markets. The device was recently approved for sale in Australia, and we expect continued momentum and strong patient uptake as awareness builds globally. Now turning to new international markets. We're seeing encouraging progress across several key geographies. In Turkey, the government continues to advance its medical cannabis draft law, which could be made public in the coming months. In concert with that, we've begun the architectural design phase of our facility and remain on track for this market to go live in the second half of 2026. In Spain, momentum is also building. In October, the Spanish Health Minister formally approved a measure authorizing the use of medical cannabis in hospitals. The government now has 3 months to publish a detailed monograph outlining the program parameters. We expect the market will initially focus on oil-based products, and we're well positioned for any outcome with our GMP-certified facility in Alicante, Spain and our strong partnership with the University of Alicante. We anticipate further clarity on next steps in early 2026. France is similarly advancing its medical cannabis framework, which we expect will follow a model similar to that of Spain, beginning with hospital distribution. Importantly, there is work being done to allow for insurance reimbursements, which we believe would quickly usher in many patients into the market. We could see the market go live in the first half of 2026 with the help of our in-country partner, we are well positioned to optimize on the French opportunity when the timing is right. Collectively, Turkey, Spain and France represent a combined population of more than 200 million people, offering a significant long-term runway for Curaleaf. While we're excited about the potential of these markets, we recognize they will take time to mature. As such, we do not anticipate meaningful revenue contribution commencing from these countries until 2027 and beyond. Turning to our hemp business. We added several new distribution partners during the quarter and are moving quickly to expand our beverage brand portfolio. We expect to share additional updates on our next earnings call. Overall, we continue to prudently scale this segment while we await federal guidance that will help shape the long-term trajectory of this category. With much of the foundational and restructuring work under our return to Roots program now complete, we are preparing to shift towards a growth mindset in 2026. We're cautiously optimistic that the early signs we're seeing today point to a strengthening domestic business. While we expect competition across our international markets to intensify, we're confident in the multiple growth drivers at our disposal to sustain robust performance next year. We also remain encouraged by the continued progress towards federal reform, even if the pace is slower than anyone would prefer. I continue to believe the administration will ultimately deliver on its commitment to reschedule cannabis to Schedule III on its own timetable, but the direction remains clear and positive for the industry. To our more than 5,000 employees worldwide, thank you for your dedication and hard work. The results we've shared today are a direct reflection on your focus, resilience and commitment to Curaleaf's mission. None of this would be possible without each and every one of you. We're energized by the opportunities ahead and remain steadfast in our mission to shape the future of cannabis responsibly and sustainably for patients, consumers and shareholders alike. With that, I'll turn the call over to our CFO, Ed Kremer. Ed? Edward Kremer: Thank you, Boris. Total revenue for the third quarter was $320 million, a 2% sequential increase compared to the second quarter and 3% decrease compared to the same period last year. Strength in Ohio, our International segment, New York and Utah was partially offset by pressure in Arizona, Nevada and New Jersey. Our domestic retail metrics continued showing signs of stabilization in the third quarter as transactions increased 2%. That said, as consumers make trade up to larger value size formats, units per transactions and AUR decreased 2% compared to the second quarter. Price compression headwinds did not abate in the third quarter as all markets we operate in showed a low double-digit decline on average as compared to the third quarter last year. By channel, retail revenue was $226 million compared to $253 million in the third quarter of 2024, a decline of 11% year-over-year, partially offset by strength in wholesale, which increased 19% year-over-year to $90 million, representing 28% of total revenue, driven by broad-based strength across most of our states with particular strength in New York, Connecticut, Illinois and Massachusetts as well as international. By geography, domestic revenue was up slightly from the second quarter and declined 9% compared to the same period last year, largely driven by price compression as flower price per gram was down 10% and vape pricing was down mid-teens. Curaleaf International produced another robust quarter as revenue grew by 56% year-over-year, driven primarily by the U.K. and Germany businesses. During the quarter, we made strategic investments in our international supply chain, unlocking additional capacity at our NGC facility to support strong demand in Germany. In Spain, we tripled oil production to enable the launch of new QMID device. These high-return investments are strengthening Curaleaf's presence in these emerging medical markets, further establishing our position as the global leader in cannabis. Our third quarter adjusted gross profit was $160 million, resulting in a 50% adjusted gross margin, an increase of 115 basis points compared to the prior year period. The primary drivers of this expansion were cost reductions in our cultivation facilities, partially offset by continued headwinds of price compression and higher promotions. Sequentially, adjusted gross margin also expanded by 115 basis points. SG&A expenses were $110 million in the third quarter, an increase of $4 million from the year ago period. Core SG&A was $105 million, an increase of $3 million from the prior year. The year-over-year increase in our core SG&A was driven by an increase in payroll expenses as we added strategic new hires and retail labor for our new stores. Core SG&A was 32.7% of revenue in the third quarter, a 200 basis point increase compared to the prior year. Third quarter net loss from continuing operations was $54.5 million or a loss of $0.07 per share and adjusted net loss from continuing operations was $48.2 million or a loss of $0.06 per share. Third quarter adjusted EBITDA was $69 million, a decrease of 8% compared to last year, while adjusted EBITDA margin was 22%, a decrease of 115 basis points versus last year. Our International segment was a 120 basis point drag on our total EBITDA margin in the quarter. As expected, our hemp business weighed on margins by 80 basis points as we invest in marketing, brand building and product development. Now turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $107 million. Inventory increased $2 million or 1% compared to the same period last year, comprised of a 4% reduction in domestic inventory and partially offset by 61% growth in international inventory to support growth initiatives. Capital expenditures in the third quarter were $16 million. For 2025, we now expect capital expenditures to be approximately $60 million with the majority of the increase coming from incremental investments in pre-roll automation to support the strong demand for our Anthem pre-roll brand. In the third quarter, we generated operating cash flow from continuing operations of $53 million, bringing the year-to-date total to $104 million, driven by improved margins and continued improvements in working capital management. Free cash flow from continuing operations was $37 million in the quarter. Our outstanding debt was $544 million. During the quarter, we repurchased $3.2 million of our 2026 notes at an 8.75% discount, and we reduced our acquisition-related debt by $13 million. Subsequently to quarter end, we retired an additional $30 million of debt, the majority of which went towards paying the third and final tranche owed to Tryke. Last month, we closed on a $100 million upsized revolving line of credit with Needham Bank at an interest rate of 7.99%, which then resets to 8.99% upon the refinancing of our bond. This is a significant accomplishment given the challenges the industry has had attaining standard banking access and speaks to the confidence and continued support our partners have in our long-term strategy. We will continue reducing various components of our debt throughout the year while maintaining ample liquidity to support our operations and growth objectives. Consumer has been resilient this year. However, macro headwinds continue to pressure disposable income. That said, overall demand for cannabis remains robust, yet pricing pressures are not abating. As such, for the fourth quarter, we expect total revenue to be up low single digits sequentially from the third quarter. With that, I'll turn the call back over to the operator to open the line for questions. Operator: [Operator Instructions] The first question comes from Aaron Grey with Alliance Global Partners. Aaron Grey: Great to see the continued momentum, especially on the international side here. I want to kind of start with my question on that. How do you guys view the potential for this momentum you've had on the international front to continue in 2026? What do you see as a potential risk to disrupt some of the growth that you've been seeing? Would you see it more so in terms of the increased competition, which force you called out in your prepared remarks? Or maybe regulatory changes such as risk to German telemedicine or otherwise. Any type of color in terms of your outlook for continued growth for international would be helpful. Boris Jordan: Aaron, thanks for the question. Well, all of the above, basically, there's always risk and regulatory in new industries like cannabis and especially early-stage industries like cannabis in Europe, where it's behind sort of U.S. and Canadian development by about 5 years. There can be regulatory changes. There's been rumblings in Germany, Australia and other markets. We know we had changes in Poland, which affected the market. However, at the moment, demand is very robust. It continues to grow. Supply chains are getting better. The government is clamping down on some of the illicit product that was hitting the markets. I think that all-in-all, we're pretty bullish on next year and the growth, but we have to look at it quarter-to-quarter because these things do change. We know -- as I said, we know there are changes coming in Germany and in other markets, but there's also new markets coming online. I think it's a mixed bag, but it's one that we're continuing to be quite positive on and continue to invest in. Operator: The next question is from Frederico Gomes with ATB Capital Markets. Frederico Yokota Gomes: Just regarding the improvement in potency and yields that you're seeing. Obviously, you mentioned all the price compression that we're seeing in those markets. Do you see any path here for substantial margin expansion in 2026 with that improved quality and improved product mix? Boris Jordan: Listen, as you see, we've had substantial margin improvement this year, as we said to the market earlier in the year that we would end the year -- exit the year at a healthy 50% gross margin. It looks as though that's where we're going to end the year. Going forward, it's a very volatile market. I wouldn't want to make the prediction of where we're going to be next year, but I can say one thing. The company's metrics internally will continue to improve. We're going to continue to put pressure on costs. We're going to continue to be more efficient in the way we manufacture. We're putting a lot of automation equipment in order to bring down costs as well and become more efficient, but where we end up with price compression is nobody can predict at this point in time. There's a lot of things in the U.S., just like there is in Europe. There's regulations in the federal government right now in hemp. Obviously, if hemp gets shut down, that would have a massive improvement to both demand and margin. I believe in the U.S. If they do something in between, it could have different effects. It's a little bit early for us to say. I think in the first quarter -- in the year-end call, we'll probably take a look at that and make some forecast to that effect. Right now, I can only say what we can control. We can control our internal metrics. We're going to be better next year than we are this year. Operator: The next question is from Russell Stanley with Beacon Securities. Russell Stanley: Maybe just following up on Germany. You mentioned the import caps just lifted last week. I think in August, you were thinking that you might see pricing and margins normalize here in Q4, but it seems like the caps took longer to get lifted than perhaps you'd expected. How are you thinking about this now? Is that more of a Q1 event? Or might it take longer? Boris Jordan: Listen, I think it's going to be difficult to tell. Again, as we all know, there is changes to German regulation coming. They may be very small. They may be large. We just don't know at this point in time. We're pretty close to the government, and we're pretty much involved in a lot of the changes that are taking place. What I can say now is that there's nothing that looks that would be catastrophic to the industry. I think that most of the changes the government looking at could even positively impact the business in terms of illicit product getting into the market and some of the dumping of product. That could actually be a positive. On the other hand, it could also have some negative consequences. It's a little bit too early to tell. We don't see any changes in the fourth quarter. We see robust demand in the fourth quarter. Basically, Curaleaf is in a slightly better position than most because we have been permitted to sell, for instance, vapes into the market because of our medically approved vape, and that is driving demand heavily here in the fourth quarter and will continue into the next quarter as we're the only company today that has a medically improved vape in Europe, which is helping us both in the U.K. and Germany. Soon, we've just got approved in Australia, and that is driving, and that's giving us a little bit of a head over everyone else and that other companies just don't have that product. Operator: The next question is from Bill Kirk with ROTH Capital Partners. William Kirk: Gallup had a pull out yesterday that showed, less Republican voter support year-over-year for cannabis legalization. If that's really the case, what do you think that means for state reform in places like Florida? Or what could it mean for federal progress on cannabis initiatives? Boris Jordan: I don't know about Gallup's report. I don't believe in most polls anyway because according to those same polls, Trump would not be President, and he is. I'm not a huge believer. In terms of our own polling that we've done together with the administration, I can only say one thing that we pulled NAGA, which is the most conservative part of the U.S. population and cannabis held firmly at 65% on adult use and I think 69% on medical. It's got very strong support from the work that we've done. Operator: The next question is from Kenric Tyghe with Canaccord. Kenric Tyghe: Boris, in your prepared remarks, you called out the more pronounced seasonality in Arizona and Florida comments similar to what we've heard out of some of your competitors. Could you provide any indication on just how much of a drag Florida and Arizona were compared to their typical performance? Or alternatively, even just give us some indication around how those states have performed quarter-to-date, where you've seen some sort of normalization there or where they're performing as they more typically would? Boris Jordan: Thank you for that question. Yes, we've seen substantial recovery in October and generally have had a very strong October. Florida for Curaleaf didn't have as much compression as we've had in previous years on cyclicality. Arizona, however, yes, we did. It's been pretty regular now. I think it's about 4 years in a row where, as we all know, Arizona tends to run exceptionally warm in -- with temperatures well over 100 degrees for most of the summer, and that tends to have an exodus of the population. But that -- we've seen a very strong recovery in the last 2 weeks of September going into October and October was very strong. It is cyclicality, is weather-based and it has recovered. Operator: The next question is from Pablo Zuanic with Zuanic & Associates. Pablo Zuanic: Boris, if you allow me, I'm going to ask you a 2-part question and both is related to hemp. Regarding hemp, in my opinion, and I could be wrong, it seems to me that Green Thumb has been able to move a lot faster in hemp because they bought Agrify and they bought the NASDAQ vehicle. They were more compliant on everything around hemp and they were able to distribute Señorita and a bunch of other hemp derivatives through that vehicle. Would that be something that you would consider buying a NASDAQ-listed vehicle that will allow you to move faster in hemp derivatives? Again, my assumption could be wrong. The second one that maybe is more important, in my interpretation, and again, I could be wrong, by reposting that video from the Commonwealth project into social, the President -- and there's a lot in that video. The President was pretty much also backing hemp-derived CBD, right? That were specifically mentioned in that video. Someone could say that backing hemp-derived CBD and perhaps other derivatives is not compatible with backing the THC cannabis industry. If they are making promises to 2 separate industries, how does that work out in the end? Does that maybe call for both the THC industry and the heavy industry maybe to work together in lobbying the federal government, which is something you've mentioned before. I'm sorry, I know there's a lot there, but hopefully, you can comment on all of that. Boris Jordan: Well, let me answer the second question first. I think the President published a video. I can guarantee you he didn't watch it until the end. I'm not sure the President had full knowledge of full content in that video. Our view that CBD alone has virtually no medical properties at all. You have to eat almost 1,000 milligrams of it to have any impact in terms of anti-inflammation or anything, and so usually, it is mixed with other elements or other cannabinoids in order to get its effectiveness. Without those cannabinoids, CBD is largely useless, unless eaten or taken in very, very high quantities. I can tell you right now, at least the briefing papers that the President administration have received, both from the regulated industry, but also from the medical industry would show that CBD alone is not very effective, and we'll soon be publishing some results of our medical studies that we've done in Europe that we've recently submitted to the MHRA in the U.K. and hope to receive approvals on that will show that. I don't think he's sending a mixed message on there. I think that was a video generally supporting CBD and other cannabinoids for medical purposes in the United States. The President has made his position clear that he supports cannabis as far as it's concerned for medical reasons, not for recreational purposes. That's, I would say, on that video. On the other purpose, I don't comment on our competitors. Curaleaf is very comfortable, very happy with the positioning that we have in the hemp-derived products. I can promise you, we're doing just fine there and are not concerned about competition, especially because the industry is so young and so early stage that really whether or not somebody sells $1 million more than the other party at this point in time really makes no difference. We're looking at a multiple tens of billions of dollars of potential revenue out of this industry over the next 5 years, and that's really the prize that everybody is after. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Camilo Lyon for any closing remarks. Camilo Russi Lyon: Thanks, everyone, for joining us tonight. We will talk again in 90 days. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Dear ladies and gentlemen, welcome to the Uniper Analyst and Investor Conference Call for the first 9 months of fiscal year 2025. At our request, this conference will be recorded. [Operator Instructions]. I now hand you over to the Executive Vice President, Group Finance, and Investor Relations, Sebastian Veit, who will start the meeting today. Please go ahead. Sebastian Veit: Thank you, operator, and good morning, everyone. Welcome to the Uniper Interim Results Call for the first 9 months of fiscal year 2025. Next to me on today's call are Michael Lewis, our Chief Executive Officer; and Christian Barr, our new Chief Financial Officer. I'm glad that both are with us today, and a special warm welcome to Christian joining us for his first results presentation as Uniper's new Chief Financial Officer. Today, Michael will start with a summary of the company highlights, and Christian will guide you through the financial performance for the first 9 months 2025. And as usual, there will be a Q&A session after the presentation. Now let me hand you over to Michael Lewis, please. Michael Lewis: Thank you, Sebastian, and a very good morning to everyone, and thank you for tuning in to Uniper's 9 months results call for 2025. And we're very pleased to report a solid set of results in a challenging market environment, and we can confirm our outlook for the full year. But before we get into the numbers, I'd like to give you an update on our leadership team. And with me today for the very first time is Christian Barr, who I cordially welcome here as our new Chief Financial Officer, and this is, in fact, his fourth working day. And Christian joined as CFO on November 1. I've known Christian for quite some time as we were former colleagues at E.ON and we successfully worked together at E.ON U.K., where Christian served as the CFO when I was the CEO, and we successfully managed the U.K. transformation on the acquisition of npower. And Christian has a distinguished track record in financial management within the energy sector. And this experience, coupled with his transformation expertise, make him an invaluable addition to our management team. So, again, I repeat, a very warm welcome, Christian. And alongside Christian's appointment, we've also reorganized our management Board to focus more effectively on our strategic transformation, and effective from November 1, a new division has been established combining the roles of Chief People and Transformation Officer. This new area is led by a long-standing, highly experienced colleague, Fabienne Twelemann. Fabienne has held key roles over the past years in the CEO area of Uniper in leading our communications and government relations function during the energy crisis as well as heading successfully our Human Resources function over the past year. And she's widely recognized across Uniper for her leadership skills and her ability to drive change, and I'm delighted that she's now part of Uniper's Management Board. In addition, Uniper has extended the contracts of Holger Kreetz, our Chief Operating Officer; and Carsten Poppinga, our Chief Commercial Officer, for a further 5 years through to February 2031, and both Carsten and Holger are playing pivotal roles in Uniper's strategic transformation. And Carsten is, among other things, focused on building a diverse and risk-balanced gas and LNG portfolio following our successful litigation against Gazprom and our cancellation of those contracts. And Holger is delivering the transformation of our power plant portfolio. And their continued presence on the Management Board will provide the continuity and stability needed to successfully execute our strategic transformation. And in this context, I'd also like to express my sincere thanks to Jutta Donges as former Chief Financial Officer for her extraordinary commitment and outstanding contribution over the past years. Her performance was absolutely decisive for Uniper's stabilization and the successful repositioning of the group. And on behalf of the entire Management Board and all employees, I would like to wish Jutta every success in her new role and in her personal future. And with this, let's now turn to our 9 months highlights on Slide 4. As you can see, our operating business performed solidly in the first 9 months of this year. The positive earnings momentum from the second quarter continued into the third quarter. Group adjusted EBITDA amounted to EUR 641 million, and group adjusted net income reached EUR 268 million. As anticipated, these figures are below the exceptionally strong results of the prior year period, but they are in line with expectations. Also, our financial position remains in very good shape even after the full payment of the EUR 2.6 billion of contractual recovery claims of the Federal Republic of Germany in March 2025, and the group's net cash position reached EUR 3.3 billion at the end of September. Looking ahead, we're on track to deliver our full year earnings outlook. We expect adjusted EBITDA to range between EUR 1 billion and EUR 1.3 billion, and adjusted net income is expected to come in between EUR 350 million and EUR 550 million. And Christian will provide a more detailed explanation of the financial drivers in a moment. So our transformation journey continues. On the financing side, we've extended our toolkit. Only recently, we published our Green Finance framework, which will form the basis for green bond issuance in the future. A decision for issuance is not planned at the moment, but this Green Finance framework and our debt issuance program together form a strong debt financing tool set, securing a range of options for future funding. In addition, we've also been able to further reduce the KfW credit line from EUR 5 billion to EUR 1 billion as of October 1. Coming to our strategic transformation. So far, we've invested EUR 610 million this year, with the majority of this investment going into our Flexible Generation and Green Generation segments, and we continue to focus on the execution of our strategy. For instance, a number of financial decisions in the renewables business are still expected this year. Furthermore, we fulfilled almost all the necessary remedy measures and obligations agreed between the German government and the EU Commission as part of the state aid approval. And we've announced the sale of the 1.1 gigawatt German coal-fired power plant, Datteln 4, and this transaction is still subject to the usual regulatory approvals. And also since the last call, we've announced the sale of the district heating business in Germany, which successfully closed a few days ago. So we've made great progress in that area. But let's now take a closer look at the 9 months results. And Christian, over to you. Christian Barr: Yes. Thanks, Mike, for your kind introduction, and a warm welcome to all of you. It's a privilege to join Uniper as the Chief Financial Officer, and my special thanks go to my predecessor, Jutta Donges, whose exceptional dedication and excellent work has laid a strong foundation for Uniper's next step. In a professional and smooth handover process, Jutta was handing over to me a critical sphere of responsibility for Uniper's success, which is supported by a highly qualified and superbly coordinated team. I look forward to working with our talented teams to drive Uniper's transformation and create long-term value. I bring with me sector expertise and experience from various senior financial leadership roles within the E.ON Group. And over the years, I gained extensive expertise in the commodity business and a deep understanding of all parts of the energy value chain from the supply energy down to its consumption. And as he said, I worked closely and successfully together with Mike Lewis as CFO of E.ON U.K. until 2023. While I followed Uniper's developments with interest over the past years, it was also great to meet again many colleagues I still know from our joint E.ON times. So the start during the first days was very positive in any respect. With Uniper's strong asset base and a clear decarbonization strategy, I am convinced that we are well positioned to play an essential part in Europe's energy transition. And my key priorities are twofold: First, continue safeguarding Uniper's strong financial position; and second, support the strategy execution while maintaining rigorous investment discipline. I'm grateful for the trust placed in me by the Supervisory Board and Mike Lewis. I look forward to working closely with my fellow Board members and the wider Uniper team to deliver sustainable value. And now I'm pleased to present the Uniper numbers of the first 9 months of 2025 in more detail. Headline. Results for the 9 months of the 2025 financial year have been published in an ad hoc release on 24th of October, as we did in previous quarters of this year. The outlook of the whole year 2025 has been confirmed. In the period under review, Uniper generated an adjusted EBITDA of EUR 640 million. The group's adjusted net income came in at EUR 268 million. We achieved these results against the backdrop of a decline in Uniper's gas sales and lower electricity generation volume. The latter was also driven by portfolio changes, decommissioning of plants and outages. Margins from forward hedging transactions have normalized in this market environment. Further figures are detailed on subsequent slides. Coming from an elevated level, greener commodities recorded a sizable drop in adjusted EBITDA contribution to Uniper's group results. After 9 months of the 2025 financial year, the segmental adjusted EBITDA was still negative at minus EUR 196 million. However, since Q2, a turnaround is clearly visible with profit contribution of around EUR 300 million in the summer season. Overall, the reduction in earnings is primarily linked to the concession of favorable margins from prior years. Key influences on earnings include challenges resulting from previous portfolio optimization measures and the end of gains associated with alternative Russian gas supply hedging. One bright spot was the significant increase in earnings contributions from the U.S. LNG business, which benefited from earlier favorable forward sales. Flexible Generation. Earnings declined by more than 50% to EUR 459 million in the 9 months of the 2025 financial year, reflecting the current market environment and a reduced fossil fuel portfolio. But the result remains satisfactory. A decrease in margins after the end of elevated clean dark and spark spreads observed until mid-2024 was smoothened by some offsetting effects, including additional earnings resulting from the settlement of contractual disputes. Green Generation achieved an adjusted EBITDA of EUR 540 million in the 9 months, which marks double-digit earnings decline compared to last year. Segment earnings were particularly affected by the extended downtime of the Oskarshamn 3 nuclear power plant. This power plant has been back online since November 2. The Nordic power market were well supplied due to high precipitation and above-average hydro reserve levels. In our hedge slide in the appendix of today's investor and analyst presentation, one can track that hedge prices show a decline of EUR 5 per megawatt hour for 2025 versus 2024. Lower realized prices and lower nuclear output were partly mitigated by higher hydro power sales volumes. The German hydro business saw slightly lower earnings. Pump storage power plants delivered lower earnings contributions. However, this was largely offset by strong forward sales for merchant volumes from our run-of-river plants who locked prices more than doubled. Looking to the forward years, including 2027, hedge prices for our Nordic and German business remained steady for the future years. Hedge prices for our Nordic and German fleet stayed steady from last quarter at about high EUR 80s to low EUR 90s per megawatt hour in Germany and about EUR 38 per megawatt hour in the Nordic. The next slide shows adjusted EBITDA reconciled to adjusted net income. Uniper's adjusted net income has been supported this year by lower depreciation and amortization and a continued significant positive economic interest result. Depreciation and amortization declined by about 10%, reflecting asset disposals and plant shutdowns as well as impairment charges on property, plant and equipment recognized, which resulted in a lower asset base. Economic interest remained in a clear positive territory, supported by the group's high net cash position ending up at EUR 3.3 billion as of end of September 2025. The operating tax rate was 26.2%. Turning to Slide 9, the focus is on the operating cash flow. Uniper recorded a negative operating cash flow of EUR 281 million in the first 9 months of the 2025 financial year. As you can see on this slide, Uniper's operating cash flow is strongly influenced by payment obligations to the Federal Republic of Germany settled in March 2025. Excluding this, Uniper's operating cash flow would have been a positive EUR 2.3 billion, supported by reduced inventory levels and strong cash in from receivables. Gas storage facilities were 80% -- 84% full at the end of September 2025 due to Uniper's own and customer bookings. This is around 10 terawatt hours below the previous year's level, which saw a record fill rate of 95%. Now over to Slide 10 and Uniper's financial position. At the end of September 2025, economic net cash stood at EUR 3.3 billion, which was virtually unchanged from the middle year level and only slightly below the balances at the end of the 2024 financial year. This very strong cash position was achieved despite of Uniper's fulfillment of the payment obligation to the German government, which was settled in full in March 2025, and an increase of CapEx. Cash investments reached EUR 610 million, up 60% year-on-year, reflecting progress in initiating growth projects and higher maintenance spending. These numbers bring us closer to the total investment of about EUR 1 billion budgeted for the full year 2025. Capital expenditure on maintenance focused on higher expenditure for flexible generation in the U.K. and Germany. Primary investments to accelerate our transition efforts were directed towards renewables, such as the development of a wind farm in Scotland and for restoring the 160-megawatt pump storage facility in Happurg in Bavaria. Divestment proceeds of EUR 345 million in total resulted mostly from the sale of the Hungarian CCGT power plant, Gönyu. Other items included changes in pensions and asset retirement obligations as well as consolidation effects. In the current financial year 2025, Uniper further developed its financial base on the debt side for short-term financing requirements and for the medium- to long-term financing of future projects. This includes the extension of Uniper's EUR 3 billion revolving credit facility to 2028, which provides Uniper with additional liquidity for varying needs in a day-to-day business. At the same time, the existing KfW credit line, which runs until 2026 and has not been drawn down, was reduced ahead of schedule from EUR 5 billion to EUR 1 billion from October 2025. The existing debt issuance program with a volume of EUR 2 billion was extended on a revolving basis for another year. Uniper just came up with its first Green Finance framework. This framework has been reviewed by Standard & Poor's Global confirming that we follow market standards. Uniper can issue green bonds for EU taxonomy aligned green projects on this basis in the future. And this brings me to the final slide with Uniper's outlook for the full year 2025. In summary, the normalization in power markets amid less favorable commodity prices has continued. Uniper is on track with its outlook, which shows that our business model is solid and, for the most part, delivers predictable results. The outlook for the full year 2025 is confirmed both for the group's adjusted EBITDA and adjusted net income. With a strong asset base and a clear decarbonization strategy, we are convinced that we are well positioned to play a decisive role in Europe's energy transition. This concludes our presentation for today, and I will hand it over back to you, Sebastian, to kick off the Q&A session. Sebastian Veit: Thank you, Mike and Christian, and we can now start the Q&A session. Operator, I'm handing it over to you, please. Operator: [Operator Instructions] Our first question comes from the line of Anna Webb. Anna Webb: Anna Webb from UBS. Firstly, can I ask a question on the renewables pipeline. if you could give any more detail on what is under construction, how much you have kind of ready to build and how the kind of pipeline is progressing there? And also more generally, any comments you can give on the kind of market conditions for renewables, where you see as most attractive geographies and also technologies, that would be great. And then secondly, if you can give any commentary around the German government stake in Uniper. I mean, I know it's difficult for you to comment, but any kind of public statements from the German government on timing, on what might be the route to reduce their stake and the latest discussions there. Any detail would be really helpful. Michael Lewis: Thanks, Anna, for the questions, I should say. Maybe I'll pick up the second question first. The position hasn't changed since the federal government announced the 2-track approach last year. That's to say potential re-IPO and potential M&A sale. That is still the position. There's been no update. What is also still the position is that the EU requirements to sell down to 25% plus 1 share by the end of 2028 are still valid. So there's no real update beyond that, that I can give you. Let's come on to the renewable situation. At the moment, we have 280 megawatts of projects which have been approved for build, i.e., they've been through our final investment decision. That's 7 projects in the U.K., Germany and Hungary. Six of those are solar projects and one of those is a wind project. And we have another 400 megawatts which are preparing for financial investment decision across those markets. Now I don't want to comment specifically on the commercial details of any of those projects. We are finding that our pipeline is developing in a satisfactory way. We are in a position to invest significant amounts, and we are building up the portfolio, as I've just announced, and we will continue to do so. I think the key challenge is always how potential incentive systems might change in the different countries. And of course, beyond the fixed price period, how wholesale prices are developing, and we keep a very close look on that at all times to ensure that all of our projects meet our hurdle rate. Operator: [Operator Instructions] As there are no further questions, I will return the conference back to the management. Sebastian Veit: Thank you. Dear analysts and investors, thanks for listening in for today's call. We're looking very much forward to our next call for the full year results on 2025 in next March. Have a good remaining of the day, and see you soon and hear you soon. Thank you very much. Operator: Ladies and gentlemen, thank you for your attendance. This call has been concluded.
Operator: Hello. Welcome to the IMCD 2025 First 9 Months Results Conference Call hosted by Marcus Jordan, CEO; and Hans Kooijmans. [Operator Instructions] I would now like to give the floor to Marcus Jordan. Mr. Jordan, please go ahead. Marcus Jordan: Thank you very much, Elba. Good morning to you all, and a warm welcome. I'm Marcus Jordan, and I'm here today with our CFO, Hans Kooijmans for the 2025 first 9 months results, which we published in a press release earlier this morning. The first 9 months of 2025 were generally characterized by challenging market conditions as a result of continued macroeconomic uncertainty, particularly around tariffs across all regions. This resulted in softer demand across a number of markets, limited order visibility and just-in-time deliveries. Moving on to the first 9 months numbers. You will find a summary of our financial results on Slide 4, whereby considering these continued challenging macroeconomic conditions, I am pleased with our gross profit growth in the first 9 months, which is up 5% on a constant currency basis to EUR 927 million. This increase is driven by a combination of organic performance, successful acquisitions and resilient gross profit margins. EBITA also increased by 1% on a constant currency basis to 340 -- sorry, EUR 394 million. And our cash flow of EUR 284 million was a bit lower compared with the first 9 months of 2024, driven by a combination of a slightly lower EBITA and a modest increase in working capital investments. As we mentioned in the half year call, we are actively working on reducing our inventory amount back to historical levels, but I also want to stress how important it is that during these uncertain times, we have inventory in place to fulfill the demands of our customers. If we now look at M&A, we announced 4 acquisitions in the first half of 2025. And in Q3, we were very happy to add another 2. In August, we announced the acquisition of Tillmanns in Italy, which operates across a broad way markets, including coatings and construction, food and nutrition and water treatment. Tillmanns have 78 people and had a revenue of EUR 143 million in 2024. I'm very proud of this acquisition as we've become a real powerhouse for our partners, teams and suppliers in Italy. In October, we also announced the acquisition of Dang Yong FT in South Korea, a company active in beauty and personal care with 14 people and EUR 34 million in revenue. We strengthened our position in South Korea, which, as you know, is one of the most innovative and largest Beauty & Personal Care markets in the world. On a full year basis, these 6 acquisitions will add around EUR 340 million revenue and 185 employees based on their last full year numbers before acquisition. Looking at our business segments. We have seen pharmaceuticals, food and nutrition, having the most solid performance in the first 9 months and our Beauty & Personal Care and Industrial segments being generally soft in demand across the 3 regions. Related to demand, we get a lot of questions around Chinese competition in our various markets. And during this year, it is fair to say that we have seen more competition from China. And whilst we are somewhat protected from this due to our specialty focused portfolio, we have seen some pricing pressure, primarily on the semi specialty components of our portfolio and especially in the APAC and LatAm countries. It is important to highlight that competition from China is nothing new to us. And we -- and as we have done throughout the history of IMCD, we regularly review the portfolio we have in all countries and markets to ensure we are for the longer term competitive and where necessary, adapt our portfolio accordingly, again, with the long-term growth of the company in mind. To summarize, despite the ongoing uncertainties in global trade and tariffs, our business model has shown resilience during the first 9 months of the year. We are further intensifying our efforts to drive cost effectiveness and commercial excellence throughout the company and ensuring that we have the right people and the right positions for the future. We are in the process of further strengthening our sales organization, both those on the road and inside sales specialists. At the same time, we're taking advantage of our digital initiatives to optimize other areas of the business. Overall, this will result in a reduction in the number of FTEs going forward. We are well positioned for the future through our adaptable specialty-focused portfolio, geographic and market diversity combined with advanced digital and supply chain capabilities, and we remain confident in the strength and long-term outlook of our asset-light business model. I would now like to hand over to our CFO, Hans Kooijmans who will give you an update on the numbers. Hans Kooijmans: Thank you, Marcus, and good morning, ladies and gentlemen. And I will, as usual, briefly summarize IMCD's results for the first 9 months before we go to Q&A. And I would like to start on Page 7 of the presentation. On this page, you can see ForEx adjusted revenue and gross profit both increased with, respectively, 6% and 5% compared to last year. Despite the challenging conditions, Marcus just mentioned, we still achieved a modest level of organic gross profit growth, along with a 4% increase as a result of the first time inclusion of acquired businesses. Gross profit in percentage of revenue slightly decreased to 25.2%. And about half of this 0.2% decrease is the result of the negative impact from acquisitions, acquisitions with, on average, a lower gross profit margin than group average. Furthermore, we saw the usual fluctuations in our product mix, currency impacts and changes in local market conditions. Then ForEx adjusted operating EBITA, which increased 1% to EUR 394 million. And this increase resulted from an organic decline of 3% that was more than compensated by the positive impact of the first time inclusion of the acquisitions. The reported EBITA and conversion margin both decreased. And this is mainly the result of gross profit growth that could not fully compensate inflation driven on cost growth. When you look at the cost growth, the year-to-date organic own cost growth came down to just below 4%. And compared to September 2024, the number of full-time employees normalized for the impact of acquisitions slightly decreased. ForEx adjusted net result on the next line, that decreased 9%. And in our trading update, we usually don't break down this difference in detail. However, it's fair to assume the main factors are similar to what you saw in our half year results, lower reported EBITDA and higher finance costs as the main drivers. And these higher finance costs in year-to-date 2025 are mainly the result of a bit more ForEx losses and lower gains from fair value adjustments of deferred considerations. Further, we reported and will report additional cost related to one-off adjustments to the organization. And these additional cost items are partly compensated by lower tax cost. At year-end, you could expect higher than usual additional costs related to one-off adjustments to the organizations. You know and we told you before that we are always cost conscious and prudent with our cost structure. However, as indicated also by Marcus, current market conditions, but also opportunities as a result of our digital investments allow us to reduce our fixed cost base and adjust the organization to changes in market conditions. Then on free cash flow, we reported cash conversion margin of 71%, which is slightly lower than the same period of last year. As mentioned in our previous call, we took additional measures to reduce our working capital investment, why we are careful to carry sufficient stock to fulfill our customer requirements. In our previous call, when we discussed the end of June figures, we reported that our working capital days were 6 days higher than the same period of last year. End of September, we were able to reduce this gap to 3 days. And we feel confident that we will report at year-end, a cash conversion ratio somewhere around high 80% or a low 90% number. Then on the next page, Slide 8, you will find a summary of a few key figures split into the various regional operating segments. When looking at top line and gross profit, we were able to grow organic as you can see in all 3 regions despite these difficult market conditions. We also had quite some currency headwinds when translating local results into the euro, most significant in APAC and the Americas. This currency translation impact is easy to quantify and report it as a separate line, but more complicated is calculating the operational impact of these currency fluctuations. It's obvious that these currency fluctuations had a negative impact in regions where it's common to quote in dollars and invoice in local currency. Therefore, it's fair to assume that these currency fluctuations this year negatively impacted our results in LatAm, APAC and a few EMEA countries. On the bottom of this slide, you will find EBITA margin conversion margin per segment, and we report a negative development in 3 of the 4 segments. And the only positive exception is Holdings where the cost in percentage of revenue ratio slightly improved due to lower holding cost. EMEA reports the biggest EBITDA and conversion of deviation compared to last year. And as mentioned in previous call, you should keep in mind that the majority of the global business group costs are reported in the EMEA region. And this then automatically leads to, in general, higher cost base. The biggest swings in results during the year were reported in the Americas and Asia Pacific. The America and APAC reported, respectively, a positive 21% and 7% organic EBITA growth in the first quarter, which turned into a minus 4% and minus 3% year-to-date September. Marcus gave you already a bit of color on the background. On Page 9, a summary of IMCD's free cash flow. The absolute amount of free cash flow was EUR 16 million lower than last year, and the cash conversion ratio was 71%. And lower EBITDA, a slightly higher working capital investment were the main drivers of the difference compared to last year. As mentioned before, we are confident that we will report at year-end a cash conversion ratio somewhere around the high 80% or low 90% number. Page 10, update on net debt and leverage. By net debt at the end of September was close to EUR 1.5 billion, slightly lower than end of September last year and EUR 228 million higher than the end of December. The year-to-date increase of our net debt position was, amongst others, impacted by a combination of on the one hand, positive operating cash flows, combined with cash outflows of EUR 281 million as a result of acquisitions and EUR 127 million dividend payment. Our reported leverage ratio, including the full year impact of acquisitions done was 2.6x EBITDA, which is similar to the leverage based on the definitions in our loan documentation. And then last but not least, on Page 12, you will find our outlook for 2025, and I assume everybody has already read the text in the press release. Therefore, I don't want to repeat it again loud. And I would like to hand over to Elba, the operator, to open the lines for Q&A. Operator: [Operator Instructions] Our first question comes from Annelies Vermeulen from Morgan Stanley. Annelies Vermeulen: I have 2 questions, please. So firstly, could you talk a little bit about how pricing has developed over the quarter? We had talked earlier in the year about stabilization, but I'm just wondering now how the combination of tariff-driven inflation and some of the increased competition you mentioned is driving pricing and how that has trended relative to your expectations? And then secondly, just on the competition from Chinese suppliers. We -- I think we spoke about this at the half year. So could you talk a little bit about how that has developed during Q3? Have you seen that competition step up, particularly as tariff noise has increased? And do you expect that to continue for the foreseeable future? And in that context, you mentioned keeping the portfolio under review. And so are there any structural changes that you're considering if you assume that, that competitive pressure will continue? Marcus Jordan: Annelies, thank you very much for the questions. I think in terms of pricing, what we can say there is that we haven't seen any real significant change during the quarter. We've seen, I would say, a little bit more normal pricing behavior where for some product lines, we've seen small increases. But also related to your second question, we have continued to see pricing pressure in certain areas and business lines on the semi specialty side from China. So I would say nothing, I would say, changed significantly since the last quarter. And then moving on to competition from China. Again, I wouldn't say that we've seen a very significant increase in the third quarter versus what we've seen in the past. I think generally, we have seen more competition this year than last. But I think also important to stress, as I mentioned, Chinese competition is nothing new. And I think then related to the structural change and how we review the portfolio. I think important to mention that we've had Asia sourcing offices in place in India and China for more than 20 years. Historically, those were very much focused on some of the product lines that actually were predominantly manufactured there. Pharmaceutical actives is a good example. But as you can imagine, we also use those sourcing offices sometimes to look at what are the white spots that we've got, particularly in countries that we're maybe freshly entering into. And so we do keep a very close eye on what is happening within the, let's say, China manufacturers looking at our portfolio. Still remaining very loyal to those long-term partners that we have and always been, I think, looking at the long-term growth of the company, making sure that we don't do knee-jerk reactions for what could be short-term market conditions. But again, I think the beauty of our business model is we've got a very agile product portfolio. We can adapt where we need to. But again, let's be cautious and make sure that we're doing that with a very long-term view. Operator: The next question comes from Matthew Yates from the Bank of America. Matthew Yates: I'd really like just to continue on the theme of that competitive pressure really. Looking at your Asian performance, it would be helpful to unpack that a little bit. I mean flattish top line feels respectable in light of the tariff uncertainty that the world is operating in, but then the 13% decline organically in EBITA suggest some competitive pressure or investment that you're making to drive future growth, I don't know. But when -- Marcus, when you talk about portfolio review, that to me, just sounds like walking away from business and accepting that there are product lines that are no longer profitable for IMCD to operate in. Is that fair? If so, how much of the portfolio are we talking and is there anything else you can do to sort of reinforce the business model and the pricing pressure you have in light of these challenges, I appreciate you're saying there's nothing new, but equally, at the same time, it does feel like it's intensifying or accelerating. Marcus Jordan: Okay. Matthew. Maybe if I speak a bit about the first point first and the Asia Pacific numbers. And I think the standout there, Matthew, is related to India. where we do see, I would say, quite a softness from a performance perspective during the third quarter. And if we dig a little bit deeper into that, I think that we can talk then the most, I would say, the largest effect is related to pharma. So I think we all saw the pharmaceutical tariff discussions, which took place during the third quarter that, of course, I would say, in general, quite some uncertainty. There was a big pharmaceutical exhibition in Frankfurt called CPHI last week. We had the opportunity there to speak to a broad range of our own suppliers and customers. I think everybody saw the same trend of that softness in the third quarter, but pretty much everybody is also speaking confidently that, that will be turned back to some kind of normality during Q1. So I think that this is a short-term thing. I think with regards to then walking away from certain business, that's definitely not the case. I think, firstly, if you look again at those long-term supplier relationships, which we have, also important to state that with the partners that we have, a lot of those partners also have assets in China. So they're able to also keep competitive. When we talk about reviewing the portfolio, again, this is nothing new. We constantly country by country, look at what are the white spots that we've got, how can we strengthen the business, how can we strengthen the portfolio but also looking at which, again, nothing new is are there pieces of business or particular product ranges where we can't be competitive. And typically then, that business has already deteriorated or is very small. So it's more a case of looking at how do we boost the business and grow the business again for the future rather than walking away from business that we have. Operator: The next question comes from Suhasini Varanasi from Goldman Sachs. Suhasini Varanasi: Just a couple for me, please. Can you maybe discuss how conversations with your customers are progressing? Are you seeing any signs of volume stability on a sequential basis at this point? And any color on the order book would also be helpful. And if you think about the gross margins in this quarter, it has deteriorated quite significantly versus the first half trends. You mentioned half of it was M&A. But the rest, is that basically the price pressure that you saw effectively? Marcus Jordan: Firstly, I would say, on the customers and kind of the volume stability or outlook, whatever, I would say that there's no change, unfortunately, in terms of the visibility that we have. So still, a very volatile order book, I would say, minimal forecasting, a lot of just-in-time deliveries. So I would say unfortunately, no general improvement there. And on the gross margin percentage, I think Hans kind of already covered that where I would say that there's nothing exceptional there. A little bit of dilution from the M&A impact, maybe product mix to a certain extent. But I would say nothing material. Operator: The next question comes from David Kerstens from Jefferies. David Kerstens: I've got 2 questions, please. First of all, on the stable organic revenues in the third quarter, that seems like a good performance against a substantially tougher comparative. I was wondering, can you highlight maybe some product market combinations where you see this improvement sequentially relative to the second quarter? Then the second question is on the balance sheet with leverage going up to 2.6x EBITDA and the Tillmanns acquisition not yet closed how do you see that leverage ratio develop into the fourth quarter towards the year-end and after the closing of Tillmanns? And does that still leave you with sufficient headroom for further M&A going into 2026? Or would you temporarily allow higher leverage given the short-term unfavorable market conditions? Marcus Jordan: I think with regards to the stable organic growth, I think behind the scenes, there's obviously an awful lot of work going into making that happen. I think if there's a market which has maybe stood out from a stability perspective, it's the food and nutrition space. I wouldn't say that there's a significant change between the quarters. But out of the different market segments, that's the most stable and robust that we've seen for this year. And then on the M&A and leverage, Hans? Hans Kooijmans: David, Hans here. On the leverage, I don't want to predict the leverage number for year-end, and you're right, I still need to pay. And I also need to close Tillmanns that we expect to do in the last part of this quarter if we get all the formalities done. If and when that happens, yes, leverage will move around that 2.6 number. I expect, so sufficient room to do further M&A. Typically, working capital will come down towards year-end, what we indicated as a cash conversion ratio should lead to an additional cash inflow. So I'm not concerned at all about our firepower. Operator: The next question comes from Nicole Manion from UBS. Nicole Manion: Just one question from me, please. Can you elaborate a bit on your comments around the cost base and particularly FTEs? Obviously, there seems to be a nod to the volatility of the environment at the moment. But you've also linked, I think, to ongoing digital initiatives, which might suggest it's a bit of a longer-term project. I'm not sure if you can share any more details here or whether this is something you're looking at across regions, what's in scope? Yes, any sort of color would be helpful. Marcus Jordan: Great. Thank you, Nicole. Yes, as I mentioned, it's not something new, but it's fair to say that we are intensifying our efforts to really drive that cost effectiveness. But also making sure that we're delivering premium customer service. And as we've spoken about before, the expectations of customers that they are evolving this omnichannel way of working. And for us, that means very critically, making sure that we've got very highly skilled technical development resource on the road, visiting those customers face to face, but also having very highly qualified inside salespeople so that regardless of the way that the customer wants to interact, they've got immediate contact, and we're able to react in a very timely and effective and efficient way. So what we're doing is really looking at making sure that we've got the right people in the right positions to really, again, be the leader from that sales excellence perspective to drive the long-term growth but also using the digital tools that we're very proud of, basically to optimize other areas of the business. And I think if you look at just one example, but through the use of AI and different topics, things like the marketing side, the way that we're able to handle that and to drive that in a more efficient way, I think that's a good example. So again, it's not something new to us, but it's fair to say that we are intensifying the focus there, also because of the pretty challenging market conditions that we face. But again, I think what is important is looking for the long-term growth. Operator: The next question comes from [ David Simmons ] from BNP Paribas. Unknown Analyst: So just coming back on the gross profit. So you mentioned some impact perhaps from M&A and maybe some impact from mix. I'm just curious, given that you're trying to bring down inventory and you've done a better job on free cash flow conversion in the third quarter, is there any inventory effect on gross profit margins at all? And then maybe a little bit of a sort of outlook question, again on gross profit margins. Do you expect the sort of -- I mean we didn't really see any pressure on gross profit margins in the first half or flat year-on-year, but they're down 90 bps in Q3. Would you expect that to reverse in the quarters ahead? Or is that sort of new level based on different mix and the different -- and new M&A you've done for the next few quarters? Hans Kooijmans: David, I answer, I understand your question. And if you look historically at IMCD's numbers, there is always quite some volatility in the margin percentage between the quarters, and there is no exception in this year. And it's often driven by slightly changes in the product mix, M&A having, in this case, a bit of a negative impact on the overall margin percentage, for sure here and there on the more commoditized products. There was a bit of pricing pressure. That played a bit of a role, but that also already happened in the previous quarter. At the end of the day, it is not so much about permanently increasing your margin percentage. It's more about growing the absolute amount. So the focus of our salespeople is always linked to having an absolute amount of margin target and not the percentage target. And if this is the new normal, I don't think so, but let's see what the future will bring. Operator: The next question comes from Eric Wilmer from Kempen. Eric Wilmer: I got 1 question. Does the ongoing demand pressure and competitive pressure as European manufacturers have any implications for the level of outsourcing that they work with? Some manufacturers, I think, including today have announced new incremental cost savings measures? So could this actually be perhaps another source of outsourcing. And does the growing Chinese presence gives you leverage towards your existing suppliers potentially for a larger share of wallet? Marcus Jordan: Thank you, Eric. I mean, this very much depends on a supplier-by-supplier basis. But as I think we've spoken before, the general trend is to outsource a greater percentage. And I think that as our suppliers go through these tough market conditions, I mean, we do hear about quite some redundancies and headcount reductions that they're making. And they really then, I think, value us even more as their outsource sales and marketing partner. So yes, I think it's fair to say that in general, there are greater opportunities when there is more market uncertainty, but it differs supplier by supplier. But we're in continual discussion with not only our existing suppliers, but also potential new ones to look at how can we further expand the relationships, both geographically and across more product lines. Operator: [Operator Instructions] The next question comes from Carl Raynsford from Berenberg. Carl Raynsford: Just 2 from me, please. I just wanted to ask about your comments around food and nutrition being the most stable end market segment this year. Previously, pharma was seen as a -- I'll paraphrase this, by far the best performing segment, judging by comments from yourselves and peers in the first half. But it feels that there's been a significant slowdown in Q3 based on your comments sort of more around food and nutrition now. Is that a fair assumption? And then the second question, I just wanted to focus on the comment around decreasing FTEs over time again. Presumably, you mean decreasing the absolute number even as revenue increases. This business has always been about relationships and sales and high service levels and the AI opportunity in theory was useful for cross-selling. So could you discuss why you think you can maintain the same levels of sales and relationships alongside an increase in cross-selling and at the same time decrease the number of FTEs and able to be on the road, use omnichannel ways of working and the same service levels really? Or just considering your answer to Nicole's question earlier, is it more on the marketing side, you're considering that. Marcus Jordan: Firstly, on the first question related to food and nutrition and pharma. As I mentioned before, we did see in Q3 a bit of a softening in the pharma market, but predominantly in the India space because of the tariff conversations. So because of that and also the feedback that we had at CPHI last week, that was the reason for my comments of not including pharma in that. But I mean, overall, pharma, when you look at it across the year, it's still performing well versus last year. But as I said, a bit of a softening in the third quarter, but we expect that to come back relatively short term. In terms of the service levels, I think it's really important, again, to reiterate that, if anything, we're further investing in the commercial organization and infrastructure. So when you look at the FTE reduction, that's definitely not reducing the people out on the road. It's not the people that are interacting with customers or suppliers. It's really looking at how can we bring better efficiency through the digital tools and more of those, let's say, support functions. Hopefully, that helps. Carl Raynsford: That does, indeed. Very reassuring. Operator: The last question comes from Stefano Toffano from ABN AMBRO ODDO. Stefano Toffano: Yes. And Hans, 2 questions remaining for me. And apologies if the first one is already answered, but I missed it. Regarding the Americas, can you maybe provide a little bit of just some highlights, some light on what you are seeing there in terms of end markets and also the consumer, how the consumer is behaving. And the second question is more of a general question. I mean you obviously throughout the years have seen quite some cycles. Is there anything different in this cycle compared to the past cycles where you say, well, this might be here to stay. This will continue to have an impact or is it just one of those cycles where you say, give it or take or whatever 1, 2 years, we will definitely go back to a normal environment? Marcus Jordan: Thank you, Stefano. I think with regards to the Americas question, I think the standout there, if you look at, let's say, more soft performance, I think the 2 countries maybe that we mentioned, and it's for different reasons. I think the U.S., in general, from the demand side, consumer confidence, we see that as being soft at present. And then Brazil is one of the countries when we speak about Chinese competition and maybe greater competition in that semi specialty space in APAC and LatAm. I would say, within the LatAm region, Brazil definitely is one of the countries which has been the most affected there. And then coming on to the cycle difference, I do think that this is very different to what we've experienced in the past because we're not going through a normal kind of market cycle. I think that there are these kind of shock waves that come in through things like the tariff discussions, where we're kind of getting back to a more normal kind of market cycle as we were coming through the end of last year and the beginning of Q1 and you saw the performance, I would say, more normalizing. But then the shock wave of tariffs and then the uncertainty around it, also with the continually changing messages about what is the tariff percentage, but also what are the products included in the categories within the tariffs. So I think that we just need some kind of clarity and stability on those kind of topics. And then hopefully, we'll get back to a more normal type of market cycle. Operator: With that, due to time constraints, I will give the word back over to Mr. Marcus for any closing remarks. Marcus Jordan: Great. Thank you. And on behalf of Hans and I, a big thank you all for joining the call this morning and for your questions, and we wish you all a very good day. Thank you very much.
Operator: Good morning. We welcome you to the EDP and EDP Renewables 9 Months 2025 Results Presentation. [Operator Instructions] I now hand the conference over to Mr. Miguel Viana, Head of IR and ESG. Please go ahead, sir. Miguel Viana: Good morning. Welcome to EDP and EDPR 9 Months 2025 Results Conference Call. We have with us today our CEO, Miguel Stilwell d' Andrade; and our CFO, Rui Teixeira, that will present you the main highlights of EDP and EDPR financial performance in the first 9 months of 2025. The presentation will be followed by a Q&A session in which we'll be receiving just written questions that you can insert from now onwards in the text box available in the webcast. As we'll have just later on at 10:00 a.m. London time, our Capital Markets Day presentation. So the Q&A session will be focused on teams around the 9 months financial performance. I'll pass now the floor to our CEO, Miguel Stilwell d' Andrade. Miguel de Andrade: Thank you, Miguel, and good morning, everyone. So thank you for attending our 9 months 2025 results conference call. As Miguel said, we'll be doing the EDP results and then the EDPR, so really a 2-in-1 call, but for the reasons that Miguel has already mentioned. And so I'll go straight into the EDP overall numbers. If we go to Slide 3, we'll see the recurring net profit has reached EUR 974 million in the first 9 months of the year. So that's up 5% in underlying terms. And that reflects basically higher wind and solar installed capacity, higher generation and also the resilient electricity networks. On the wind and solar front, underlying EBITDA is growing 21% year-on-year, and that's supported by almost 20 gigawatts of installed capacity and generation up also 14% year-on-year. Electricity networks, they continue to show good resilience. Underlying performance, excluding asset rotation gains and FX is increasing 3% year-on-year. And our integrated business in Iberia is also delivering solid results. So although year-on-year comparison was impacted by higher sourcing costs, lower hydro volumes and lower contracted prices, this was partially mitigated by the performance of our FlexGen fleet in Iberia. It's also important to note that the asset rotation gains were lower at this point in the year, so EUR 55 million versus EUR 250 million last year, so the same time last year at the EBITDA level. And I think that just reinforces the strength of our underlying performance. So if you look at the numbers ex capital gains. Finally, just to mention, we'll also show -- or we continue to show an improvement in efficiency with lower costs and better productivity metrics, for example, in things like OpEx per megawatt, et cetera, and Rui will get into that in his slides. So overall, these results underscore the strength of our integrated model even in the context of reduced asset rotation gains. And with that, I'll pass it over to Rui to present the EDP and the EDPR financials. Rui Manuel Rodrigues Teixeira: Thank you very much, Miguel. Good morning to you all. So let me start first with EDP's results. And then moving to Slide 5. So our EBITDA reached EUR 3.7 billion in the 9 months of 2025. That's a 2% increase on underlying year-on-year or actually 4% when excluding FX effects. So let's look to the recurring figures. Renewables clients, energy management decreased EUR 99 million year-on-year. And this is coming from EUR 198 million decrease in this segment, the hydro, clients and energy management, comparing last year, the fact that we have now lower hydro volumes, lower contracted price and higher sourcing costs. This is mainly in Iberia, and there is also some FX impact in Brazil. Strong performance of EDPR, EUR 1,100 million (sic) [ EUR 111 million ] year-on-year. If we compare last year's asset rotation gains of EUR 179 million with this year's EUR 59 million, this means an increase of EUR 231 million in underlying terms. driven by the increase in installed capacity. And obviously, this is following the record additions we had in 2024. On the network side, EBITDA is declining EUR 91 million, but this is mostly due to the absence of asset rotation this year compared to the EUR 71 million or the capital gains from the asset rotation, compared to the EUR 71 million that we booked in the 9 months '24 and also the loss of EBITDA from the transmission lots that were sold, which together, they -- with the asset rotation gain represent around EUR 102 million reduction versus last year. Additionally, this segment is also impacted by the euro-Brazilian real depreciation. If we now move to Slide 6, the performance on the wind and solar segment. Recurring underlying EBITDA grew 21% or 23% when excluding FX impacts. It's a robust growth. It reflects a significant step-up in generation following our record capacity additions last year. Although this has been negatively impacted by worse renewable resources in Q3, mostly in North America, you may have seen that it was one of the worst quarters in 20 or more than years, I think, since 1989. So I won't spend too much time here. We'll provide a bit more color on EDPR's performance in the next section. So let me move now to Slide 7 and deep dive into the hydro activity in Iberia. So hydro inflows, 38% above the long-term average, higher than the 33% level that we saw last year. However, despite this increase, the hydro generation was lower year-on-year since the rainfall was primarily used to reestablish reservoir levels, and this was mostly in Q1, as you can see by the chart on the right-hand side. So even with lower generation year-on-year, hydro output remained above average and the uncontracted volumes were sold at higher prices compared to 2024, with the Iberian pool price reaching EUR 65 per megawatt hour versus EUR 52 per megawatt hour in the 9 months of '24. The contracted volumes were sold at a lower price of EUR 70 per megawatt hour in this year compared to the EUR 90 per megawatt hour in the 9 months last year. Regarding the outlook for the remaining part of the year, October was dry with the hydrological index 36% below average. Meantime has starting to rain. In any case, we see reservoir levels still above average, but obviously decreasing. So I would say that we can expect a weaker fourth quarter as compared to previously expectations into Q3. If we now move to Slide 8 to our hydro, clients and energy management segment. As a whole, EBITDA stood at EUR 1.1 million or EUR 1.14 million. That represents a fall of 15% versus last year as expected. It's a mix of different dynamics. So Iberia in the 9 months '24 were impacted by extraordinary gas sourcing costs. In one hand, hydro generation volumes net of pumping were 7.2 terawatt hours versus 8 terawatt hours last year. So that's a 10% drop. While on the other hand, pumping generation increased by 28% and CCGT's generation increased by more than 3 terawatt hours as requested by the system operators, both from Portugal and Spain. I would also highlight that in line with the trend that we saw in the second quarter, in the 9 months, we had an increase in flexibility revenues from generation, but also some costs on the supply side, which we expect to persist in the fourth quarter 2025. Finally, in Brazil, EBITDA declined from EUR 141 million to EUR 106 million, but this is primarily due to FX impact. So overall, despite the decline in headline figures, following a very strong 2024, the segment continues very solid. Now moving to Slide 9 on the networks. Recurring EBITDA reached EUR 1.18 million -- billion in the 9 months this year. That represents a 7% -- minus 7% year-on-year. This decline is primarily explained by the absence of asset rotation gains in '25, as I introduced before, which amounted to EUR 71 million in the 9 months last year. But there's also some other moving pieces here. So let me break this down probably in 3 main building blocks. So the first one is a EUR 33 million increase of EBITDA in Iberia following inflation update in Portugal and RAB growth in Iberia in Spain. Flat EBITDA in Brazilian real, driven by the improvement in operations being mitigated by the loss of EBITDA from transmission lines that were sold. And naturally, the Brazilian real devaluation and no capital gains and the segment is minus EUR 53 million versus last year. So all in all, EBITDA for electricity networks, excluding asset rotation gains and ForEx increased 3%, showing the resilience that is expected from this segment. If we now move to Slide 10. Net debt stood at EUR 17.3 billion from EUR 15.6 billion at year-end 2024. This is obviously reflecting the execution of the investment plan, the annual payment of dividends and the fact that we will have proceeds from asset rotation and tax equity, we expect it to be mostly concentrated in the last quarter. So the key drivers for the change in net debt include EUR 2.1 billion organic cash flow, reflecting an improved working capital performance with organic cash flow increasing EUR 0.5 billion year-on-year from EUR 1.6 billion in the 9 months last year, EUR 0.8 billion of dividend, annual payment -- dividend annual payment executed in May. EUR 2.4 billion of net cash investments, including EUR 3.1 billion of cash CapEx, including EUR 0.5 billion related to working capital changes with PP&E suppliers. And this is offset by EUR 0.4 billion of asset rotation proceeds and EUR 0.3 billion of tax equity proceeds. And then we have about EUR 0.8 billion from regulatory receivables and others. For the year-end, we expect to reach the EUR 16 billion net debt, considering the EUR 2 billion asset rotation proceeds in total expected for the year and the EUR 1 billion tax equity proceeds in total expected for the year. And that, as I said before, it's -- we are expecting that to come -- so the remaining piece is in Q4. And with this, we will be reaching a 19% FFO net debt ratio and therefore, meeting our BBB goal in terms of funding net debt ratios. Now on Slide 11, recurring net profit, EUR 974 million. So that's a 5% increase year-on-year. This is coming on the back of a lower EBITDA, as I explained before, EUR 139 million, lower than last year, a combination of lower asset rotation gains and the decreased results from the integrated segment in Iberia. Higher D&A and provisions, increasing EUR 107 million, resulting from our investment path and the increased net financial costs driven by higher cost of debt, 4.5% last year and this year, 4.9%. And this is primarily due to the higher cost of debt in Brazilian real, which is it's floating and also the average -- the higher average nominal debt. So we also have some lower income taxes, lower noncontrolling interest. And basically, this takes us to the net profit. So highlighting again that excluding asset rotation gains, the underlying performance on the net profit shows a 5% increase versus last year. So definitely a very solid operational performance. In reported terms, net profit reached EUR 952 million, including the negative impact of around EUR 22 million, mostly related to some EDPR impacts. So I will now turn to EDPR's performance for the first 9 months of 2025. So on Slide 14 (sic) [ Slide 13 ], you can see that EDPR delivered a strong set of results. I mean, this is marked by robust underlying EBITDA and net profit, continued capacity delivery, solid progress on the asset rotation plan throughout 2025. Operationally, EDPR reached 19.8 gigawatts of installed capacity with generation up 14% despite this lower renewable resource that we experienced in Q3. The average selling price declined 9% year-on-year to an average of EUR 54 per megawatt hour, reflecting the changes in the generation mix, lower average prices in Europe, mainly from hedges normalization and the lower feed-in tariff prices in Portugal. Recurring EBITDA reached EUR 1.4 billion. That's up 9% year-on-year, with underlying EBITDA growing by 21%. I think it's important really to note that asset rotation gains were EUR 59 million this period compared to EUR 179 million in the same period last year because this really shows the strength of the underlying business performance. Recurring net profit came at EUR 189 million or if we exclude asset rotation gains, EUR 153 million. So that's definitely a very important increase, EUR 111 million versus 9 months 2024. Overall, these results underscore EDPR's ability to combine the growth, efficiency and value creation, reinforcing our confidence in the outlook for the remaining of the year. So now let's go a bit deeper into EDPR's results. So if you focus on EBITDA, Slide 15 (sic) [ Slide 14 ], this was driven by EUR 1.6 billion from electricity sales, EUR 308 million of tax equity revenues from North America. That's a 20% increase in generation and new capacity additions. On the back of this, EUR 59 million of capital gain from asset rotations that we closed in Spain and France and Belgium, with the remaining gains to be concentrated in the fourth quarter. And then we have less the impact of EUR 574 million from core OpEx, which is mostly in line with last year's. And I would highlight here the strong efforts in cost and efficiency improvement that we have been implementing across the company. And you also can see that on the ratios on the OpEx per megawatt that have been really under control, and I think they are probably one of the best-in-class in the sector. EUR 22 million from other net costs that improved around EUR 80 million on the back of no material impacts this year. As you may remember, last year, we had some headwinds in Colombia, also Romania. This year, we don't. And therefore, that's a significant improvement impacting our EBITDA. So these results highlight improvement in the underlying business as a whole from an operational perspective as well as this enhanced efficiency that we've been deploying. So now turning to Slide 16 (sic) [ Slide 15 ]. I'd like to look at EDPR's cash flow evolution for the first 9 months of this year. So organic cash flow reached EUR 458 million, representing a EUR 0.2 billion increase year-on-year, reflecting a solid performance of our operating portfolio as well as the changes in working capital, distributions to minority interest and the tax equity partnerships. I'd like just to note that organic cash flow excludes tax equity cash proceeds, which are typically received at the project completion and have an immediate positive impact on net debt. First 9 months of this year, we received EUR 278 million, and we remain on track to reach EUR 1 billion for the full year. As of September, net debt stood at EUR 9.2 billion. It's up EUR 0.9 billion since December last year. The increase is primarily driven by the EUR 1.6 billion in net expansion investments, obviously supporting the portfolio growth. And this is partly offset by the asset rotation proceeds from the transactions, as I mentioned, closed in Spain, France, Belgium and also U.S. Looking ahead, we do expect net debt to converge to around EUR 8 billion by year-end, supported by the timing of the asset rotation and tax equity proceeds. As I mentioned, this will be concentrated now until the end of December. Also highlighting that already in October, we closed a transaction for a 1.6-gigawatt portfolio in the U.S. Again, just to emphasize, it's a 49% sale, straight equity, no structure. And I think it came in the context, as you know, quite a lot of uncertainty throughout 2025. So definitely a great transaction executed on top of the one that we have been executing in Europe. And as you know, we have already signed some European transactions that we are expecting to close before the end of the year. Now moving to Slide 17 (sic) [ Slide 16 ]. So as previously highlighted, EDPR's recurring underlying EBITDA rose by EUR 231 million, again, on the back of the solid performance on the operational side. Depreciation and amortization increased, obviously, on the back of the new capacity additions. We do have some one-off impact from accelerated depreciation of repowering wind farm in the U.S. Financial results increased on the back of higher nominal financial debt, lower capitalized financial expenses, partly offset by some FX and derivatives. Contribution to minorities improved year-on-year following the completion of the buyback of CTG minorities in late 2024. So at the net profit level, we recognized around EUR 40 million of one-off impacts this quarter, and this is mainly from impairments in Europe related to noncore countries. So all in all, recurring net profit reached EUR 189 million. Excluding capital gains, this represents a fourfold increase versus last year. Again, just underscores the strength of EDPR's underlying performance. Summary, EDPR's performance during 9 months, I think it's a testament to the ability to execute, to adapt, deliver sustainable growth. We will have -- Miguel will be presenting the strategy for the next few years. But I think that we are definitely on a good track in terms of how we are delivering the results this year. So I would hand over to you, Miguel, for final remarks. Thank you. Miguel de Andrade: Thank you, Rui. So just to wrap up and moving on to Slide 18. Just to reinforce the guidance. So we're expecting a recurring EBITDA for 2025 of around EUR 4.9 billion, and that's supported by strong performance across all of the business segments, and you can see that already at the 9 months numbers. Breaking this down by segment. So the integrated generation supply should deliver about EUR 1.4 billion of EBITDA of about -- of which EUR 1.1 billion was already recorded in the first 9 months. Wind and solar, including EDPR, expected to contribute roughly EUR 1.9 billion, including EUR 0.1 billion of asset rotation gains and having the 2 gigawatts capacity additions on time and on budget. And electricity networks forecasted at around EUR 1.5 billion with the distribution performance mitigating the transmission asset deconsolidation and the Brazilian real devaluation. Recurring net profit, approximately EUR 1.2 billion, impacted mostly by a higher cost of debt on the Brazilian real debt, an average higher debt since the asset rotation proceeds and the tax equity proceeds are expected to be received more towards the end of the year. Net debt expected to stand near EUR 16 billion, so assuming about EUR 2 billion in asset rotation proceeds and about EUR 1 billion in tax equity proceeds for the year. All in all, guidance reflecting resilience, reflecting the strength of our integrated and diversified portfolio, as Rui has also mentioned. And obviously, we'll be providing further color on the outlook for the years ahead in the next presentation, the CMD. But for now, I'll pass it back to Miguel to see if there are any questions, so we can take those, mostly concentrated on the 9 months numbers. Thanks. Miguel Viana: Thank you. So we have here some written questions. And the first one from Pedro of CaixaBank BPI regarding the capital gain at EDPR in the first quarter, if it relates only with the sale of the 121 megawatts wind portfolio in France and Belgium? And if we can clarify the good capital gain per megawatt implicit in the transaction. Miguel de Andrade: Okay. So thank you, Pedro. Yes. So in the first -- in the third quarter, the capital gain is mostly related to the French and Belgium portfolio, and it's around EUR 0.4 million per megawatt. So the multiple was great. It was an EV per megawatt of around EUR 1.6 million per megawatt. And that implies around 28-or-so percent capital gains on invested capital. So yes, it was a great deal. I think this just reinforces that we continue to see strong demand for these portfolios. We continue to see great multiple for these portfolios. And in Europe, we've been consecutively able to deliver on good numbers here. It was a good operating portfolio with around 11 wind projects in France and 1 wind project in Belgium, all with COD around 2020. I mean in this case, the buyer is a financial investor. And as I said, we continue to see strong interest for our assets at attractive implicit yields. Miguel Viana: We have also a question about what impact we have in our 9 months '25 accounts regarding the extra cost with the ancillary services in Iberia related with the increase of these costs during this year, namely supported on the supply side? Miguel de Andrade: Yes. So ancillary services, as you know, post blackout, there was a big increase, but there has already been a structural increase before that. And I'll talk a little bit about that later in the CMD. I mean the value is estimated at around EUR 150 million. But just bear in mind that the revenues on the generation side have to then be passed on to customers. And in some cases, those contracts are already fixed. So on a net basis, we continue to benefit from our FlexGen portfolio, but obviously partially offset by sort of then the pass-through to the customers taking just happening over the next couple of years. But we can give you more detail on that also when we talk in the CMD. Miguel Viana: So we have also a question regarding the guidance for 2025. So we see now the EBITDA on the EUR 4.9 billion, which is at the top of the previous range provided. Net income at EUR 1.2 billion. So if we can comment on this evolution for the guidance for 2025. Miguel de Andrade: Yes. So what I'd comment here on the guidance is, listen, we're very confident on delivering the guidance for all the different business segments, including the integrated in Iberia. I mean we did have a weaker October, and that's also incorporated. But we are also seeing -- so that's sort of at the EBITDA level. There's no doubt we're sort of at the top end of the range. But we are seeing slightly higher financial costs, especially in Brazil and also tax rate expected to be around 25%, 26% by year-end. And therefore, the net income coming in still within the range, but close to the EUR 1.2 billion end of the range. Miguel Viana: We have also a question regarding our current exposure, regarding offshore in U.S. And if we have any comments regarding latest news regarding permitting in U.S.? Miguel de Andrade: So there was some news that came out. I think it was an article, that's probably what you're referring to, article that came out in the New York Times or something like that, around offshore in the U.S. and around the permitting. As you know, offshore in the U.S. is pretty much in hibernation mode at the moment and sort of it's been much more about just riding out this phase. We have an exposure, and we said this multiple times. We have a total exposure at the EDPR level of around EUR 300 million. It's about EUR 200 million at the EDP level. We already partially impaired that at the end of last year, assuming that we're going to delay the project 4 years. So we're keeping this exposure contained and sort of at a minimum. And we're just focused on building the legal case to defend the project permits and the value and also just then focusing on what could be the next steps. Essentially, we're at the same stage as many other of our peers are in relation to offshore in the U.S. I think the key issue here is what is the value it's taken. As many of you know, it's around the EUR 300 million at the EDPR level, which has already been partially impaired. Miguel Viana: We have also a question in terms of the -- how we are evolving in terms of hedging for 2026, where we are in terms of contracting in terms of hedging volume and prices in Iberia? Miguel de Andrade: So for hedging, as you know, we typically hedge 12 to 18 months ahead. So in this case, for 2026, we're already around 85% hedged at a price that's north of EUR 64 per megawatt hour. This is something that we do sort of on a rolling basis. But for 2026, it's pretty much all set. I would say we normally don't -- we wouldn't hedge more than this just because of -- just to make sure from a risk perspective, we don't become overhedged. So 85% is -- I would consider to be already the level of hedging that we want for 2026, and that's at the EUR 64 or north of EUR 64 actually in this case. Miguel Viana: We have the last question just in terms of execution of 2025, if we -- how do we see our delivery in terms of the target 2 gigawatts in EDPR in 2025? Miguel de Andrade: So we are on track, on time, even slightly under budget in some of the projects, but overall, very much within the budget for the 2025 project. And so I'd say that, that's -- it's a good year from an execution point of view. There's been no issues around supply chain, everything sort of is on site, and we're just wrapping up sort of -- and we'll be wrapping up sort of by the end of the year. So I'd say everything on time, on budget and on track. Miguel Viana: So we have no more questions. Miguel, just if you want to just closing remarks. Miguel de Andrade: I'd say, listen, it was a good set of -- it's been a good year, good 3 quarters. And I think we're well positioned to have a good full year and looking forward to talking to you about the next couple of years at the CMD. So look forward to seeing you all then. Thanks.
Operator: Good afternoon, ladies and gentlemen. Welcome to Chunghwa Telecom Conference Call for the company's Third Quarter 2025 Operating Results. [Operator Instructions] And for your information, this conference call is now being broadcasted live over the Internet. A webcast replay will be available within an hour after the conference is finished. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. And now I would like to turn it over to Ms. Angela Tsai, Vice President of Financial Department. Thank you. Ms. Tsai, please begin. Cho-Fen Tsai: Thank you. I'm Angela Tsai, Vice President of Finance at Chunghwa Telecom. Welcome to our third quarter 2025 results conference call. Joining me on the call today are Chunghwa's President, Rong-Shy Lin; and our Chief Financial Officer, Audrey Hsu. During today's call, management will begin with sharing our recent strategic achievements and provide an overview of our third quarter business results. This will be followed by a discussion of our segment performance and financial highlights. We will then open the floor for questions and answers. Please turn to Slide 2 to review our disclaimers and forward-looking statement disclosures. Now without further delay, I will turn the call over to President. President Lin, please go ahead. Rong-Shy Lin: Thank you, Angela, and hello, everyone. Welcome to our third quarter 2025 results conference call. Extending the outperforming results of this first half, we continue to beat the financial guidance in the third quarter. Our revenue, operating income, net income and EPS all exceeded the upper end of our forecast. Third quarter revenue hit its highest level since 2017, reflecting the robust growth in our core business and extending ICT services. ICT revenue alone set a new third quarter record, the highest since 2021. As Taiwan's telecom market continued to develop healthy, we are confident in our full year financial results and supported by our leadership across all business segments. For our midterm to long-term development, we believe that group expansion of -- and AI-related initiatives are critical, and we have taken proactive steps. In this area, we are pleased to see our cybersecurity subsidiary, a Chunghwa Telecom Security, successfully complete its public listing in September with International Integrated Systems soon to follow in its upcoming IPO. Moreover, in October, we launched InventAI, a new subsidiary spun off from our research division, dedicated to monetizing AI innovation. Our AI capabilities have received significant recognition and honors. On the global stage, our first self-developed Vision-Language Model technology secured first place in the transportation category at the Global AI City Challenge, a prestigious international competition co-organized by NVIDIA and a leading university worldwide. This recognition was earned through our technology, superior accuracy and predictive capabilities in analyzing highly complex traffic scenario. In Taiwan, we hold the largest portfolio of AI-related patents in the industry, far ahead of our peers, serving as a solid base for future development. We are proud of these achievements and remain committed to maintaining our competitive advantages. Our technology expertise and resilient network have also created social value to benefit the public. In August, as Taiwan was suffering from catastrophic typhoon, we overcame challenges to deliver portable OneWeb equipment and restore communication in isolated area affected by the breakdown, demonstrating our commitment to social responsibility. Additionally, as we continue to invest in facilitating ESG practice, we completed the issuance of TWD 3.5 billion sustainability bond in the third quarter to promote biodiversity, EV initiatives and other environmental projects. This reflects our action to integrate ecological conservation, decarbonization and green finance to progress towards net zero. Now let's move on to the business overview of the third quarter of 2025. Please turn to Page 5 to review our success in Taiwan's mobile market. In the third quarter, we further strengthened our leadership position in Taiwan's mobile market. According to the data from our telecom regulator, our mobile revenue market share climbed to a new high of 40.8%, while our subscriber share among peers rose to 39.4%, representing an encouraging 1.6 percentage point year-over-year increase, mainly driven by continued growth in the postpaid subscribers. We are pleased with this solid growth momentum. Our 5G performance was equally impressive. Based on regulators' data, our 5G subscriber market share rose to 38.8%, maintaining our industry-leading position. The 5G penetration rate among our smartphone users further increased to 44.7% by the end of the third quarter, while the average monthly fee uplift from 5G migration remained robust at approximately 40%. With the combined strength of our expanding subscriber base and growing 5G adoption, our mobile service revenue growth outpaced the industry achieving a solid 3.3% year-over-year increase. Postpaid ARPU also grew 1.8% year-over-year. We expect this positive trajectory to continue, supported by Taiwan's favorable mobile market landscape. Let's move on to Slide 6 for our outperforming fixed broadband business update. In the third quarter, our fixed broadband revenue grew by 3.2% year-over-year, driven by continued high-speed migration and the success of our high net 30th anniversary promotion package alongside our existing bundle plan that combine MOD WiFi and streaming services. We are pleased to report that the number of subscribers choosing speed of 300 megabits per second and above increased by about 14% year-over-year, while those opting for 500 megabits per second and above recorded a double-digit growth and the 1 gigabit per second and above achieved multiple for expansion. This higher speed migration contributed to strong ARPU performance. In the third quarter, our fixed broadband ARPU rose 3% year-over-year, representing an increase of TWD 23 per month, an encouraging sign of ongoing value expansion. Slide 7 provides a deep overview of highlights from our consumer application services. In the third quarter, our multi-play package integrating our mobile fixed broadband and WiFi services achieved impressive year-over-year growth of 22%, marking 15 consecutive quarters of expansion. In terms of our video services, subscription fluctuated in line with major sports broadcast declined year-over-year during the quarter, mainly due to the relative high base from -- base from last year Olympic Games broadcast is this event-driven variation. Our video subscription and ARPU sustained its expected upward trend. Noteworthy, we are proud of to highlight the success of drama investments in the third quarter. For example, The Outlaw Doctor won Best Asia content in Global OTT Award in Busan and [indiscernible] at the 30th Golden Bell Awards in Taiwan with multiple nominations and awards. With those wins, we will continue our content investment strategy to strengthen value for our subscribers. Meanwhile, our consumer cybersecurity services recorded a 17% year-over-year growth with a steady number of blocked malicious link per user more than doubling compared to the same period. Slide 8 illustrates the key highlights in our enterprise ICT business. We are pleased with 14% year-over-year increase of our group ICT revenue in the third quarter, fueled by the emerging service expansion. Recurring ICT revenue also grew by 19%, supported by our continued commitment to public cloud in the entity supply contracts in the government sector, which effectively contributed to the steady growth in the cloud service recurring revenue. Regarding core service pillars, IDC cloud and cybersecurity remain key ICT revenue growth drivers, posting year-over-year growth of 34%, 24% and 19%, respectively. driven by the strong demand from the financial and government-related sector. In addition, Big Data services surged by 130% year-over-year, largely attributable to the National Taxation System project. Among the newly secured projects during this quarter, we are glad to report the acquisition of our largest ever network infrastructure project, both by scale and the contract value from a leading life insurance company in Taiwan. This project is expected to generate both onetime and recurring revenue. We also won a landmark project from Taipower to assist in building its large-scale AMI big data analytics platform for smart grid management. Lastly, leveraging our deep expertise in smart transportation, we secured a project to assist Taiwan Railway to develop a smart real-time fleet management solution powered by the digital twin and 5G technologies, simulating training -- train control cabin dashboards, enabling railway operation hub center to proactively identify failing equipment and monitor dispatching vehicles, further enhancing operational efficiency and reducing maintenance costs. Slide 9 illustrated the performance of our international subsidiary. In the third quarter, our U.S. subsidiary delivered outstanding results by achieving 70% year-over-year revenue growth, primarily fueled by AIDC construction project of a Taiwan-based high-tech company in Texas. Together with the efforts of our Japan subsidiary, we anticipate securing additional related projects, strengthen our role in the global AI supply chain. Meanwhile, our Southeast Asia markets continue to thrive with our Singapore and Vietnam subsidiaries actively deliver plant construction services that are expected to contribute to future revenue. Excitingly, this quarter, we successfully introduced our proprietary solution to global markets. First, through close group collaboration, we introduced cybersecurity services from our newly leased subsidiary, Chunghwa Telecom Security, to overseas clients in Southeast Asia and Japan. Furthermore, we launched our Smart Poles solution in Thailand, fully powered by our proprietary operation platform and integrated AI and IoT solution. The solution delivers services, including adaptive lighting control, localized digital synergy in Thai and traffic flow analytics. We placed particular emphasis on our AI capabilities, which enable seamless replication of our success to other markets in different language. In addition, by supporting our aligned nations, in developing smart cities, we have leveraged our 5G private network and ICT capabilities to generate overseas smart city revenue from Paraguay and Eswatini. Last but not least, we are pleased to see the submarine cable SJC2 has commenced operation and is contributing revenue, while another cable Apricot is expected to follow in the fourth quarter. Now let's move on to Page 11 for the financial performance of our 3 business groups. In the third quarter, thanks to steady growth in mobile and fixed broadband service plus the higher sales driven by the iPhone demand, our CGB delivered a solid year-over-year increase of 2.2% in revenue. Additionally, last year's elevated expense related to the content broadcasting rights contributed to the relative increase of 11.4% year-over-year in CGB's income before tax, broadly supporting the group outperformance. Our EBG also performed well with strong ICT performance as revenue increased 7.4% year-over-year, while income before tax decreased owing to the reduced fixed voice revenue during this quarter as well as a decrease in sales margin related to a long-term enterprise customer engagement. As for IBG, revenue declined by 1.9% and income before tax dropped by 19.7%, primarily due to softened demand for voice services. However, we saw a robust growth in IBG, ICT and mobile services, which rose 14% and 19% year-over-year, respectively, supported by clients' global expansion and increased roaming revenue. Now I would like to hand the call over to Audrey for financial updates. Wen-Hsin Hsu: Thank you, President. Good afternoon. Please turn with me to Slide 12, income statement highlights, where I will cover our performance for the third quarter and first 9 months of 2025. The third quarter demonstrates strong execution and profitability. First, let's look at the top line. Revenue reached TWD 57.92 billion. This achieved a significant milestone of the highest third quarter revenue level in 9 years. This represents a solid 4.2% increase compared to the same period last year. This growth was primarily fueled by the successful expansion of our ICT business and also robust sales growth, while our core telecom service maintained positive momentum. Our strong operating performance is clearly reflected in our bottom line. Income from operations rose by 6.4% and net income increased 4.8% year-over-year. This performance was supported by steady growth across our mobile service and fixed broadband business, alongside the expansion of a high-value service, including Internet data center, IDC and cloud service. As a result of this performance, earnings per share increased from TWD 1.16 to TWD 1.22. This reflects consistent profitability and marks the highest third quarter EPS in 8 years. This operational efficiency also resulted in a strong quarter for EBITDA, which recorded a 4% gain, reaching TWD 22.11 billion for the quarter. The EBITDA margin of 38.17% was virtually in line with the 38.23% recorded in quarter 3 last year. This demonstrates sustained cash generation. So now moving now to our year-to-date performance through the first 9 months. Please focus on column 5 through 7 for the results. So revenue grew by 3.5% year-over-year, supported by strong momentum in our ICT portfolio and the sales contribution from our subsidiary, Chunghwa Precision Test Tech. Reflecting its top line strength, income from operations and net income rose 5.5% and 4.2%, respectively, primarily fueled by the continued expansion of ICT and cloud service, supported by sustained positive momentum from our core telecom business. Year-to-date EPS stands at TWD 3.79 compared to TWD 3.64 last year. Furthermore, EBITDA increased 3.6% to strong TWD 67.22 billion. The EBITDA margin stood at 39.43%, broadly consistent with prior year period. So in summary, the results highlighted the dual strength of our stable core telecom foundation and our successful pivot into high-growth ICT service. Now let's turn to Slide 13 for balance sheet highlights. We will review our financial position as of September 30, 2025, relative to year-end 2024. Our balance sheet continues to reflect our strong commitment to capital discipline and financial flexibility. Total assets decreased by 4%, a reduction primarily stemming from the utilization of cash and other current monetary assets to meet a debt maturity obligation during the period. In addition, property, plant and equipment declined by 2.1% as depreciation exceeded net additions, reflecting our continued focus on asset efficiency. Moving to the liability side. Total obligation decreased significantly by 10%. This net reduction resulted from the repayment of a maturing debt obligation and the subsequent partial refinancing through the issuance of our first ever sustainability bond that incorporates biodiversity feature. This reflects our commitment to ESG-based financing. As a result of this deleveraging, our reported debt ratio stood at a healthy 23.91%, showing a slight decrease compared to year-end 2024. Regarding liquidity, our current ratio remains stable and above 100%, highlighting healthy short-term financial flexibility. Meanwhile, our net debt-to-EBITDA ratio stood at an exceptionally low 4.5%. This reflects our highly deleveraged position and capacity to sustain our ongoing investment strategy within a balanced capital structure. Let's move to Slide 14, cash flow summary. We will review our year-to-year performance through the first 9 months of 2025. Cash flow from operating activities decreased by 8.6% year-over-year. This was driven primarily by the timing of the settlements, specifically increased payment for accounts payable and highly accounts receivable as of September 30. Capital expenditures rose 8% year-over-year, partly reflecting the timing of 5G, 4G deployment. This year's project were front-loaded in the early months, whereas last year's occurred later in the period. Some of this year's payment also relate to projects booked last year, so the increase mainly reflects timing rather than high investment activity. On an accrual base, CapEx has actually trended lower and full year mobile investment is expected to remain below 2024 level, consistent with our disciplined approach to capital management. As a result of these factors, free cash flow declined by 16.5% to TWD 28.19 billion year-over-year. This result is in line with expectations, given the short-term increase in working capital and the timing of our CapEx investment. We continue to maintain a strong cash position and stable operating inflows to support both business growth and shareholder return. Moving to Slide 15, performance highlights and guidance. I will summarize our key achievements for the period. In quarter 3 2025, the strength of our execution drove significant acceleration. We achieved record-setting Q3 revenue and EPS, while our key profitability metrics from income from operations, net income and EBITDA all performed strongly and met or exceeded our internal margin targets. For the full 9-month period, the cumulative results validate our strategy, all major metrics, including revenue, income from operations, net income, EPS and EBITDA performed above or on target for our full year guidance. The success was powered by the sustained profitability of our ICT service and the reliability of our core telecom business. Crucially, revenue growth outpaced operating expense, reflecting excellent operating leverage and efficiency. So this concludes our review of the financial performance for the third quarter and the first 9 months of 2025. We are now happy to open the door for your questions. Operator: [Operator Instructions] Cho-Fen Tsai: okay. We got one question from the dashboard. The question is that what is the driver of our international projects business? Okay. For international business, just as we mentioned that in the international markets, besides that, Chunghwa can play a role in the global AI supply chain. So actually, we see great potential of opportunities in the market of United States. So now our subsidiary in the United States are doing the project in Texas in those states that a lot of Taiwan high-tech company relocate there to do some plant construction and most of them are -- play a very important role for the AI supply chain globally. And in the Japan market, we also see similar opportunities in Japan, right? And in addition to that, we also try to introduce our self-development solutions to the global market. So for this quarter, our subsidiary, the CHT Security, their cybersecurity services, we successfully introduced the services to Southeast Asian markets and in Japan, okay, with the collaboration of our subsidiaries in Singapore and in Japan. For the Southeast Asia company, we also see the opportunities from the high-tech companies. That's the main driver of the business growth in Southeast Asia company. And we also try to introduce the smart city-related projects there. So in the third quarter, we see that we successfully introduced our Smart Pole project there. Although we want to notice that the Smart Pole is mainly developed and we introduced our in-house solutions, and we also collaborate with the partners to make it successful in Thailand. Operator: [Operator Instructions] There seems to be no further questions at this moment. I will turn it over to President Lin. Please go ahead. Rong-Shy Lin: Okay, everyone. Thank you very much for your participation. See you. Bye-bye. Operator: Yes. Thank you, President Lin. And ladies and gentlemen, we thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit CHT IR website at www.cht.com.tw/ir under the IR Calendar section. You may now disconnect. Thank you again, and goodbye.
Angela Broad: Good morning, and welcome to National Grid's half year results presentation. I'm Angela Broad, Head of Investor Relations, and it's great to have so many of you on the call today. Firstly, please can I draw your attention to the cautionary statement at the front of the pack. As usual, a Q&A will follow the presentation. [Operator Instructions] All of today's materials are available on our website. And of course, for any further queries after the call, please do feel free to reach out to me or one of the IR team. So with that, I'd now like to hand you over to our CEO, John Pettigrew. John? John Pettigrew: Many thanks, Angela. Good morning, everyone, and thank you for joining us today. Well, as you know, this is my last set of results, and I'll be handing over to Zoe who becomes Chief Executive on the 17th of November. So before we get started with the results presentation, let me pass it over to Zoe to say a few words. Zoe Yujnovich: Thank you, John, and good morning, everyone. Today's results are an important moment for National Grid and for me personally, as I pick up the baton from John. I want to take a moment to recognize his remarkable contribution over a decade as CEO. The strong foundation he leaves behind are a testament to his leadership and the dedication of our National Grid team. Since joining as CEO Designate on the 1st of September, I've had the privilege of meeting with many colleagues and stakeholders. What stands out to me is the scale and ambition of what we're delivering, transforming our networks and investing at pace. Our GBP 60 billion capital investment is not just a number. It's a commitment to future-proofing networks so we can meet the surge in demand we're seeing and ensure the millions of homes and businesses we serve have the reliable and clean energy they need at a price they can afford. As I step into my role in the coming days, my immediate focus will be on maintaining momentum, staying focused on performance and delivering safely and responsibly. I will approach this with a clear-eyed view of the challenges and exciting opportunities ahead. I believe in the vital function energy companies play in driving growth and prosperity. I'm committed to ensuring National Grid plays its part with an unrelenting focus on operational excellence and capital discipline as we continue to deliver for our customers and create value for our shareholders. I look forward to meeting all of you in due course, but for now, I'll hand to John and Andy to take you through the results. John Pettigrew: Thank you, Zoe. So turning to our half year results. As ever, I'm here with Andy Agg and once we've been through our respective presentations, we'll be happy to answer your questions. It's been a really positive first half as we've continued to build on our strong foundations to deliver excellent operational and financial performance. . The investments we're making in our networks have never been more important to ensure continued resilience, enable economic growth, deliver cleaner energy and meet growing power demand. And it's these drivers that underpin the strong visibility we have in our investment program, supported by our regulators. This, in turn, gives me huge confidence in National Grid's ability to carry on delivering a compelling investment proposition with investment growth around 10% per annum and underlying earnings per share growth of 6% to 8%, whilst maintaining a strong balance sheet and delivering an inflation-protected dividend. Before I come to our performance, I want to highlight three key areas which reinforce my confidence in our ability to deliver on our plans. Firstly, the strong progress we've made in securing the supply chain to deliver record levels of investment. As you know, a big focus over the last 2 years has been to secure the supply chain for our largest suite of major projects in the U.K., the accelerated strategic transmission investment or ASTI. Today, I'm pleased to say we're in a really strong position. All 6 of our Wave 1 projects are already under construction with work progressing well. Our GBP 9 billion Great Grid Partnership covering the delivery of the 8 onshore projects within Wave 2 is now up and running with our 7 strategic partners. And we're making great progress with the remaining 3 Wave 2 offshore projects where we've completed the contracting for Sea Link and announced the preferred suppliers for Eagle 3 and 4 with contracts expected to be signed in the next few months. Once complete, we'll have secured the supply chain for all 17 ASTI projects, a significant achievement. And as a result, over 3/4 of our GBP 60 billion investment plan is now underpinned by delivery mechanisms enabling us to ramp up our capital delivery. We've invested over GBP 5 billion in the first half, another record for the group, and we remain on track to deploy over GBP 11 billion of capital investment this year, in line with our guidance. The second area to highlight is the continued momentum we're seeing from both a regulatory and policy perspective. On the regulatory front, we've built on the strong foundations we set last year in the U.S. with around 75% of our 5-year investment plan approved within our rate cases. We've also seen some important policy developments. As you know, New York State announced last year that it's likely to miss its target of 70% renewable generation by 2030. As a result, we've seen a shift in the last half towards an all-of-the-above approach when it comes to balancing clean energy goals with affordability and reliability. For example, in September, following submission of our long-term gas plan, the PSC issued an order supporting the proposed Northeast Supply Enhancement or NESE pipeline. If built, the capacity provided by the pipeline would materially enhance reliability and resilience whilst also potentially reducing energy costs for New Yorkers by up to $6 billion. In the U.K., I'll come to regulatory development shortly. But on the policy front, the government is continuing to look at different ways to support faster delivery of infrastructure and accelerate economic growth. Alongside their planning reform legislation targeted at large infrastructure projects which should support delivery of projects in the 2030s, they've also launched consultations, which include proposals to allow electricity distribution network operators to carry out simple reinforcement activities without full planning permission and a revised fast track consenting process. If implemented, this could have important benefits for future transmission projects. So it's clear we're seeing strong regulatory support for the investments we're making as well as the policy progress to assist in the delivery of future projects. And then thirdly, the near-term actions we're taking to support load growth in the U.K. We're working with the government and industry, including U.S. big tech companies, as they seek to develop the U.K.'s AI infrastructure, including the creation of data centers within AI growth zones like the recently announced ones in and Cobalts Park. These projects represent tens of billions of pounds of investment in U.K. infrastructure and are evidence of the demand growth we forecast in our RIIO-T3 business plan. which is designed to connect up to 19 gigawatts of additional demand over the 5 years to March 2031, around half of which is expected to be connecting data centers. We're now working hard to facilitate these connections, including working with the government through the AI Energy Council to support the development of more AI growth zones, so we can deliver the investment needed to meet growing energy requirements. So let me now turn to our financial performance, where we've delivered a strong set of results in the first half. On an underlying basis, that is excluding the impact of timing and exceptional items, operating profit was up 13% to GBP 2.3 billion, reflecting increased regulatory revenues across our U.S. and U.K. electricity transmission businesses. This strong operating performance drove an increase in underlying earnings per share of 6% to 29.8p. As you've already heard, our business delivered a record GBP 5.1 billion of investment, up 12% year-on-year at constant currency. And in line with the policy, the Board has declared an interim dividend of 16.35p per share. Turning next to reliability and safety. I'm pleased to say reliability has remained strong across our U.K. and U.S. networks over the first half of the year. As we look ahead to the winter we're well prepared with winter readiness plans in place. The NESO recently published its winter outlook report for the U.K., in which they forecast electricity margins around 10%, the highest since 2019. In the U.S., whilst we anticipate adequate electricity margins, gas availability across the coldest days of winter remain a focus, especially in extreme weather events, and so our teams will work closely with upstream suppliers to mitigate any risks. And in July, the NESO published its report investigating the outage following the fire at our North Hyde substation and we're working closely with the government, NESO, Ofgem and industry to progress the report's recommendations. Safety, as always, remains a critical focus across our business. In the last 6 months, our lost time injury frequency rate was 0.09, inside our group target. We continue to promote a culture of safety excellence including, for example, identifying new ways to enhance our safety protocols, such as the use of digital job briefs to increase hazard recognition in the field. Moving now to our operating performance across the group, starting with Electricity Distribution. Capital investment increased by 17% and to GBP 756 million, reflecting increased asset replacement and load-related reinforcement activity. I'm pleased to say that we've now delivered over GBP 100 million of synergy savings, 6 months ahead of target following the U.K. electricity distribution acquisition in 2021. These synergies have been achieved through smarter procurement, operational efficiencies across our shared sites and integration of support functions in the group. In October, we also saw the publication of Ofgem's sector-specific methodology consultation for RIIO-ED3, which builds on the foundations of the T3 framework. We welcome the fact that Ofgem has directed networks to use a long-term planning horizon. This will ensure that delivery of the next price control also takes into account investment drivers in the decades ahead. including load growth, asset health, resilience and renewable generation. We've also made good progress on connections reform, including preparing flexible offers to customers that are likely to secure a cue position. This allows them to progress their projects ahead of a formal offer, enabling faster connections for renewables and low-carbon technologies. And finally, we continue to build our system -- our distribution system operator capabilities with the launch of the demand turner flexibility market, incentivizing increased demand as an alternative to curtailing generation. Moving to U.K. Electricity Transmission, where capital investment increased by 31% to GBP 1.7 billion, including construction of new substations to support load growth and progress on our GBP 1 billion London Power Tunnels project where we've now energized the first 2.5 kilometers during substation and. We've also been working hard to find innovative ways to expand system capacity. For example, we began work on a new substation in Uxbridge Moor, West London, with an innovative design, which will have a 70% smaller footprint and avoids the use of SF6, a potent greenhouse gas. This substation will support over a dozen new data centers and is expected to deliver 1.8 gigawatts of new capacity equivalent to powering a mid-sized city. We've also leveraged the approach to procurement frameworks using our strategic infrastructure business, including, for example, in July, when we signed an GBP 8 billion electricity transmission partnership with 7 regional partners to deliver substation infrastructure across the U.K. transmission network. Turning to policy. We're working closely with NESO and customers to support connections reform. Once NESO publishes this updated queue, we'll have a clear view of the sequencing of the specific projects required, and we can then turn our efforts to meeting these connection dates at pace. On regulation, Ofgem published its draft determination for the RIIO-T3 framework in early July, with our response published in late August. This included changes we believe are needed to the baseline return and the incentive framework to allow high-performing networks to achieve a globally competitive overall return. We've also proposed a number of refinements to streamline our funding mechanisms, enable us to recover the efficient cost of our investments and progress projects at a pace expected by our stakeholders. As you'd expect, we've engaged heavily with Ofgem at all levels of the organization ahead of the final determination, which is expected in early December. And we expect to take a decision in late February or early March following the license drafting process. Turning now to strategic infrastructure. As you've heard, our focus has been to ramp up delivery of the Wave 1 ASTI projects, whilst also ensuring we're securing the supply chain and relevant consents for Wave 2. specifically on our Wave 1 projects, examples of our progress include our offshore Eagle 1 and 2 projects where the cable manufacturing and site works for the southern converter stations are underway, our onshore Yorkshire Green upgrade project where the last of 8 200-ton transformers has now been delivered and the North London Reinforcement project where we finished reconducting 3 circuits, installing over 190 kilometers of cables. We've also completed 4 public consultations this year, including the submission of 2 major development consent order applications, Sea Link and Norwich to Tilbury, with both submissions now accepted by the planning inspectorate, a major milestone. On the regulatory front, we continue to engage with Ofgem to find a resolution to our request for a delay event on the Eagle 1 project and are encouraged by the discussions to date. We expect these negotiations to reach a final decision over the next few months. Coming to the U.S. and starting with New York, where we've continued to make strong progress across our operations. Capital investment reached GBP 1.6 billion, up 5%, driven by an increase in mains replacement expenditure. In addition, we've continued to make strong progress on our $4 billion upstate upgrade, including our Smart Path Connect transmission project, where our segment is on track to be ready to energize at the end of the year and our Climate Leadership and Community Protection Act, or CLCPA Phase 1 and 2 projects, where we expect the first round of permit approvals for the end of the calendar year. On the regulatory and policy front, in addition to the order from the PSC on the NESE pipeline and the approval of the Niagara Mohawk joint proposal, we're also engaging on the draft New York State Energy Plan. Released earlier this year, the plan outlines long-term strategies to meet New York's energy needs. It emphasizes the importance of infrastructure investment and recognizes the enduring role of the gas network in maintaining reliability, affordability and security of supply. Once finalized later this year, the plan will influence future regulatory decisions and utility planning across the state. In New England, capital investment increased by 23% to GBP 1 billion, reflecting increased spend on asset condition and system capacity in both electricity transmission and distribution, 220,000 smart meter installations and the further rollout of our fault location isolation and service restoration program. We've also agreed partners for our strategic procurement framework which will support over $3 billion of contracts over the next 5 years. And finally, on regulation and policy, we've agreed around $600 million of allowances under the Electric Sector Modernization Plan largely focused on electric vehicle highway charging and IT infrastructure, and we're continuing to work with the governor's office to advance the Energy Affordability Bill. Moving to National Grid Ventures. Capital investment was GBP 69 million, supporting asset refurbishment across our Interconnector and U.S. Generation portfolios. Operationally, we've had a strong 6 months with our Interconnector fleet at 90% availability and our Generation fleet achieving 96% reliability. We've also progressed the Propel transmission project through our Transco joint venture, where EPC contracts are now under development. Once complete, the project will help to deliver power from Long Island to the Bronx in New York City and Westchester County. We've also streamlined our portfolio, having completed the sale of National Renewables in May and announced the sale of Grain LNG in August. With all regulatory approvals received, we expect completion in the coming weeks. So let me stop there and hand over to Andy to walk you through the numbers before I come back to talk about our priorities for the second half. Andy? Andrew Agg: Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results excluding timing, U.K. deferred tax and exceptional items and the dual results are provided at constant exchange rates unless specified. So starting with our overall performance in the first half. We've delivered strong results with underlying operating profit on a continuing basis at GBP 2.3 billion, a 13% increase from the prior year, primarily driven by higher regulated revenues in U.K. electricity transmission reflecting growth in the asset base and higher revenues in our U.S. regulated businesses following recent rate cases, partially offset by the sale of the electricity system operator last year. Strong operating profit growth partially offset by higher finance costs and a full impact in the half from the rights issue shares has led to a 6% increase in earnings per share to 29.8p. We've continued to make good progress with our capital program. with investment from continuing operations at GBP 5.1 billion, another record level, and up 12% year-over-year. In line with our policy, the Board has declared an interim dividend of 16.35p per share, representing 35% of last year's full year dividend. Moving now to our business segments, starting with U.K. Electricity Distribution. Underlying operating profit was GBP 551 million, down GBP 22 million versus the prior year. reflecting lower revenues due to headwinds from Ofgem's real price effects mechanism, which more than offset the benefit of revenue indexation and recovery of higher totex allowances and higher depreciation. In the period, we exceeded our cumulative 3-year target of GBP 100 million of synergy benefits by FY '26, 6 months ahead of schedule through leveraging our increased buying power, delivering savings from integrating support functions and working more efficiently at joint transmission and distribution sites across the U.K. Capital investment was GBP 756 million for the half year. an increase of GBP 109 million compared to the prior period, primarily driven by higher asset replacement and refurbishment and higher load-related network reinforcement. In our U.K. Electricity Transmission business, underlying operating profit was GBP 846 million, up GBP 122 million compared with the prior period. A strong first half performance was driven by higher allowed revenues partially offset by higher depreciation. Capital investment was GBP 1.7 billion, 31% higher than the prior period. This reflects our ongoing spend on substation build-out as well as the significant step-up in investments on our ASTI projects and ASTI enabling works. Moving now to the U.S., where underlying operating profit for New York was GBP 443 million, GBP 167 million higher than the prior year as a result of higher net revenue reflecting the growth of the business as we upgrade and reinforce our networks and the recovery of previously unremunerated costs following recent rate case updates. This was partially offset by increased depreciation, reflecting a higher asset base and higher costs, including property taxes and environmental provisions. Capital investment was GBP 1.6 billion. This was GBP 82 million higher than the prior year. from a further step-up in the pace of our mains replacement activity under our downstate gas rate case and increased spend on smart meters, partially offset by lower costs on Smart Path Connect as we near completion of this project. In New England, underlying operating profit was GBP 292 million, GBP 65 million higher than the prior period, following higher revenues reflecting our growing asset base and improved incentive performance, partly offset by higher depreciation and other investment-related costs as we ramp up the capital program. Capital investment was GBP 958 million, GBP 178 million higher than the prior year. This was driven by increased asset condition and system capacity investments and smart meter installations, partly offset by reduced mains replacement work. Moving to National Grid Ventures, where the underlying contribution was GBP 227 million, including joint ventures. The increase of GBP 19 million compared to the prior year was primarily due to the benefit of depreciation having ceased in Grain LNG following its classification as held for sale. This accounting treatment for Grain, along with the sale of National Grid Renewables, drove a reduction in capital investment to GBP 69 million. And our other activities reported an operating loss of GBP 27 million, GBP 11 million lower than the prior period. principally driven by lower insurance costs and the non-repeat of fair value losses in the National Grid Partners portfolio. Turning to financing costs and tax. Net finance costs were GBP 678 million, an increase of 4% compared with the prior year due to higher average net debt and the impact of higher inflation on indexed linked debt. The underlying effective tax rate before joint ventures was 11.3%, 60 basis points lower than the prior year, principally due to the benefit of higher capital allowances in our U.K. regulated businesses. and a change in the profit mix. Underlying earnings were GBP 1.5 billion, up 16% with earnings per share at 29.8p. On cash flow, Cash generated from continuing operations was GBP 3.6 billion, up 35% compared to the prior year. This increase is driven by improved profitability across the U.K. and U.S. and favorable movements in working capital. In total, net debt increased by GBP 1.5 billion to GBP 41.8 billion in the period with strong cash inflows from operations and the GBP 1.5 billion of National Grid Renewable sale proceeds, helping to offset the continued growth in capital investment. For the full year, we expect net debt to increase by around GBP 1 billion from the half year. including the Grain sale proceeds and assuming a USD 1.35 exchange rate. As John said out earlier, we've continued to make significant progress in capital delivery securing the supply chain and advancing our regulatory and policy agenda. As I previously set out, our plans were designed to be robust against a range of outcomes with respect to interest and exchange rates, and I remain confident in our ability to deliver in line with our 5-year framework. Turning to forward guidance, and we've included detailed guidance for the full year in our results statement as usual. Following strong performance over the first half of the year, we expect a modestly higher underlying EPS relative to our guidance in May. The impact of a weaker U.S. dollar and a slightly higher share count due to scrip uptake is expected to be more than offset by improved operating performance in the regulated businesses and slightly lower financing costs. With that, I'll hand you back to John. John Pettigrew: Many thanks, Andy. Now before we move to Q&A, I want to spend the final few minutes setting out our priorities for the remainder of the year as we continue to invest across our networks. Starting in the U.S. and New York where we have a number of priorities. including further work with the state on its energy plan to shape a road map that balances decarbonization, affordability and reliability. Ongoing work with Williams in our role as the sole offtaker of the NESE pipeline, as they look to secure regulatory approvals, which are expected later this year and preparing for our Downstate New York gas filing due for submission next spring, ensuring we're able to continue to invest in safety and reliability while supporting customer needs and managing affordability. In Massachusetts, our priorities include filing our gas distribution rate case, which is now planned for January to allow us more time to engage with new stakeholders and propose measures aligned with evolving state policy goals, working with the state on its affordability bill and producing our climate compliance plan, an important enabler of the cleaner energy transition. Turning to the U.K. In Electricity Transmission, our priorities are clear: to engage with Ofgem to deliver a RIIO-T3 framework that allows high-performing networks to achieve a globally competitive overall return and mechanisms that enable us to deliver at the scale and pace required. Work with the AI Energy Council as part of our efforts to collaborate across the energy and tech industries, and build on the good progress we've made in ramping up construction across our Wave 1 ASTI projects, whilst also engaging closely with stakeholders and communities as we progress our development consent orders. In Electricity Distribution, our key priority is preparing our response to the RIIO-ED3 sector-specific methodology consultation ahead of Ofgem's decision expected in the spring. And in National Grid Ventures, we have 2 key priorities: developing and winning new competitive transmission opportunities in the U.S., including an ISO-led opportunity in New England, and closing the sale of Grain LNG completing our announced divestments. Now before we take your questions, as this is my last results presentation, I want to reflect briefly on the journey I've been privileged to be part of over the past 10 years. It's been a truly transformative decade for National Grid. When I presented my first set of results back in 2016, the business looked very different with the majority of our operations in gas. Today, we're over 3/4 electric, a fundamental shift that reflects the successful portfolio repositioning that has enabled us to pivot towards growth and a geographical footprint that is more balanced across the U.K. and the U.S. I'm incredibly proud of how we've responded as an organization to meet the needs of our customers by delivering extraordinary organic growth. We've deployed nearly 3x the level of capital investment compared to 2016, and the growth in regulated asset base is expected to be over 10% this year compared to just 4% a decade ago. Our business is incredibly strong, giving me huge confidence in National Grid's ability to continue to deliver a compelling investment proposition. Beyond the numbers, I'm very proud to be handing over an organization where our values and the critical role we play for our customers are the driving force of our ambitions. Zoe is the right person to lead National Grid into this next chapter and I know she will find the clarity of our mission, the scale of the opportunities ahead to be a source of strength in the years to come. So let me stop there and give you the opportunity to ask Andy and I any questions. John Pettigrew: Okay. So we've got lots of questions. So I'm going to perhaps start with Pavan from JPMorgan. And then after Pavan, perhaps I could ask Sarah from Morgan Stanley to ask her question. So Pavan, if we can have your question, please. Pavan Mahbubani: And John, I just wanted to congratulate you on the results you've delivered during your leadership. I wish you all the best for your future beyond National Grid. So I've got 2 questions, please. Firstly, on T3 expectations? Can you give a bit more color on your dialogue with Ofgem looking at particularly some of the data points we've had earlier this year on the U.K. water CMA provisional determinations? And on do you foresee upward pressure on the return on equity? And then my second question is on net debt and the net debt guidance looks better for the full year than in May, even accounting for the proceeds of disposals. You highlighted the working capital effect in your speech. I was wondering if you could give a bit more color on the drivers of this and whether it's sort of -- that is something that should persist into the future years? Just trying to get an idea of the basis. John Pettigrew: Thanks, Pavan. Let me do a question one, then I'll hand over to Andy to do question 2. And thank you for your kind remarks. In terms of RIIO-T3, if I just take you back to our response to the draft determination, in that, we said very clearly to Ofgem, there were 2 fundamental areas that we wanted to focus on between the draft determination and the final determination. The first was the overall investable framework and the second was the workability of the regulatory framework. In terms of the investment framework itself, you would have seen in our draft determination that we made the argument that we believe the overall return needs to be comparable with what we'd see internationally. And therefore, based on what was in the draft determination, we set up that we felt that the base return should be higher. I think given what we've seen in the provisional CMA decision on water and things like I think that reinforces some of the argues that we've made. We also said as part of the financial package that we needed a lot more detail on the incentives, and that's been an area of focus since we made that response to the draft determination with Ofgem at all levels of the organization. In addition to the financial framework, we also said we needed a framework that was actually deliverable. And in particular, what we meant by that was given the scale of the CapEx that we need to deliver we need to have the ability to be able to make decisions quickly and then to move nimbly through the process, in particular, in terms of when Ofgem sets the allowances and actually agrees that the projects are needed, that it aligns with the development framework for the projects. So that has been the focus, as you can imagine, with what, 4 weeks to go. There continues to be a lot of dialogue, but the dialogue remains in those 2 broad categories. And with that, I'll hand to Andy. Andrew Agg: Pavan, thanks. So you remember back at year-end, we guided to an increase in net debt of around GBP 6 billion, but that was before you take account as you say, of any of the transaction proceeds. By the time you allow for the 2 disposals and the FX movement that we've seen, it's a relatively small difference, net difference compared to the sort of the GBP 1.5 billion increase that we're now guiding to after you take account of all of that. And that small difference is a combination of the slightly higher script uptake that we've seen over the summer and as you say, a little bit of working capital, but it's relatively small in the context of our balance sheet. So I don't see that as being a significant sort of enduring shift. John Pettigrew: Thanks, Andy. So shall I go to Sarah from Morgan Stanley next and then perhaps Mark Freshney from UBS after that. Sarah? Sarah Lester: Firstly, a very big welcome, Zoe. It's always nice to hear another Aussie accent. And John, another very big thank you to you and wishing you all the best in the next chapter. So 2 questions from me, please. And actually, they're both on U.K. Electricity Distribution. So firstly, on the ED operational RoRE performance, please. Just wondering any further color you can provide on how that's tracking against this year's 50 basis points guide and then as we look forward, anything clearly you can please add on that pathway back to the 100 basis points. And then quickly, a bit more on last month's SSMC ED, completely appreciate very early days, but wondering if you can add a bit more on your thoughts, please. If there was anything that surprised you in the document, or mostly, as you already mentioned, mainly just building on what we've already seen through the process. John Pettigrew: Yes. Thanks, Sarah. I mean, in terms of the operational performance of ED, I'd say it's very much on track to where we expected to be at the half year. As you would have seen in the results, we continue to get the impact of the real price effects that we talked about in May, but we are seeing improved performance this year. So we're on track and are guiding towards the 50 basis points of outperformance this year. And we remain of the view that we'll get closer to the 100 basis points by the end of ED. So that is very consistent with what we said in May and the performance of the first 6 months is sort of reinforcing that. In terms of the sector-specific methodology consultation, I'd say it's -- I mean it's very broad, which I think is a good thing at this stage. It very much align with our expectations. I think we were particularly pleased to see that often is set up that they intend to take a very long-term strategic view of distribution going forward over multiple price control periods and that ED3 will be set in that context. I think we're also pleased to see that in the document, they talked about the need for the investment in distribution to stay ahead of the needs of customers. So given that we're expecting to see an increase in EVs and heat pumps and those types of things, then I think we're pleased to see that. It was very consistent in terms of its messaging in terms of the need for an investable proposition and also that the incentives for things like innovation would be important. So broad I would say it met our expectations. It's very broad, and I think it's given us a landscape in which we can respond quite sensibly in time for the decision in the spring. Okay. So if I can move to Mark at UBS and then perhaps after Mark, we can take Dominic from Barclays. So Mark? Mark Freshney: John, congratulations and looking forward to seeing what you'll be doing next. I have 2 questions. Firstly, looking back over the last 2 or 3 Ofgem price controls, do you feel that Ofgem have given you allowances sufficiently -- that are sufficient for you to do all of the maintenance that you would have liked to have done? And just secondly, on infrastructure in general, I mean National Grid has been the center of capital delivery in the U.K. at a time when there wasn't much of it around. Clearly, there's -- government have been clear we're not going to cut capital investment in the U.K. We're going to keep going. What would -- what do you think the U.K. needs to do to get all of this CapEx done, not just in your area, but across the whole piece? John Pettigrew: So thank you, Mark. So in terms of in context of the last 2 or 3 price controls and have we had sufficient allowances, I think the blunt answer to that is yes. When I look at the outcomes, which is probably the most important thing, we've continued to deliver world-class reliability at 99.69, as you know I quote quite often. But also, if I just take a broader perspective and look at the number of unplanned outages we have on the network, so unexpected failures of assets today compared to 10 years ago, that actually it's about half as many today. So actually, the overall health of the network looks very resilient and strong. And therefore, I think we have had sufficient maintenance CapEx to do the work that we need to do. Obviously, as we look to T3, that continues to be dialogue with Ofgem as we get towards the FD. But certainly in the past, I think we've got a network that's reliable and resilient. And when I look at the data, suggests it's in a strong position. In terms of infrastructure and the broader question, I mean, for me, I think the things that are important, Mark, I think there's bipartisan recognition that infrastructure investment is a key enabler of economic growth in the U.K. In order to do that efficiently, having stable and predictable fiscal and regulatory frameworks is really important and something that we're focused on. I think we still like to see more done around the planning regime in the U.K. The planning legislation is going through, and I think that will streamline the process. But I do think there's more opportunity to do more so that the infrastructure can be built more efficiently and more quickly to enable that economic growth. So for me, I think those are 2 things that are really important. Okay. Let me move on to Dominic. And then perhaps after Dominic, we could do Ahmed at Jefferies. So Dominic, do you want to ask your question? Dominic Nash: Yes. Thank you, John, for your sort of decade as CEO and I think 30-ish years at Grid and also to welcome Zoe to the role and wish her all the best for the future. Two questions for me, please. Firstly, there's clearly a U.K. government focus on some sort of affordability. And within that, I think the Select Committee last week brought up network windfalls again. And I think Ofgem are now made sort of a consultant is by think beginning of 2026. So maybe you could give us an update on whether this Select Committee recommendation will change Jim's point of view on network windfalls? And secondly, on the GBP 35 billion of that you had in your draft for RIIO-T3, there's clearly a lot of uncertainty around that. I think NESO is publishing a new connection regime shortly. And I was hoping that you could provide us color as to actually what you expect to be in it like what's going to change? And will that -- how much clarity will that actually put onto the totex number that will get published in the FD on how much that's already could be secured? John Pettigrew: Yes. So thanks, Dominic. So in terms of the Select Committee last week, actually, it was an issue that has already been looked at. So this -- so just to be clear, the work that we've done demonstrates that we certainly not received any windfall profits. The analysis that they were talking about the Select Committee, I think, was a snapshot looking at expected inflation versus actual inflation. But if you look at it over the medium to long term, then it's very clear that there is no windfall profit. So I think that was the debate that was going on there. Ofgem, as you know, have already looked at this issue and have concluded that it's not in consumer's interest to reopen it. So from that perspective. And I think Ofgem actually responded to the consultation already looked at it as well. So the consultation you mentioned of next spring, actually, I don't think it's got anything to do with the windfall profit. I actually think it's to do with the way that network charges are allocated through the standing charge for suppliers. And I think it's that Ofgem are looking at, so rather than the windfall profit. In terms of the GBP 35 billion totex that you referenced, so just to be clear, so when we submitted the business plan for RIIO-T3, we said that over that 5-year period, we could spend up to GBP 35 billion, depending on basically, how quickly connections come forward. The GBP 35 billion was split out into sort of baseline CapEx, which included the traditional reliability, resilience asset help as well as those projects we had absolute certainty on but it then had a significant amount of CapEx that would be linked to the speed by which connections come forward. What we're expecting to see over the next period is new connection offers will go out to those customers that are classed protected, which means they've got planning consent and have started construction for connections in '27, '28 in January next year. For those for 2030, it will go out in Q2 and for those beyond 2030 in Q3. So I think we're going to get a sort of a lifting of the mist over the course of next year as to exactly what connections are going to be delivered within the RIIO-T3 period. We know to a large extent, where the sort of the primary spines of investment are, what the connections reform process will do will allow us to specifically know which substations in which locations are going to be invested. So I think we'll get a better view as we move through the course of next year, but it's going to take a little bit of time. Okay. So I'm going to move on to Ahmed at Jefferies and then Harry at BNP. So Ahmed? Ahmed Farman: A warm welcome to Zoe in her new role. A few questions, maybe just starting out with on the T3 process. One of the other things you talked about in your response to the DD was the workability and the simplifying of the funding framework for -- and reopen decision-making. Could you give us a sense of how is the debate on that front? And if you have been -- if you're confident you'll be able to achieve the improvements you're seeking? Another topic that's been, I think, in the press and among stakeholders is the budget for auctions is out and there's some debate whether that's enough to be able to deliver on the government's offshore wind targets. I just want to understand a little bit better how sensitive or more is the sort of the transmission CapEx plan to sort of achieving offshore wind development targets in the U.K. either T3 or T or more medium term? And then finally, just 1 for Andy. Andy, could you just give us a little bit more on the drivers for the upgrade or modest upgrade as you sort of call it, for the FY '26 outlook? You referenced regulated -- better performance in regulated businesses. I'll just love to understand that better. John Pettigrew: Yes. Thanks, Ahmed. So start with the first question on the workability. So this was 1 of the areas that we focused on in our response to the draft determination, I mean in simple terms, as I said to Dominic's answer, quite a bit of the CapEx is going to be agreed as we move through the price control period. So as big projects are defined, then we have to go through a process of agreement with Ofgem, the pre-engineering, then off to MacGreen that it's the right project to move forward and ultimately agreeing the allowances. And for us, what's really important is that those regulatory decisions dovetail and align with the project development time scale so that we're not left in a position where either we're having to spend in advance of getting the approval from Ofgem that it's the right project and/or we having to wait for clarity on what the allowances are. So it's very much about the workability of the framework and making sure that we've got a good drumbeat with Ofgem to allow us to deliver what is a significant level of CapEx at speed and at pace. So that has been a lot of discussions have been had since they're after termination at the working level to make sure we've got the right framework. And of course, we'll wait to see whether we've got the right place of the FD at the beginning of December. In terms of and the offshore wind auction, I think I'll go back to what we said in May, just to remind people that, to a large extent, we are relatively insensitive to what happens in the offshore wind auctions because Ofgem has already taken the decision that for the ASTI projects, we have a license obligation to deliver them and that it's in consumers' interest to progress those projects sort of independent of what the time scales are. And that's partly because, of course, there's an expectation that not only will it enable the flow of increased energy across the network, but it will also reduce what is an expected significant increase in constrained costs of around GBP 12 billion. So we don't see a huge amount of sensitivity between our GBP 60 billion 5-year plan and then finally, on question 3, I'll look to Andy. Andrew Agg: Yes. Thanks, Ahmed. In terms of the guidance, I think we said it versus our original guidance at the start of the year, we've obviously seen the 2 headwinds, firstly, from the dollar movement. So we're now guiding at 1.35 for the remainder of the year, which is, as you know, a small headwind, and secondly, with a slightly higher scrip uptake, there's an element of EPS dilution from that for the full year. But that is more than offset by a stronger operating performance from across the group, actually. I wouldn't call out any particular business unit. It is from across our regulated businesses. And all of that means that it puts us in a net or a modest upgrade position compared to our original guidance when we look ahead to the full year. John Pettigrew: Okay. Thank you, Andy. I'm going to go to Harry at BNP and then James at Deutsche. So Harry, we have your question, please. Harry Wyburd: And I'll add my congratulations and all the best and also hello to Zoe. So I have 2 questions, please. The first 1 is on the U.S. Now you just had a slew of sort of Democrat election wins and New York Mayor race dominated by affordability and the cost of living. I think you've been quite clear in the past that in the U.S., you are sheltered from this debate because regulation is done at the state level, et cetera. But if there was a federal move to clamp down on energy prices in the U.S. ahead of the midterms, where do you think the pain would be felt? And I have been clearly in mind that when this happened in Europe in 2022, it was painful across a wide range of business models, although less so in networks. So I'd be interested just to understand how you think or where the axe could potentially fall if energy prices really grew into a major, major political issue in the U.S. The second one is on T3. So looking at your consensus around the time that the draft determinations came out, there's several key uptick in expectations for FY '27, which is, I think, all of us looking at the fast money numbers and the Ofgem models have concluded that, that might bump your revenue for next year. How comfortable do you feel with that if we just take what we've had in the draft determination, so clearly, we'll get more in December and things might look different? But if we're just looking at what we've got in the draft, do you think we are collectively as sell-side analysts being conservative enough here? And do you think that there is a rational reason that EPS might be higher next year because of the past money? John Pettigrew: Thanks, Harry. Let me take the first question, and then I'll ask Andy to take the second. Probably just sort of a broader answer to the specifics as well, which is, so first of all, we're very conscious of the affordability debate, not just in the U.S. and the U.K. So we always take that massively into account when we think about price controls and rate cases in the U.K. and the U.S. With regards to the Mayor election, just to put that into context as well. So for New York City, they are our largest customer for our downstate gas business. We have a huge amount of interaction with them, particularly on the construction programs because quite often, where the city is doing work, we have to move our pipelines, for example. So they're a key stakeholder. And like any key stakeholder, we will engage with them to make sure we understand how we're working together, but also what their aspirations are around, and we understand that affordability is a big issue. But ultimately, for National Grid, things like our CapEx plans and affordability sit at the state level. And as you saw last year, we were very successful in agreeing with the regulator at the state level, a 3-year plan for NIMO of $5.6 billion which will take us right through to 2028. In terms of the sort of interaction between state and federal, I mean, for utility rates, then obviously, federal today don't have any jurisdiction. So I think in terms of the affordability debate, it would still sit at the state level. We need to be very mindful of that. And the way we approach that as a National Grid is when we look to do a rate case and we'll do this when we do in the coming months, we'll first reach out to all our key stakeholders and understand what are their expectations, what do they want from National Grid and how does that fit in the envelope of affordability. And quite often, that will shape the capital plan that we put forward as part of the rate case. We'll also spend a significant amount of time thinking about our vulnerable customers. You might remember in our rate case, for example, we set aside $290 million to support most vulnerable customers. And of course, we're always trying to drive the efficiency of the business through innovation as well to find more efficient ways of delivering what we need from customers. So I think for all those reasons, that's what we'll continue to do. We'll engage with stakeholders and think very carefully about what that rate case looks like in the envelope of affordability. From a federal perspective, and I think I'll reflect on what we've seen over the last 12 months, which is 1 of the key focus areas in New York, for example, has been how do you address the wholesale prices and you would have seen that the PSC has indicated they're supportive of the NESE pipeline. Based on the analysis that we did on the NESE pipeline, not only does it improve resilience and reliability in New York, but it increases the volume of supply by about 14% and potentially has about $6 billion of benefit for New Yorkers. So I think there's an interaction between federal government when you get into things like transmission pipelines and the states that I suspect will continue to be a focus going forward. Andy? Andrew Agg: Harry, thanks for the question. Yes, I think, obviously, this morning, you'll have heard that we've reaffirmed our 5-year frame guidance through to '29. And you remember when we set out that guidance, it was deliberately designed to be robust to a range of different outcomes as well. So I think it's important to take that into account. And clearly, at this stage, as you've heard from John, a couple of times now, our focus is working with Ofgem to ensure that we get to an appropriate final determinations. And that will be the point that we'll determine whether there is further guidance to be given, and that will be the point that we would do that. The other thing I'd just mentioned, of course, at this stage, we're also 1 of the topics we talk to Ofgem about is the profiling of any increases of revenue and how they fall across the 5 years of the price control. So that's something else that will be part of the mix that we'll be looking at. John Pettigrew: I'm going to move on to James at Deutsche and then perhaps we can go to Deepa at Bernstein after that. James Brand: It's James Brand from Deutsche. Also, congrats to John and also to Zoe and good luck for the future. . I have 2 questions. The first is on demand. So you said that you were kind of positioning yourselves to be ready to connect up to 19 gigawatts of additional demand Obviously, that will be absolutely huge, particularly if it was all heat demand. What's your kind of realistic expectation of how much demand growth we might see over the next 5 years? I know there's like a lot of data center connection requests, but how much do you think we can realistically expect to be added on the data center side. Maybe that's a difficult question to answer, but any thoughts around that would be super interesting. And then the second question is on coming back again to the energy affordability debate in the U.K. So obviously, the kind of noise around that has increased quite substantially. How do you view your own positioning in regards to that debate? I guess, potentially reasonably well protected given that you'll have the transmission price control locked in pretty shortly, and you can argue that the investments that are cutting our curtailment costs quite substantially. But longer term, is this a bit of a risk for you? And if you were to make any recommendations for ways to put electricity bills in the U.K. given that we have pretty much the most expensive electricity bills in the developed world, what would you recommend? John Pettigrew: Okay. Thanks, James. Let me start with the demand question. So a little bit of context. So because a lot of the demand -- a lot of the excitement is coming through the potential connection of data centers. So today, about 2.6% of all the demand that we have in the U.K. comes from data centers. You may have seen that NESO does its future energy scenarios, and it was projecting that, that could increase to about 9% by 2035. What we've seen over the last 12 months is quite a surge of requests for connections to the transmission network to support data centers and generative AI. So in our RIIO-T3 plans, our assumption is that we're expecting to see about demand growth of around about 19 gigawatts or we're going to build the network out to support that. I think it works out at about 4% growth in demand per annum. And about half of that is assumed to be for data center demand. And that's backed up by the connection agreements that have been signed in the time frame for RIIO-T3. So I think we feel comfortable that we've got a reasonably good handle on what the demand is going to do over the next 5 years or so. and a reasonably good handle on what's being expected in terms of growth in data center demand and where it will connect. And of course, you may have seen National Grid is working with the government through the AI Council to really identify where are the best locations in the U.K. to locate those data centers based on where is their access fair capacity today or where the time frame interconnections would be shorter than other places, which is an important determinant for data centers. In terms of energy affordability, I think when we stand back from our position, yes, we see an increase in the transmission element of the charge as we deliver out all these ASTI projects and the RIIO-T3 CapEx but actually against the expected constrained cost net-net, it's a reduction. So in a way, us getting on with the investment is very beneficial to consumers because it ultimately reduces the cost for them. Having said that, we're very mindful the affordability is a significant issue, which is why in our business plan we set out why it's important to have incentives around innovation to drive efficiency and indeed why we propose an efficiency measure as well. So we're very mindful of it. We're very conscious that it's a difficult time for customers. But in terms of the transmission element of the bill, I'd say we're very focused on making sure we can deliver the infrastructure to relieve those constrained costs, which result in a net-net reduction. I'm going to move to Deepa and then to Martin at BofA. So Deepa, should we take your question? Deepa Venkateswaran: First of all, thank you so much for your service for all these years and all the best for the next steps and Zoe a warm welcome. So my 2 questions. First 1 is on the RIIO-T3 draft. where do you see the risk reward on the incentives? If not the financial returns, that's very clear, you want it to be higher than what's there. But as things stand right now, where do you see the risk reward and how close is that to the 200 bps or so you would need in order to get closer to that 10% overall nominal return? And in your discussion so far with Ofgem, what's your sense on, are they moving in the right direction taking your feedback into account? So that's my first question. And the second one, I noticed that you are looking at U.S. transmission opportunities. And I think this is something that used to be talked about a long time back. Nothing has ever happened about it. So has there anything changed in the U.S. transmission landscape that is making you look at that again? And again, how big could this opportunity be? John Pettigrew: Yes. Thanks, Deepa. I guess I'll put the innovation in the context of the incentives framework, which I think is really important to help me get to an overall return that we think is appropriate to give the scale of investment going forward. So actually, the work that we've been doing with Ofgem is focusing on sort of 4 key incentives. One is being incentivized to make available the connection capacity that customers want in a timely fashion. Secondly, it's about delivering the major projects as quickly as possible and being incentivized against that in the same way as we are for the ASTI projects. Thirdly is looking at how we can reduce the cost constraints in our role as the transmission operator working with the system operator. And we've done some of that in the existing price control, and we think there's opportunity for more of that as we move forward. And then thirdly -- sorry, fourthly, it's the incentives as well. So we've been having conversations with Ofgem about that to really -- to find a framework that ideally allows us to look for opportunities to extend new technologies onto the network in a way that will reduce cost for customers. So if I give you an example, so Dynamic Ratings is a good example that we've started to deploy in our transmission divisions in the U.K. It is new technology. It allows you to get more power down the line without having to build new lines and we think those types of incentives are going to be really important if we're going to get to the overall package that works. But we're thinking about those 4 incentives as a package and innovation is a key 1 within that. In terms of the U.S. opportunities, you might recall, when we refined the strategy in May last year, we talked about the fact that our focus was going to be on transmission, both regulated and competitive and that we did see opportunities for transmission opportunities in the U.S. So our National Grid Ventures business has been looking at that. And I referenced in the speech this morning that one particular one on the horizon is a transmission line potentially from Maine down to New England that will help to reduce bills for New England customers that we -- the ISO is doing a solicitation on. So we're looking at that as a project. It's obviously in a region that we are very familiar with and understand very clearly. And obviously, we've got good capabilities with National Grid Ventures. So we are seeing some solicitations for competitive transmission in the U.S. And as part of our National Grid Ventures business, we are looking at them very carefully. We will only take them forward, as we said in the past, if we could get to a view that we're sensibly positioned to be able to win them, earn sensible returns, but that is 1 that's specifically on the short-term horizon at the moment. Just looking who is left. So Martin, if we could go to you next, I think that's the last question that I've got. Martin Young: Right. Congratulations on the results and all the best for the future. I actually wanted to come back to this topic of potentially new opportunities in transmission in the U.S. that you referenced. Could that be something that is material in terms of investments and in terms of CapEx and presumably that would come on top of your existing guidance of GBP 60 billion? So could you just give us some perspective as to how relevant this opportunity could be? And question number two, just on hybrid bonds. We have not really seen any hybrid issuance, I believe so. Is that still part of your financing toolbox? John Pettigrew: Thanks, Martin. I think Andy can take couple of those. Andrew Agg: Yes. Thanks. Martin. So on the transmission opportunities, as John said, we're in the early stages of looking at these. And so we'll have to wait and see how that may or may not grow as we go forward. But I'll remind you, if you go back to the financing strategy we set out in detail when we did the equity raise 18 months ago, we were very clear that where we do see incremental opportunities, particularly in our Ventures business, above -- that might take us above the GBP 60 billion, we would need to look for ways to finance those through the Ventures business as well in terms of potential partnering, other types of sort of off-balance sheet finance and other routes, et cetera. So i.e., it wouldn't impact our delivery or use of the equity proceeds to underpin the GBP 60 billion. And that remains absolutely the case today. In terms of hybrids, you're right. And again, when we made our financing strategy announcements 18 months ago, we were very clear that we wouldn't expect to issue any hybrid for several years. Again, that remains the case. Hybrids remain a very useful potential tool to us. We have a lot of unused hybrid capacity. At this stage, we don't have anything in the near term as you'd expect, but it will remain a tool that we can deploy appropriately later if we think that's the right thing to do. John Pettigrew: Thank you, Andy. So I don't have any further questions. So let me just wrap up by just saying, I guess, a summary of our half year results is good operational and financial performance in the last 6 months. I think we're very well positioned for the second half. And hopefully, you've taken away from today's presentation, we're very much on track to deliver the GBP 60 billion over the 5 years 18 months in. . This is my last results presentation. I'd like to say I'm just incredibly proud of the organization, what it's achieved over the last decade, but I'm also delighted to be handing over to Zoe who I think is going to be an incredible CEO. So thank you, everybody, for joining us today, and I'll see some of you very soon.
Angela Broad: Good morning, and welcome to National Grid's half year results presentation. I'm Angela Broad, Head of Investor Relations, and it's great to have so many of you on the call today. Firstly, please can I draw your attention to the cautionary statement at the front of the pack. As usual, a Q&A will follow the presentation. [Operator Instructions] All of today's materials are available on our website. And of course, for any further queries after the call, please do feel free to reach out to me or one of the IR team. So with that, I'd now like to hand you over to our CEO, John Pettigrew. John? John Pettigrew: Many thanks, Angela. Good morning, everyone, and thank you for joining us today. Well, as you know, this is my last set of results, and I'll be handing over to Zoe who becomes Chief Executive on the 17th of November. So before we get started with the results presentation, let me pass it over to Zoe to say a few words. Zoe Yujnovich: Thank you, John, and good morning, everyone. Today's results are an important moment for National Grid and for me personally, as I pick up the baton from John. I want to take a moment to recognize his remarkable contribution over a decade as CEO. The strong foundation he leaves behind are a testament to his leadership and the dedication of our National Grid team. Since joining as CEO Designate on the 1st of September, I've had the privilege of meeting with many colleagues and stakeholders. What stands out to me is the scale and ambition of what we're delivering, transforming our networks and investing at pace. Our GBP 60 billion capital investment is not just a number. It's a commitment to future-proofing networks so we can meet the surge in demand we're seeing and ensure the millions of homes and businesses we serve have the reliable and clean energy they need at a price they can afford. As I step into my role in the coming days, my immediate focus will be on maintaining momentum, staying focused on performance and delivering safely and responsibly. I will approach this with a clear-eyed view of the challenges and exciting opportunities ahead. I believe in the vital function energy companies play in driving growth and prosperity. I'm committed to ensuring National Grid plays its part with an unrelenting focus on operational excellence and capital discipline as we continue to deliver for our customers and create value for our shareholders. I look forward to meeting all of you in due course, but for now, I'll hand to John and Andy to take you through the results. John Pettigrew: Thank you, Zoe. So turning to our half year results. As ever, I'm here with Andy Agg and once we've been through our respective presentations, we'll be happy to answer your questions. It's been a really positive first half as we've continued to build on our strong foundations to deliver excellent operational and financial performance. . The investments we're making in our networks have never been more important to ensure continued resilience, enable economic growth, deliver cleaner energy and meet growing power demand. And it's these drivers that underpin the strong visibility we have in our investment program, supported by our regulators. This, in turn, gives me huge confidence in National Grid's ability to carry on delivering a compelling investment proposition with investment growth around 10% per annum and underlying earnings per share growth of 6% to 8%, whilst maintaining a strong balance sheet and delivering an inflation-protected dividend. Before I come to our performance, I want to highlight three key areas which reinforce my confidence in our ability to deliver on our plans. Firstly, the strong progress we've made in securing the supply chain to deliver record levels of investment. As you know, a big focus over the last 2 years has been to secure the supply chain for our largest suite of major projects in the U.K., the accelerated strategic transmission investment or ASTI. Today, I'm pleased to say we're in a really strong position. All 6 of our Wave 1 projects are already under construction with work progressing well. Our GBP 9 billion Great Grid Partnership covering the delivery of the 8 onshore projects within Wave 2 is now up and running with our 7 strategic partners. And we're making great progress with the remaining 3 Wave 2 offshore projects where we've completed the contracting for Sea Link and announced the preferred suppliers for Eagle 3 and 4 with contracts expected to be signed in the next few months. Once complete, we'll have secured the supply chain for all 17 ASTI projects, a significant achievement. And as a result, over 3/4 of our GBP 60 billion investment plan is now underpinned by delivery mechanisms enabling us to ramp up our capital delivery. We've invested over GBP 5 billion in the first half, another record for the group, and we remain on track to deploy over GBP 11 billion of capital investment this year, in line with our guidance. The second area to highlight is the continued momentum we're seeing from both a regulatory and policy perspective. On the regulatory front, we've built on the strong foundations we set last year in the U.S. with around 75% of our 5-year investment plan approved within our rate cases. We've also seen some important policy developments. As you know, New York State announced last year that it's likely to miss its target of 70% renewable generation by 2030. As a result, we've seen a shift in the last half towards an all-of-the-above approach when it comes to balancing clean energy goals with affordability and reliability. For example, in September, following submission of our long-term gas plan, the PSC issued an order supporting the proposed Northeast Supply Enhancement or NESE pipeline. If built, the capacity provided by the pipeline would materially enhance reliability and resilience whilst also potentially reducing energy costs for New Yorkers by up to $6 billion. In the U.K., I'll come to regulatory development shortly. But on the policy front, the government is continuing to look at different ways to support faster delivery of infrastructure and accelerate economic growth. Alongside their planning reform legislation targeted at large infrastructure projects which should support delivery of projects in the 2030s, they've also launched consultations, which include proposals to allow electricity distribution network operators to carry out simple reinforcement activities without full planning permission and a revised fast track consenting process. If implemented, this could have important benefits for future transmission projects. So it's clear we're seeing strong regulatory support for the investments we're making as well as the policy progress to assist in the delivery of future projects. And then thirdly, the near-term actions we're taking to support load growth in the U.K. We're working with the government and industry, including U.S. big tech companies, as they seek to develop the U.K.'s AI infrastructure, including the creation of data centers within AI growth zones like the recently announced ones in and Cobalts Park. These projects represent tens of billions of pounds of investment in U.K. infrastructure and are evidence of the demand growth we forecast in our RIIO-T3 business plan. which is designed to connect up to 19 gigawatts of additional demand over the 5 years to March 2031, around half of which is expected to be connecting data centers. We're now working hard to facilitate these connections, including working with the government through the AI Energy Council to support the development of more AI growth zones, so we can deliver the investment needed to meet growing energy requirements. So let me now turn to our financial performance, where we've delivered a strong set of results in the first half. On an underlying basis, that is excluding the impact of timing and exceptional items, operating profit was up 13% to GBP 2.3 billion, reflecting increased regulatory revenues across our U.S. and U.K. electricity transmission businesses. This strong operating performance drove an increase in underlying earnings per share of 6% to 29.8p. As you've already heard, our business delivered a record GBP 5.1 billion of investment, up 12% year-on-year at constant currency. And in line with the policy, the Board has declared an interim dividend of 16.35p per share. Turning next to reliability and safety. I'm pleased to say reliability has remained strong across our U.K. and U.S. networks over the first half of the year. As we look ahead to the winter we're well prepared with winter readiness plans in place. The NESO recently published its winter outlook report for the U.K., in which they forecast electricity margins around 10%, the highest since 2019. In the U.S., whilst we anticipate adequate electricity margins, gas availability across the coldest days of winter remain a focus, especially in extreme weather events, and so our teams will work closely with upstream suppliers to mitigate any risks. And in July, the NESO published its report investigating the outage following the fire at our North Hyde substation and we're working closely with the government, NESO, Ofgem and industry to progress the report's recommendations. Safety, as always, remains a critical focus across our business. In the last 6 months, our lost time injury frequency rate was 0.09, inside our group target. We continue to promote a culture of safety excellence including, for example, identifying new ways to enhance our safety protocols, such as the use of digital job briefs to increase hazard recognition in the field. Moving now to our operating performance across the group, starting with Electricity Distribution. Capital investment increased by 17% and to GBP 756 million, reflecting increased asset replacement and load-related reinforcement activity. I'm pleased to say that we've now delivered over GBP 100 million of synergy savings, 6 months ahead of target following the U.K. electricity distribution acquisition in 2021. These synergies have been achieved through smarter procurement, operational efficiencies across our shared sites and integration of support functions in the group. In October, we also saw the publication of Ofgem's sector-specific methodology consultation for RIIO-ED3, which builds on the foundations of the T3 framework. We welcome the fact that Ofgem has directed networks to use a long-term planning horizon. This will ensure that delivery of the next price control also takes into account investment drivers in the decades ahead. including load growth, asset health, resilience and renewable generation. We've also made good progress on connections reform, including preparing flexible offers to customers that are likely to secure a cue position. This allows them to progress their projects ahead of a formal offer, enabling faster connections for renewables and low-carbon technologies. And finally, we continue to build our system -- our distribution system operator capabilities with the launch of the demand turner flexibility market, incentivizing increased demand as an alternative to curtailing generation. Moving to U.K. Electricity Transmission, where capital investment increased by 31% to GBP 1.7 billion, including construction of new substations to support load growth and progress on our GBP 1 billion London Power Tunnels project where we've now energized the first 2.5 kilometers during substation and. We've also been working hard to find innovative ways to expand system capacity. For example, we began work on a new substation in Uxbridge Moor, West London, with an innovative design, which will have a 70% smaller footprint and avoids the use of SF6, a potent greenhouse gas. This substation will support over a dozen new data centers and is expected to deliver 1.8 gigawatts of new capacity equivalent to powering a mid-sized city. We've also leveraged the approach to procurement frameworks using our strategic infrastructure business, including, for example, in July, when we signed an GBP 8 billion electricity transmission partnership with 7 regional partners to deliver substation infrastructure across the U.K. transmission network. Turning to policy. We're working closely with NESO and customers to support connections reform. Once NESO publishes this updated queue, we'll have a clear view of the sequencing of the specific projects required, and we can then turn our efforts to meeting these connection dates at pace. On regulation, Ofgem published its draft determination for the RIIO-T3 framework in early July, with our response published in late August. This included changes we believe are needed to the baseline return and the incentive framework to allow high-performing networks to achieve a globally competitive overall return. We've also proposed a number of refinements to streamline our funding mechanisms, enable us to recover the efficient cost of our investments and progress projects at a pace expected by our stakeholders. As you'd expect, we've engaged heavily with Ofgem at all levels of the organization ahead of the final determination, which is expected in early December. And we expect to take a decision in late February or early March following the license drafting process. Turning now to strategic infrastructure. As you've heard, our focus has been to ramp up delivery of the Wave 1 ASTI projects, whilst also ensuring we're securing the supply chain and relevant consents for Wave 2. specifically on our Wave 1 projects, examples of our progress include our offshore Eagle 1 and 2 projects where the cable manufacturing and site works for the southern converter stations are underway, our onshore Yorkshire Green upgrade project where the last of 8 200-ton transformers has now been delivered and the North London Reinforcement project where we finished reconducting 3 circuits, installing over 190 kilometers of cables. We've also completed 4 public consultations this year, including the submission of 2 major development consent order applications, Sea Link and Norwich to Tilbury, with both submissions now accepted by the planning inspectorate, a major milestone. On the regulatory front, we continue to engage with Ofgem to find a resolution to our request for a delay event on the Eagle 1 project and are encouraged by the discussions to date. We expect these negotiations to reach a final decision over the next few months. Coming to the U.S. and starting with New York, where we've continued to make strong progress across our operations. Capital investment reached GBP 1.6 billion, up 5%, driven by an increase in mains replacement expenditure. In addition, we've continued to make strong progress on our $4 billion upstate upgrade, including our Smart Path Connect transmission project, where our segment is on track to be ready to energize at the end of the year and our Climate Leadership and Community Protection Act, or CLCPA Phase 1 and 2 projects, where we expect the first round of permit approvals for the end of the calendar year. On the regulatory and policy front, in addition to the order from the PSC on the NESE pipeline and the approval of the Niagara Mohawk joint proposal, we're also engaging on the draft New York State Energy Plan. Released earlier this year, the plan outlines long-term strategies to meet New York's energy needs. It emphasizes the importance of infrastructure investment and recognizes the enduring role of the gas network in maintaining reliability, affordability and security of supply. Once finalized later this year, the plan will influence future regulatory decisions and utility planning across the state. In New England, capital investment increased by 23% to GBP 1 billion, reflecting increased spend on asset condition and system capacity in both electricity transmission and distribution, 220,000 smart meter installations and the further rollout of our fault location isolation and service restoration program. We've also agreed partners for our strategic procurement framework which will support over $3 billion of contracts over the next 5 years. And finally, on regulation and policy, we've agreed around $600 million of allowances under the Electric Sector Modernization Plan largely focused on electric vehicle highway charging and IT infrastructure, and we're continuing to work with the governor's office to advance the Energy Affordability Bill. Moving to National Grid Ventures. Capital investment was GBP 69 million, supporting asset refurbishment across our Interconnector and U.S. Generation portfolios. Operationally, we've had a strong 6 months with our Interconnector fleet at 90% availability and our Generation fleet achieving 96% reliability. We've also progressed the Propel transmission project through our Transco joint venture, where EPC contracts are now under development. Once complete, the project will help to deliver power from Long Island to the Bronx in New York City and Westchester County. We've also streamlined our portfolio, having completed the sale of National Renewables in May and announced the sale of Grain LNG in August. With all regulatory approvals received, we expect completion in the coming weeks. So let me stop there and hand over to Andy to walk you through the numbers before I come back to talk about our priorities for the second half. Andy? Andrew Agg: Thank you, John, and good morning, everyone. I'd like to highlight that, as usual, we're presenting our underlying results excluding timing, U.K. deferred tax and exceptional items and the dual results are provided at constant exchange rates unless specified. So starting with our overall performance in the first half. We've delivered strong results with underlying operating profit on a continuing basis at GBP 2.3 billion, a 13% increase from the prior year, primarily driven by higher regulated revenues in U.K. electricity transmission reflecting growth in the asset base and higher revenues in our U.S. regulated businesses following recent rate cases, partially offset by the sale of the electricity system operator last year. Strong operating profit growth partially offset by higher finance costs and a full impact in the half from the rights issue shares has led to a 6% increase in earnings per share to 29.8p. We've continued to make good progress with our capital program. with investment from continuing operations at GBP 5.1 billion, another record level, and up 12% year-over-year. In line with our policy, the Board has declared an interim dividend of 16.35p per share, representing 35% of last year's full year dividend. Moving now to our business segments, starting with U.K. Electricity Distribution. Underlying operating profit was GBP 551 million, down GBP 22 million versus the prior year. reflecting lower revenues due to headwinds from Ofgem's real price effects mechanism, which more than offset the benefit of revenue indexation and recovery of higher totex allowances and higher depreciation. In the period, we exceeded our cumulative 3-year target of GBP 100 million of synergy benefits by FY '26, 6 months ahead of schedule through leveraging our increased buying power, delivering savings from integrating support functions and working more efficiently at joint transmission and distribution sites across the U.K. Capital investment was GBP 756 million for the half year. an increase of GBP 109 million compared to the prior period, primarily driven by higher asset replacement and refurbishment and higher load-related network reinforcement. In our U.K. Electricity Transmission business, underlying operating profit was GBP 846 million, up GBP 122 million compared with the prior period. A strong first half performance was driven by higher allowed revenues partially offset by higher depreciation. Capital investment was GBP 1.7 billion, 31% higher than the prior period. This reflects our ongoing spend on substation build-out as well as the significant step-up in investments on our ASTI projects and ASTI enabling works. Moving now to the U.S., where underlying operating profit for New York was GBP 443 million, GBP 167 million higher than the prior year as a result of higher net revenue reflecting the growth of the business as we upgrade and reinforce our networks and the recovery of previously unremunerated costs following recent rate case updates. This was partially offset by increased depreciation, reflecting a higher asset base and higher costs, including property taxes and environmental provisions. Capital investment was GBP 1.6 billion. This was GBP 82 million higher than the prior year. from a further step-up in the pace of our mains replacement activity under our downstate gas rate case and increased spend on smart meters, partially offset by lower costs on Smart Path Connect as we near completion of this project. In New England, underlying operating profit was GBP 292 million, GBP 65 million higher than the prior period, following higher revenues reflecting our growing asset base and improved incentive performance, partly offset by higher depreciation and other investment-related costs as we ramp up the capital program. Capital investment was GBP 958 million, GBP 178 million higher than the prior year. This was driven by increased asset condition and system capacity investments and smart meter installations, partly offset by reduced mains replacement work. Moving to National Grid Ventures, where the underlying contribution was GBP 227 million, including joint ventures. The increase of GBP 19 million compared to the prior year was primarily due to the benefit of depreciation having ceased in Grain LNG following its classification as held for sale. This accounting treatment for Grain, along with the sale of National Grid Renewables, drove a reduction in capital investment to GBP 69 million. And our other activities reported an operating loss of GBP 27 million, GBP 11 million lower than the prior period. principally driven by lower insurance costs and the non-repeat of fair value losses in the National Grid Partners portfolio. Turning to financing costs and tax. Net finance costs were GBP 678 million, an increase of 4% compared with the prior year due to higher average net debt and the impact of higher inflation on indexed linked debt. The underlying effective tax rate before joint ventures was 11.3%, 60 basis points lower than the prior year, principally due to the benefit of higher capital allowances in our U.K. regulated businesses. and a change in the profit mix. Underlying earnings were GBP 1.5 billion, up 16% with earnings per share at 29.8p. On cash flow, Cash generated from continuing operations was GBP 3.6 billion, up 35% compared to the prior year. This increase is driven by improved profitability across the U.K. and U.S. and favorable movements in working capital. In total, net debt increased by GBP 1.5 billion to GBP 41.8 billion in the period with strong cash inflows from operations and the GBP 1.5 billion of National Grid Renewable sale proceeds, helping to offset the continued growth in capital investment. For the full year, we expect net debt to increase by around GBP 1 billion from the half year. including the Grain sale proceeds and assuming a USD 1.35 exchange rate. As John said out earlier, we've continued to make significant progress in capital delivery securing the supply chain and advancing our regulatory and policy agenda. As I previously set out, our plans were designed to be robust against a range of outcomes with respect to interest and exchange rates, and I remain confident in our ability to deliver in line with our 5-year framework. Turning to forward guidance, and we've included detailed guidance for the full year in our results statement as usual. Following strong performance over the first half of the year, we expect a modestly higher underlying EPS relative to our guidance in May. The impact of a weaker U.S. dollar and a slightly higher share count due to scrip uptake is expected to be more than offset by improved operating performance in the regulated businesses and slightly lower financing costs. With that, I'll hand you back to John. John Pettigrew: Many thanks, Andy. Now before we move to Q&A, I want to spend the final few minutes setting out our priorities for the remainder of the year as we continue to invest across our networks. Starting in the U.S. and New York where we have a number of priorities. including further work with the state on its energy plan to shape a road map that balances decarbonization, affordability and reliability. Ongoing work with Williams in our role as the sole offtaker of the NESE pipeline, as they look to secure regulatory approvals, which are expected later this year and preparing for our Downstate New York gas filing due for submission next spring, ensuring we're able to continue to invest in safety and reliability while supporting customer needs and managing affordability. In Massachusetts, our priorities include filing our gas distribution rate case, which is now planned for January to allow us more time to engage with new stakeholders and propose measures aligned with evolving state policy goals, working with the state on its affordability bill and producing our climate compliance plan, an important enabler of the cleaner energy transition. Turning to the U.K. In Electricity Transmission, our priorities are clear: to engage with Ofgem to deliver a RIIO-T3 framework that allows high-performing networks to achieve a globally competitive overall return and mechanisms that enable us to deliver at the scale and pace required. Work with the AI Energy Council as part of our efforts to collaborate across the energy and tech industries, and build on the good progress we've made in ramping up construction across our Wave 1 ASTI projects, whilst also engaging closely with stakeholders and communities as we progress our development consent orders. In Electricity Distribution, our key priority is preparing our response to the RIIO-ED3 sector-specific methodology consultation ahead of Ofgem's decision expected in the spring. And in National Grid Ventures, we have 2 key priorities: developing and winning new competitive transmission opportunities in the U.S., including an ISO-led opportunity in New England, and closing the sale of Grain LNG completing our announced divestments. Now before we take your questions, as this is my last results presentation, I want to reflect briefly on the journey I've been privileged to be part of over the past 10 years. It's been a truly transformative decade for National Grid. When I presented my first set of results back in 2016, the business looked very different with the majority of our operations in gas. Today, we're over 3/4 electric, a fundamental shift that reflects the successful portfolio repositioning that has enabled us to pivot towards growth and a geographical footprint that is more balanced across the U.K. and the U.S. I'm incredibly proud of how we've responded as an organization to meet the needs of our customers by delivering extraordinary organic growth. We've deployed nearly 3x the level of capital investment compared to 2016, and the growth in regulated asset base is expected to be over 10% this year compared to just 4% a decade ago. Our business is incredibly strong, giving me huge confidence in National Grid's ability to continue to deliver a compelling investment proposition. Beyond the numbers, I'm very proud to be handing over an organization where our values and the critical role we play for our customers are the driving force of our ambitions. Zoe is the right person to lead National Grid into this next chapter and I know she will find the clarity of our mission, the scale of the opportunities ahead to be a source of strength in the years to come. So let me stop there and give you the opportunity to ask Andy and I any questions. John Pettigrew: Okay. So we've got lots of questions. So I'm going to perhaps start with Pavan from JPMorgan. And then after Pavan, perhaps I could ask Sarah from Morgan Stanley to ask her question. So Pavan, if we can have your question, please. Pavan Mahbubani: And John, I just wanted to congratulate you on the results you've delivered during your leadership. I wish you all the best for your future beyond National Grid. So I've got 2 questions, please. Firstly, on T3 expectations? Can you give a bit more color on your dialogue with Ofgem looking at particularly some of the data points we've had earlier this year on the U.K. water CMA provisional determinations? And on do you foresee upward pressure on the return on equity? And then my second question is on net debt and the net debt guidance looks better for the full year than in May, even accounting for the proceeds of disposals. You highlighted the working capital effect in your speech. I was wondering if you could give a bit more color on the drivers of this and whether it's sort of -- that is something that should persist into the future years? Just trying to get an idea of the basis. John Pettigrew: Thanks, Pavan. Let me do a question one, then I'll hand over to Andy to do question 2. And thank you for your kind remarks. In terms of RIIO-T3, if I just take you back to our response to the draft determination, in that, we said very clearly to Ofgem, there were 2 fundamental areas that we wanted to focus on between the draft determination and the final determination. The first was the overall investable framework and the second was the workability of the regulatory framework. In terms of the investment framework itself, you would have seen in our draft determination that we made the argument that we believe the overall return needs to be comparable with what we'd see internationally. And therefore, based on what was in the draft determination, we set up that we felt that the base return should be higher. I think given what we've seen in the provisional CMA decision on water and things like I think that reinforces some of the argues that we've made. We also said as part of the financial package that we needed a lot more detail on the incentives, and that's been an area of focus since we made that response to the draft determination with Ofgem at all levels of the organization. In addition to the financial framework, we also said we needed a framework that was actually deliverable. And in particular, what we meant by that was given the scale of the CapEx that we need to deliver we need to have the ability to be able to make decisions quickly and then to move nimbly through the process, in particular, in terms of when Ofgem sets the allowances and actually agrees that the projects are needed, that it aligns with the development framework for the projects. So that has been the focus, as you can imagine, with what, 4 weeks to go. There continues to be a lot of dialogue, but the dialogue remains in those 2 broad categories. And with that, I'll hand to Andy. Andrew Agg: Pavan, thanks. So you remember back at year-end, we guided to an increase in net debt of around GBP 6 billion, but that was before you take account as you say, of any of the transaction proceeds. By the time you allow for the 2 disposals and the FX movement that we've seen, it's a relatively small difference, net difference compared to the sort of the GBP 1.5 billion increase that we're now guiding to after you take account of all of that. And that small difference is a combination of the slightly higher script uptake that we've seen over the summer and as you say, a little bit of working capital, but it's relatively small in the context of our balance sheet. So I don't see that as being a significant sort of enduring shift. John Pettigrew: Thanks, Andy. So shall I go to Sarah from Morgan Stanley next and then perhaps Mark Freshney from UBS after that. Sarah? Sarah Lester: Firstly, a very big welcome, Zoe. It's always nice to hear another Aussie accent. And John, another very big thank you to you and wishing you all the best in the next chapter. So 2 questions from me, please. And actually, they're both on U.K. Electricity Distribution. So firstly, on the ED operational RoRE performance, please. Just wondering any further color you can provide on how that's tracking against this year's 50 basis points guide and then as we look forward, anything clearly you can please add on that pathway back to the 100 basis points. And then quickly, a bit more on last month's SSMC ED, completely appreciate very early days, but wondering if you can add a bit more on your thoughts, please. If there was anything that surprised you in the document, or mostly, as you already mentioned, mainly just building on what we've already seen through the process. John Pettigrew: Yes. Thanks, Sarah. I mean, in terms of the operational performance of ED, I'd say it's very much on track to where we expected to be at the half year. As you would have seen in the results, we continue to get the impact of the real price effects that we talked about in May, but we are seeing improved performance this year. So we're on track and are guiding towards the 50 basis points of outperformance this year. And we remain of the view that we'll get closer to the 100 basis points by the end of ED. So that is very consistent with what we said in May and the performance of the first 6 months is sort of reinforcing that. In terms of the sector-specific methodology consultation, I'd say it's -- I mean it's very broad, which I think is a good thing at this stage. It very much align with our expectations. I think we were particularly pleased to see that often is set up that they intend to take a very long-term strategic view of distribution going forward over multiple price control periods and that ED3 will be set in that context. I think we're also pleased to see that in the document, they talked about the need for the investment in distribution to stay ahead of the needs of customers. So given that we're expecting to see an increase in EVs and heat pumps and those types of things, then I think we're pleased to see that. It was very consistent in terms of its messaging in terms of the need for an investable proposition and also that the incentives for things like innovation would be important. So broad I would say it met our expectations. It's very broad, and I think it's given us a landscape in which we can respond quite sensibly in time for the decision in the spring. Okay. So if I can move to Mark at UBS and then perhaps after Mark, we can take Dominic from Barclays. So Mark? Mark Freshney: John, congratulations and looking forward to seeing what you'll be doing next. I have 2 questions. Firstly, looking back over the last 2 or 3 Ofgem price controls, do you feel that Ofgem have given you allowances sufficiently -- that are sufficient for you to do all of the maintenance that you would have liked to have done? And just secondly, on infrastructure in general, I mean National Grid has been the center of capital delivery in the U.K. at a time when there wasn't much of it around. Clearly, there's -- government have been clear we're not going to cut capital investment in the U.K. We're going to keep going. What would -- what do you think the U.K. needs to do to get all of this CapEx done, not just in your area, but across the whole piece? John Pettigrew: So thank you, Mark. So in terms of in context of the last 2 or 3 price controls and have we had sufficient allowances, I think the blunt answer to that is yes. When I look at the outcomes, which is probably the most important thing, we've continued to deliver world-class reliability at 99.69, as you know I quote quite often. But also, if I just take a broader perspective and look at the number of unplanned outages we have on the network, so unexpected failures of assets today compared to 10 years ago, that actually it's about half as many today. So actually, the overall health of the network looks very resilient and strong. And therefore, I think we have had sufficient maintenance CapEx to do the work that we need to do. Obviously, as we look to T3, that continues to be dialogue with Ofgem as we get towards the FD. But certainly in the past, I think we've got a network that's reliable and resilient. And when I look at the data, suggests it's in a strong position. In terms of infrastructure and the broader question, I mean, for me, I think the things that are important, Mark, I think there's bipartisan recognition that infrastructure investment is a key enabler of economic growth in the U.K. In order to do that efficiently, having stable and predictable fiscal and regulatory frameworks is really important and something that we're focused on. I think we still like to see more done around the planning regime in the U.K. The planning legislation is going through, and I think that will streamline the process. But I do think there's more opportunity to do more so that the infrastructure can be built more efficiently and more quickly to enable that economic growth. So for me, I think those are 2 things that are really important. Okay. Let me move on to Dominic. And then perhaps after Dominic, we could do Ahmed at Jefferies. So Dominic, do you want to ask your question? Dominic Nash: Yes. Thank you, John, for your sort of decade as CEO and I think 30-ish years at Grid and also to welcome Zoe to the role and wish her all the best for the future. Two questions for me, please. Firstly, there's clearly a U.K. government focus on some sort of affordability. And within that, I think the Select Committee last week brought up network windfalls again. And I think Ofgem are now made sort of a consultant is by think beginning of 2026. So maybe you could give us an update on whether this Select Committee recommendation will change Jim's point of view on network windfalls? And secondly, on the GBP 35 billion of that you had in your draft for RIIO-T3, there's clearly a lot of uncertainty around that. I think NESO is publishing a new connection regime shortly. And I was hoping that you could provide us color as to actually what you expect to be in it like what's going to change? And will that -- how much clarity will that actually put onto the totex number that will get published in the FD on how much that's already could be secured? John Pettigrew: Yes. So thanks, Dominic. So in terms of the Select Committee last week, actually, it was an issue that has already been looked at. So this -- so just to be clear, the work that we've done demonstrates that we certainly not received any windfall profits. The analysis that they were talking about the Select Committee, I think, was a snapshot looking at expected inflation versus actual inflation. But if you look at it over the medium to long term, then it's very clear that there is no windfall profit. So I think that was the debate that was going on there. Ofgem, as you know, have already looked at this issue and have concluded that it's not in consumer's interest to reopen it. So from that perspective. And I think Ofgem actually responded to the consultation already looked at it as well. So the consultation you mentioned of next spring, actually, I don't think it's got anything to do with the windfall profit. I actually think it's to do with the way that network charges are allocated through the standing charge for suppliers. And I think it's that Ofgem are looking at, so rather than the windfall profit. In terms of the GBP 35 billion totex that you referenced, so just to be clear, so when we submitted the business plan for RIIO-T3, we said that over that 5-year period, we could spend up to GBP 35 billion, depending on basically, how quickly connections come forward. The GBP 35 billion was split out into sort of baseline CapEx, which included the traditional reliability, resilience asset help as well as those projects we had absolute certainty on but it then had a significant amount of CapEx that would be linked to the speed by which connections come forward. What we're expecting to see over the next period is new connection offers will go out to those customers that are classed protected, which means they've got planning consent and have started construction for connections in '27, '28 in January next year. For those for 2030, it will go out in Q2 and for those beyond 2030 in Q3. So I think we're going to get a sort of a lifting of the mist over the course of next year as to exactly what connections are going to be delivered within the RIIO-T3 period. We know to a large extent, where the sort of the primary spines of investment are, what the connections reform process will do will allow us to specifically know which substations in which locations are going to be invested. So I think we'll get a better view as we move through the course of next year, but it's going to take a little bit of time. Okay. So I'm going to move on to Ahmed at Jefferies and then Harry at BNP. So Ahmed? Ahmed Farman: A warm welcome to Zoe in her new role. A few questions, maybe just starting out with on the T3 process. One of the other things you talked about in your response to the DD was the workability and the simplifying of the funding framework for -- and reopen decision-making. Could you give us a sense of how is the debate on that front? And if you have been -- if you're confident you'll be able to achieve the improvements you're seeking? Another topic that's been, I think, in the press and among stakeholders is the budget for auctions is out and there's some debate whether that's enough to be able to deliver on the government's offshore wind targets. I just want to understand a little bit better how sensitive or more is the sort of the transmission CapEx plan to sort of achieving offshore wind development targets in the U.K. either T3 or T or more medium term? And then finally, just 1 for Andy. Andy, could you just give us a little bit more on the drivers for the upgrade or modest upgrade as you sort of call it, for the FY '26 outlook? You referenced regulated -- better performance in regulated businesses. I'll just love to understand that better. John Pettigrew: Yes. Thanks, Ahmed. So start with the first question on the workability. So this was 1 of the areas that we focused on in our response to the draft determination, I mean in simple terms, as I said to Dominic's answer, quite a bit of the CapEx is going to be agreed as we move through the price control period. So as big projects are defined, then we have to go through a process of agreement with Ofgem, the pre-engineering, then off to MacGreen that it's the right project to move forward and ultimately agreeing the allowances. And for us, what's really important is that those regulatory decisions dovetail and align with the project development time scale so that we're not left in a position where either we're having to spend in advance of getting the approval from Ofgem that it's the right project and/or we having to wait for clarity on what the allowances are. So it's very much about the workability of the framework and making sure that we've got a good drumbeat with Ofgem to allow us to deliver what is a significant level of CapEx at speed and at pace. So that has been a lot of discussions have been had since they're after termination at the working level to make sure we've got the right framework. And of course, we'll wait to see whether we've got the right place of the FD at the beginning of December. In terms of and the offshore wind auction, I think I'll go back to what we said in May, just to remind people that, to a large extent, we are relatively insensitive to what happens in the offshore wind auctions because Ofgem has already taken the decision that for the ASTI projects, we have a license obligation to deliver them and that it's in consumers' interest to progress those projects sort of independent of what the time scales are. And that's partly because, of course, there's an expectation that not only will it enable the flow of increased energy across the network, but it will also reduce what is an expected significant increase in constrained costs of around GBP 12 billion. So we don't see a huge amount of sensitivity between our GBP 60 billion 5-year plan and then finally, on question 3, I'll look to Andy. Andrew Agg: Yes. Thanks, Ahmed. In terms of the guidance, I think we said it versus our original guidance at the start of the year, we've obviously seen the 2 headwinds, firstly, from the dollar movement. So we're now guiding at 1.35 for the remainder of the year, which is, as you know, a small headwind, and secondly, with a slightly higher scrip uptake, there's an element of EPS dilution from that for the full year. But that is more than offset by a stronger operating performance from across the group, actually. I wouldn't call out any particular business unit. It is from across our regulated businesses. And all of that means that it puts us in a net or a modest upgrade position compared to our original guidance when we look ahead to the full year. John Pettigrew: Okay. Thank you, Andy. I'm going to go to Harry at BNP and then James at Deutsche. So Harry, we have your question, please. Harry Wyburd: And I'll add my congratulations and all the best and also hello to Zoe. So I have 2 questions, please. The first 1 is on the U.S. Now you just had a slew of sort of Democrat election wins and New York Mayor race dominated by affordability and the cost of living. I think you've been quite clear in the past that in the U.S., you are sheltered from this debate because regulation is done at the state level, et cetera. But if there was a federal move to clamp down on energy prices in the U.S. ahead of the midterms, where do you think the pain would be felt? And I have been clearly in mind that when this happened in Europe in 2022, it was painful across a wide range of business models, although less so in networks. So I'd be interested just to understand how you think or where the axe could potentially fall if energy prices really grew into a major, major political issue in the U.S. The second one is on T3. So looking at your consensus around the time that the draft determinations came out, there's several key uptick in expectations for FY '27, which is, I think, all of us looking at the fast money numbers and the Ofgem models have concluded that, that might bump your revenue for next year. How comfortable do you feel with that if we just take what we've had in the draft determination, so clearly, we'll get more in December and things might look different? But if we're just looking at what we've got in the draft, do you think we are collectively as sell-side analysts being conservative enough here? And do you think that there is a rational reason that EPS might be higher next year because of the past money? John Pettigrew: Thanks, Harry. Let me take the first question, and then I'll ask Andy to take the second. Probably just sort of a broader answer to the specifics as well, which is, so first of all, we're very conscious of the affordability debate, not just in the U.S. and the U.K. So we always take that massively into account when we think about price controls and rate cases in the U.K. and the U.S. With regards to the Mayor election, just to put that into context as well. So for New York City, they are our largest customer for our downstate gas business. We have a huge amount of interaction with them, particularly on the construction programs because quite often, where the city is doing work, we have to move our pipelines, for example. So they're a key stakeholder. And like any key stakeholder, we will engage with them to make sure we understand how we're working together, but also what their aspirations are around, and we understand that affordability is a big issue. But ultimately, for National Grid, things like our CapEx plans and affordability sit at the state level. And as you saw last year, we were very successful in agreeing with the regulator at the state level, a 3-year plan for NIMO of $5.6 billion which will take us right through to 2028. In terms of the sort of interaction between state and federal, I mean, for utility rates, then obviously, federal today don't have any jurisdiction. So I think in terms of the affordability debate, it would still sit at the state level. We need to be very mindful of that. And the way we approach that as a National Grid is when we look to do a rate case and we'll do this when we do in the coming months, we'll first reach out to all our key stakeholders and understand what are their expectations, what do they want from National Grid and how does that fit in the envelope of affordability. And quite often, that will shape the capital plan that we put forward as part of the rate case. We'll also spend a significant amount of time thinking about our vulnerable customers. You might remember in our rate case, for example, we set aside $290 million to support most vulnerable customers. And of course, we're always trying to drive the efficiency of the business through innovation as well to find more efficient ways of delivering what we need from customers. So I think for all those reasons, that's what we'll continue to do. We'll engage with stakeholders and think very carefully about what that rate case looks like in the envelope of affordability. From a federal perspective, and I think I'll reflect on what we've seen over the last 12 months, which is 1 of the key focus areas in New York, for example, has been how do you address the wholesale prices and you would have seen that the PSC has indicated they're supportive of the NESE pipeline. Based on the analysis that we did on the NESE pipeline, not only does it improve resilience and reliability in New York, but it increases the volume of supply by about 14% and potentially has about $6 billion of benefit for New Yorkers. So I think there's an interaction between federal government when you get into things like transmission pipelines and the states that I suspect will continue to be a focus going forward. Andy? Andrew Agg: Harry, thanks for the question. Yes, I think, obviously, this morning, you'll have heard that we've reaffirmed our 5-year frame guidance through to '29. And you remember when we set out that guidance, it was deliberately designed to be robust to a range of different outcomes as well. So I think it's important to take that into account. And clearly, at this stage, as you've heard from John, a couple of times now, our focus is working with Ofgem to ensure that we get to an appropriate final determinations. And that will be the point that we'll determine whether there is further guidance to be given, and that will be the point that we would do that. The other thing I'd just mentioned, of course, at this stage, we're also 1 of the topics we talk to Ofgem about is the profiling of any increases of revenue and how they fall across the 5 years of the price control. So that's something else that will be part of the mix that we'll be looking at. John Pettigrew: I'm going to move on to James at Deutsche and then perhaps we can go to Deepa at Bernstein after that. James Brand: It's James Brand from Deutsche. Also, congrats to John and also to Zoe and good luck for the future. . I have 2 questions. The first is on demand. So you said that you were kind of positioning yourselves to be ready to connect up to 19 gigawatts of additional demand Obviously, that will be absolutely huge, particularly if it was all heat demand. What's your kind of realistic expectation of how much demand growth we might see over the next 5 years? I know there's like a lot of data center connection requests, but how much do you think we can realistically expect to be added on the data center side. Maybe that's a difficult question to answer, but any thoughts around that would be super interesting. And then the second question is on coming back again to the energy affordability debate in the U.K. So obviously, the kind of noise around that has increased quite substantially. How do you view your own positioning in regards to that debate? I guess, potentially reasonably well protected given that you'll have the transmission price control locked in pretty shortly, and you can argue that the investments that are cutting our curtailment costs quite substantially. But longer term, is this a bit of a risk for you? And if you were to make any recommendations for ways to put electricity bills in the U.K. given that we have pretty much the most expensive electricity bills in the developed world, what would you recommend? John Pettigrew: Okay. Thanks, James. Let me start with the demand question. So a little bit of context. So because a lot of the demand -- a lot of the excitement is coming through the potential connection of data centers. So today, about 2.6% of all the demand that we have in the U.K. comes from data centers. You may have seen that NESO does its future energy scenarios, and it was projecting that, that could increase to about 9% by 2035. What we've seen over the last 12 months is quite a surge of requests for connections to the transmission network to support data centers and generative AI. So in our RIIO-T3 plans, our assumption is that we're expecting to see about demand growth of around about 19 gigawatts or we're going to build the network out to support that. I think it works out at about 4% growth in demand per annum. And about half of that is assumed to be for data center demand. And that's backed up by the connection agreements that have been signed in the time frame for RIIO-T3. So I think we feel comfortable that we've got a reasonably good handle on what the demand is going to do over the next 5 years or so. and a reasonably good handle on what's being expected in terms of growth in data center demand and where it will connect. And of course, you may have seen National Grid is working with the government through the AI Council to really identify where are the best locations in the U.K. to locate those data centers based on where is their access fair capacity today or where the time frame interconnections would be shorter than other places, which is an important determinant for data centers. In terms of energy affordability, I think when we stand back from our position, yes, we see an increase in the transmission element of the charge as we deliver out all these ASTI projects and the RIIO-T3 CapEx but actually against the expected constrained cost net-net, it's a reduction. So in a way, us getting on with the investment is very beneficial to consumers because it ultimately reduces the cost for them. Having said that, we're very mindful the affordability is a significant issue, which is why in our business plan we set out why it's important to have incentives around innovation to drive efficiency and indeed why we propose an efficiency measure as well. So we're very mindful of it. We're very conscious that it's a difficult time for customers. But in terms of the transmission element of the bill, I'd say we're very focused on making sure we can deliver the infrastructure to relieve those constrained costs, which result in a net-net reduction. I'm going to move to Deepa and then to Martin at BofA. So Deepa, should we take your question? Deepa Venkateswaran: First of all, thank you so much for your service for all these years and all the best for the next steps and Zoe a warm welcome. So my 2 questions. First 1 is on the RIIO-T3 draft. where do you see the risk reward on the incentives? If not the financial returns, that's very clear, you want it to be higher than what's there. But as things stand right now, where do you see the risk reward and how close is that to the 200 bps or so you would need in order to get closer to that 10% overall nominal return? And in your discussion so far with Ofgem, what's your sense on, are they moving in the right direction taking your feedback into account? So that's my first question. And the second one, I noticed that you are looking at U.S. transmission opportunities. And I think this is something that used to be talked about a long time back. Nothing has ever happened about it. So has there anything changed in the U.S. transmission landscape that is making you look at that again? And again, how big could this opportunity be? John Pettigrew: Yes. Thanks, Deepa. I guess I'll put the innovation in the context of the incentives framework, which I think is really important to help me get to an overall return that we think is appropriate to give the scale of investment going forward. So actually, the work that we've been doing with Ofgem is focusing on sort of 4 key incentives. One is being incentivized to make available the connection capacity that customers want in a timely fashion. Secondly, it's about delivering the major projects as quickly as possible and being incentivized against that in the same way as we are for the ASTI projects. Thirdly is looking at how we can reduce the cost constraints in our role as the transmission operator working with the system operator. And we've done some of that in the existing price control, and we think there's opportunity for more of that as we move forward. And then thirdly -- sorry, fourthly, it's the incentives as well. So we've been having conversations with Ofgem about that to really -- to find a framework that ideally allows us to look for opportunities to extend new technologies onto the network in a way that will reduce cost for customers. So if I give you an example, so Dynamic Ratings is a good example that we've started to deploy in our transmission divisions in the U.K. It is new technology. It allows you to get more power down the line without having to build new lines and we think those types of incentives are going to be really important if we're going to get to the overall package that works. But we're thinking about those 4 incentives as a package and innovation is a key 1 within that. In terms of the U.S. opportunities, you might recall, when we refined the strategy in May last year, we talked about the fact that our focus was going to be on transmission, both regulated and competitive and that we did see opportunities for transmission opportunities in the U.S. So our National Grid Ventures business has been looking at that. And I referenced in the speech this morning that one particular one on the horizon is a transmission line potentially from Maine down to New England that will help to reduce bills for New England customers that we -- the ISO is doing a solicitation on. So we're looking at that as a project. It's obviously in a region that we are very familiar with and understand very clearly. And obviously, we've got good capabilities with National Grid Ventures. So we are seeing some solicitations for competitive transmission in the U.S. And as part of our National Grid Ventures business, we are looking at them very carefully. We will only take them forward, as we said in the past, if we could get to a view that we're sensibly positioned to be able to win them, earn sensible returns, but that is 1 that's specifically on the short-term horizon at the moment. Just looking who is left. So Martin, if we could go to you next, I think that's the last question that I've got. Martin Young: Right. Congratulations on the results and all the best for the future. I actually wanted to come back to this topic of potentially new opportunities in transmission in the U.S. that you referenced. Could that be something that is material in terms of investments and in terms of CapEx and presumably that would come on top of your existing guidance of GBP 60 billion? So could you just give us some perspective as to how relevant this opportunity could be? And question number two, just on hybrid bonds. We have not really seen any hybrid issuance, I believe so. Is that still part of your financing toolbox? John Pettigrew: Thanks, Martin. I think Andy can take couple of those. Andrew Agg: Yes. Thanks. Martin. So on the transmission opportunities, as John said, we're in the early stages of looking at these. And so we'll have to wait and see how that may or may not grow as we go forward. But I'll remind you, if you go back to the financing strategy we set out in detail when we did the equity raise 18 months ago, we were very clear that where we do see incremental opportunities, particularly in our Ventures business, above -- that might take us above the GBP 60 billion, we would need to look for ways to finance those through the Ventures business as well in terms of potential partnering, other types of sort of off-balance sheet finance and other routes, et cetera. So i.e., it wouldn't impact our delivery or use of the equity proceeds to underpin the GBP 60 billion. And that remains absolutely the case today. In terms of hybrids, you're right. And again, when we made our financing strategy announcements 18 months ago, we were very clear that we wouldn't expect to issue any hybrid for several years. Again, that remains the case. Hybrids remain a very useful potential tool to us. We have a lot of unused hybrid capacity. At this stage, we don't have anything in the near term as you'd expect, but it will remain a tool that we can deploy appropriately later if we think that's the right thing to do. John Pettigrew: Thank you, Andy. So I don't have any further questions. So let me just wrap up by just saying, I guess, a summary of our half year results is good operational and financial performance in the last 6 months. I think we're very well positioned for the second half. And hopefully, you've taken away from today's presentation, we're very much on track to deliver the GBP 60 billion over the 5 years 18 months in. . This is my last results presentation. I'd like to say I'm just incredibly proud of the organization, what it's achieved over the last decade, but I'm also delighted to be handing over to Zoe who I think is going to be an incredible CEO. So thank you, everybody, for joining us today, and I'll see some of you very soon.
Operator: Good day, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward-looking statements and non-GAAP financial measures contained in the earnings materials were made on this call. John, please go ahead. John Ciroli: Thank you, and good day, everyone. Welcome to Montauk Renewables earnings conference call to review the third quarter 2025 financial and operating results and development. I'm John Ciroli, Chief Legal Officer and Secretary at Montauk. Joining me today are Sean McClain, Montauk's President and Chief Executive Officer, to discuss business development and Kevin Van Asdalan, Chief Financial Officer, to discuss our third quarter 2025 financial and operating results. At this time, I would like to direct your attention to our forward-looking disclosure statement. During this call, certain comments we may constitute forward-looking statements, and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed or implied by such forward-looking statements. These risk factors and uncertainties are detailed in Montauk Renewables' SEC filings. Our remarks today may also include non-GAAP financial measures. We present EBITDA and adjusted EBITDA metrics because we believe the measures assist investors in analyzing our performances across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, can be found in our slide presentation and in our third quarter 2025 earnings press release and Form 10-Q issued and filed on November 5, 2025. These are available also on our website at ir.montaukrenewables.com. After our remarks, we will open the call to questions from our analysts. [Operator Instructions] And with that, I'll turn the call over to Sean. Sean McClain: Thank you, John. Good day, everyone, and thank you for joining our call. On August 22, 2025, the EPA issued decisions on 175 million small refinery exemption or SRE petitions. The SRE decisions exempted corresponding volumes of gasoline and diesel for the 2023 and 2024 compliance years and increased the number of RINs available for obligated parties to use for compliance with the renewable fuel standard or RFS obligations. On September 16, 2025, the EPA proposed supplemental rule options that seek to offset these recent SRE decisions for increases in future renewable volume obligations by either a complete 100% reallocation or partial 50% reallocation of the SREs granted. The EPA had indicated the intention to finalize both the supplemental rule and the RVOs for 2025, 2026 and 2027 by the end of this year. However, the duration of the most recent U.S. federal government shutdown and any residual impacts on EPA staffing after the shutdown concludes, may extend finalization of these items into 2026. Growth of any future decision to reallocate obligated volumes associated with the recent SRE grants, the proposed cellulosic biofuel volume requirements for 2026 and 2027 are $1.300 billion and $1.360 billion D3 RINs, respectively. We note purchasing activity of 2025 D3 RINs by obligated parties has continued during the current U.S. federal government shutdown. In our August 2025 earnings call, we announced our agreement with Pioneer Renewables Energy Marketing to form a joint venture, GreenWave Energy Partners, LLC. The primary goal of the joint venture is to help address the limited capacity of RNG utilization for transportation by offering third-party RNG volumes access to exclusive, unique and proprietary transportation pathways. We have begun to match available RNG capacity to dispensing opportunities through GreenWave's transportation pathways and have separated RINs for a limited amount of volumes. We expect the benefits from this partnership to increase in the fourth quarter of 2025 and have made additional cash contributions to GreenWave during the third quarter of 2025 and have not directly recognized any significant share of profits from GreenWave. We continue our development efforts in North Carolina and continue to expect our production and revenue generation activities to commence in the first quarter of 2026. Alongside our construction efforts for this first phase, for which total investment continues to be projected between $180 million and $220 million, we continue to progress our negotiations with obligated utilities to monetize all remaining uncontracted renewable energy credits RECs from our projected first phase production volumes. Given the historically limited swine REC market in North Carolina, we've been negotiating our REC agreements with individually based on a variety of factors. While many of these agreements contain competitive details and there remains a limited active swine REC market in North Carolina, we believe the prices we are negotiating will be market-based. While we do not believe our negotiated rent prices will be based on solar REC prices seen in other U.S. markets, we do believe those indices are more illustrative of our expectations of North Carolina swine REC prices, versus the pricing for wind RECs across the United States market. Depending on a variety of factors, including but not limited to geographic region, we believe our negotiated swine REC prices could fall in the ranges experienced by solar REC indices at $200 to $450 per REC. In September 2025, a joint motion was filed with the North Carolina Utility Commission, the NCUC, by various entities seeking to modify and delay the 2025 requirements of certain aspects of North Carolina clean energy and portfolio, specifically the portfolio standards related to swine RECs. We note this filing is not dissimilar to historical annual filings in response to the historically limited swine REC market in North Carolina. In October 2025, we filed our response comments to this joint motion with the NCUC, requesting that they grant modifications or delays only to individual power suppliers that have demonstrated need and compliance best efforts, that they require power suppliers that have not achieved 100% compliance in 2025 to apply cumulatively acquired swine RECs to the suppliers unsatisfied 2025 pro rata obligation and modify swine REC set aside for 2026 and beyond to match the requirement as set by North Carolina in 2018. We are awaiting the response from the NCUC in regards to these filings. Our other announced development initiatives for new RNG facilities, CO2 development and biomethanol development remain active, and we expect to provide progress disclosures in our upcoming releases. And with that, I will turn the call over to Kevin. Kevin Van Asdalan: Thank you, Sean. I will be discussing our third quarter 2025 financial and operating results. Please refer to our earnings press release, Form 10-Q and the supplemental slides that have been posted to our website for additional information. Our profitability is highly dependent on the market price of environmental attributes, including the market price for RINs. As we self-market a significant portion of our RINs, a decision not to commit to transfer available RINs during a period will impact our revenue and operating profit. The impact of EPA rulemaking associated with the implementation of what we refer to as BRRR K2 separation has impacted our commitment timing in the 2025 year of adoption. We expect this timing between RINs generated but unseparated and RINs available for sale to only impact [ 2025 ], which is the year BRRR became effective. Also, the EPA indicated their intention to analyze the supplemental rule and the RVOs for 2025, '26 and '27 by the end of 2025. However, the duration of the U.S. federal government shutdown and any impact on EPA staffing after the U.S. federal government shutdown may extend this intended deadline into 2026, as Sean referenced. The average D3 index price for the third quarter of 2025 was approximately $2.19, a decrease of approximately 34.8% compared to $3.36 in the third quarter of 2024. At September 30, 2025, we had approximately 0.7 million RINs generated and unseparated. We had approximately 10,000 RINs in inventory from 2025 RNG production as of September 30, 2025. Total revenues in the third quarter of 2025 were $45.3 million, a decrease of $20.6 million or 31.3% compared to $65.9 million in the third quarter of 2024. The decrease is related to a decrease in the number of RINs we self marketed from 2025 RNG production in the third quarter of 2025. Our decision to sell an increased amount of our production under fixed or floor price arrangements contributed to our having less RINs in the third quarter of 2025 compared to the third quarter of 2024. Notably, we did not experience an appreciable increase in environmental attributes shared with our pathway providers during the third quarter of 2025. More information on these metrics are included in our 2025 third quarter Form 10-Q. Our average realized RIN price in the third quarter of 2025 was $2.29, which though approximately $0.10 higher than the average D3 index price, decreased approximately 31.4% compared to $3.34 in the third quarter of 2024. Total general and administrative expenses were $6.5 million in the third quarter of 2025, a decrease of $3.5 million or 35.1% compared to $10 million in the third quarter of 2024. The decrease was driven by accelerated vesting of certain restricted share awards as a result of the termination of an employee in the third quarter of 2024. Turning to our segment operating metrics. I'll begin by reviewing our Renewable Natural Gas segment. We produced 1.4 million MMBtu during the third quarter of 2025 and increased 53,000 MMBtu or 3.8% compared to $1.4 million MMBtu during the third quarter of 2024. Our Rumpke facility produced 50,000 MMBtu more in the third quarter of 2025 compared to the third quarter of 2024 as a result of higher inlet feedstock supply. Our Apex facility produced 25,000 MMBtu more in the third quarter of 2025 as a result of the June 2025 commissioning of the second Apex RNG facility. Offsetting this increase was the fourth quarter of 2024 sale of our Southern facility, which produced 69,000 MMBtu during the first 9 months of 2024. Revenues from the Renewable Natural Gas segment during the third quarter of 2025 were $39.9 million, a decrease of $21.9 million or 5.1% compared to $61.8 million during the third quarter of 2024. Average commodity pricing for natural gas for the third quarter of 2025 was 42.1% higher than the third quarter of 2024. Offsetting this impact during the third quarter of 2025, we self marketed 12.4 million RINs, representing a $3.4 million decrease or 21.2% compared to 15.8 million RINs self marketed during the third quarter of 2024. Average pricing realized on RIN sales during the third quarter of 2025 was $2.29 as compared to $3.34 during the third quarter of 2024, a decrease of 31.4%. This compares to the average D3 RIN index price for the third quarter of 2025, up $2.19 being approximately 34.8% lower than the average D3 RIN index price for the third quarter of 2024 of $3.36. At September 30, 2025, we had approximately 0.3 million MMBtu available for RIN generation, 0.7 million RINs generated but unseparated and 10,000 RINs separated and unsold. At September 30, 2024, we had approximately 0.3 million MMBtu available for RIN generation and 0.1 million RINs generated and unsold. At September 30, 2024, there were no RINs generated but unseparated. Our operating and maintenance expenses for our RNG facilities during the third quarter of 2025 were $13.9 million, an increase of $1.3 million or 10.6% compared to $12.6 million during the third quarter of 2024. The primary drivers of the third quarter of 2025 increase were timing of preventive maintenance, media change-out maintenance, well-filled operational enhancement programs and utility expenses at our Rumpke, Atascocita and Apex facilities, respectively. Excluding utilities, many of these expenses can be nonlinear in nature and timing can fluctuate by period. We produced approximately 44,000 megawatt hours in renewable electricity during the third quarter of 2025, an increase of approximately 3,000 megawatt hours or 7.3% compared to 41,000 megawatt hours during the third quarter of 2024. Our Bowerman facility produced approximately 2,000 megawatt hours more in the third quarter of 2025 compared to the third quarter of 2024. The increase is primarily related to the timing of processing equipment maintenance in the third quarter of 2024. Revenues from renewable electricity facilities during the third quarter of 2025 were $4.2 million, an increase of $0.1 million or 1.9% compared to the third quarter of 2024. The increase was primarily driven by the aforementioned increase in our Bowerman facility production volumes. Our renewable electricity generation operating and maintenance expenses during the third quarter of 2025 were $2.6 million, a decrease of $0.1 million or 4.3% compared to $2.7 million during the third quarter of 2024. Our Tulsa facility operating and maintenance expenses decreased approximately $0.1 million, primarily related to timing of annual engine maintenance. During the third quarter of 2025, we recorded impairments of $48,000, a decrease of $485,000 compared to $533,000 in the third quarter of 2024. The decrease primarily relates to specified -- specifically identified assets deemed obsolete or nonoperable in the third quarter of 2024 compared to the third quarter of 2025. We did not report any impairments related to our assessment of future cash flows. Operating income for the third quarter of 2025 was $4.4 million, a decrease of $18.3 million or 80.4% compared to $22.7 million for the third quarter of 2024. RNG operating income for the third quarter of 2025 was $11 million, a decrease of $22.6 million or 67.2% compared to $33.6 million for the third quarter of 2024. Renewable electricity generation operating loss for the third quarter of 2025 was $0.2 million, a decrease of $0.4 million or 73.1% compared to the $0.6 million operating loss for the third quarter of 2024. Turning to the balance sheet. At September 30, 2025, $47 million was outstanding under our term loan, and we had $20 million outstanding borrowings under our revolving credit facility. As of September 30, 2025, we had capacity available for borrowing under our revolving credit facility of approximately $96.7 million. For the first 9 months of 2025, we generated $30 million of cash from operating activities, a decrease of 30.4% compared to $43.1 million for the first 9 months of 2024. Based on our estimate of the present value of our Pico earn-out obligation, we recorded an expense of $0.3 million at September 30, 2025. This was recorded through our RNG segment royalty expense. During the third quarter of 2025, we made our first payment under the earn-out agreement to the former owners of the Pico site totaling approximately $0.2 million. For the first 9 months of 2025, our capital expenditures were $75.1 million, of which $51.9 million, $8.5 million and $7.5 million were related to the ongoing development of Montauk Ag Renewables, our Turkey project in North Carolina, our contractually obligated Rumpke RNG relocation project in Cincinnati, Ohio and our second Apex facility in Ohio as well. As of September 30, 2025, we had cash and cash equivalents net of restricted cash of approximately $6.8 million. We had accounts and other receivables of approximately $6 million. We do not believe we have any collectability issues within our receivables balance. Adjusted EBITDA for the third quarter of 2025 was $12.8 million, a decrease of $16.6 million or 56.5% compared to adjusted EBITDA of $29.4 million for the third quarter of 2024. EBITDA for the third quarter of 2025 was $12.8 million, a decrease of $16.1 million or 55.7% compared to EBITDA of $28.9 million for the third quarter of 2024. Net income for the third quarter of 2025 was $5.2 million, a decrease of $11.8 million as compared to $17 million for the third quarter of 2024. Our income tax expense decreased approximately $5.8 million for the third quarter of 2025 as compared to the third quarter of 2024. The difference in effective tax rates between the 2025 third quarter and the 2024 third quarter primarily relates to the change from pretax income to pretax loss for the third quarter of 2025. With that, I'll now turn the call back over to Sean. Sean McClain: Thank you, Kevin. In closing, and although we don't provide guidance on our internal expectations on the market price of environmental attributes, including the market price of D3 RINs, we would like to provide our full year 2025 outlook. We expect our RNG production volumes to remain unchanged and range between 5.8 million and 6 million MMBTus with corresponding RNG revenues also unchanged to range between $150 million and $170 million. We expect our 2025 renewable electricity production volumes to range between 175,000 and 180,000 megawatt hours with unchanged corresponding renewable electricity revenues ranging between $17 million and $18 million. And with that, we will pause for any questions. Operator: [Operator Instructions] Our first question comes from the line of Matthew Blair of TPH. Matthew Blair: You maintained your 2025 RNG production guide, which would imply a step-up quarter-over-quarter in the fourth quarter even at the low end of the guide. Could you talk about the drivers of the step up? Is this just better operations? Or is there any sort being that would push things up. And then thinking about your RNG production for 2026, I think most of your new projects are really more for 2027. So at this stage, would it be appropriate to think of 2026 RNG production is probably pretty similar to 2025? Kevin Van Asdalan: Thanks, Matthew. Thanks for joining our call. Yes, we continue to maintain our production ranges for RNG for the full 2025 year, which implies an expected step-up to hit the low end in the fourth quarter. It's a combination of a variety of factors, improvement in feedstock supply, which is also being beneficial at our Apex facility that we mentioned associated with some improvements in a newer plan. We continue to work with our rum landfill site to work through those wealth field challenges that we've been experiencing. So yes, we do believe we expect a continued uplift in our quarter-over-quarter production as we've been experiencing in 2025. Notably, in 2026, we have a policy not to provide other than current operating year guidance expectations. We'll look to release those expectations at our full year results release that next year in 2026 in March but we expect to continue to expect our normal growth rate in going into 2026 as well. Operator: Our next question comes from the line of Tim Moore of Clear Street. Tim Moore: I know the RIN pricing is out here control EPA and such. I just want to switch gears to something that improved in the quarter that was nice to see it seems like the maintenance CapEx wave might be hopefully done, there was some catch up there in the last 12 months for overhauled engines and things like that. Can you just kind of speak to that a bit? The OpEx looked good, do you expect any more kind of catch-up maintenance spending in the next couple of quarters? Or are you past it? Sean McClain: Thanks, Tim. I appreciate the question. I would view the shift in the operating expenses as less of a catch-up and more of some nonlinear expense items that correspond to the life cycle of the equipment. There is a component of it that although it's bundled in your operating expenses, it is directed towards noncapitalizable investment into some of the debottlenecking of feedstock volumes for well field production. And so you're seeing that corresponding lift in your production volumes as you're moving quarter-to-quarter. Kevin's explanation of your expected growth rate. We do not see any meaningful increase as we go into the outlook of operating expenses other than onboarding, obviously, our new Turkey Creek facility in 2026. And so you have to compare that to the revenue and the EBITDA lift that we get from commissioning that project in the first quarter. Operator: Our next question comes from Betty Zhang of Scotiabank. Y. Zhang: My question, I wanted to ask about G&A. I understand you talked about the variance versus a year ago. but curious what the drivers were for the difference versus last quarter? It seems like this quarter was quite a bit lower versus your run rate. So curious if you could just give a bit of color there. Kevin Van Asdalan: Yes. The vast majority with that Betty is associated with timing of various professional fees, items like that. We are noticing a nominal increase in audit fees and auditor fees. As a reminder, this is our final year of EGC status. So there's some additional work as we're prepping for our first year in 2026 of a fully integrated audit. Last year, as we noted, there was the uplift in stock-based compensation associated with an employee termination. And then if you remember, there was another employee termination in the second quarter of 2024. That also was a onetime increase to G&A. So there are some blips in the third quarter of last year, second quarter of this year that we're getting through as we get back into a more normalized G&A run rate. Operator: This concludes the question-and-answer session. I would now like to turn it back to Sean McClain for closing remarks. Sean McClain: Thank you for taking the time to join us on the conference call today. We look forward to speaking with you in 2026. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Mizuho Shen: This call is a simultaneous translation of the original call held in Japanese, provided solely for the convenience of investors. Thank you for joining the Recruit Holdings FY 2025 Q2 Earnings Call. I'm Mizuho Shen, Manager of Investor Relations and Public Relations. Today, I will give a brief talk about our business, then Junichi Arai, Executive Vice President and Chief Financial Officer, will give a presentation on results and guidance, followed by a Q&A session. Please note that today's session, including the Q&A, will be posted on our IR website after the event. Starting this fiscal year, we have integrated HR Solutions from Matching & Solutions into HR Technology. Accordingly, the year-on-year comparison of segment results in this fiscal year's financial presentation is based on FY 2024 pro forma figures, which assume that this integration had been effective as of April 1, 2024. Unless otherwise stated, comparisons will be made year-over-year. Lastly, please note that all references to dollars in this presentation refer to U.S. dollars. We have 3 business segments. HR Technology features Indeed and Glassdoor, which together create a global 2-sided talent marketplace across more than 60 countries with a focus on the U.S. As the core of our simplifying strategy, Indeed uses its broad reach, AI-powered matching and tools for faster connections to make the hiring process more efficient for employers and help job seekers find jobs faster and more easily. This strategy is enhanced in Japan through the Indeed Plus job distribution platform and the integration of placement services, including recruit agent. Staffing consists of 2 major operations: Japan and Europe, U.S. and Australia. Between 2010 and 2016, we expanded to our current scale and structure through multiple global acquisitions of staffing companies. Marketing Matching Technologies, or MMT, consists of marketing solutions of the former Matching & Solutions. In Japan, MMT provides vertical matching platforms that connect individual users and business clients in areas like the lifestyle subsegment, which includes beauty, travel, dining and SaaS solutions as well as the housing and real estate subsegment and others. These platforms offer services, including information and online reserving and booking services. Now over to Arai-san. Junichi Arai: Thank you very much. We have a slightly longer presentation than usual, so I hope you could bear with me. I will discuss the following 4 highlights of the FY 2025 Q2 earnings presentation. One, in HR Technology, revenue in the U.S. for Q2 increased by 5.8% year-over-year to $1.33 billion. Two, we have upwardly revised the full year U.S. revenue outlook in HR Technology from 0.3% year-over-year increase, basically flat announced in May to a 5.6% increase. Three, the full year consolidated financial guidance has been revised upward. Consolidated EBITDA+S for this fiscal year has been revised upward from JPY 697 billion to JPY 733.5 billion. Four, net cash at the end of September 2025 was JPY 590.5 billion. We commenced a new share repurchase program of JPY 250 billion on October 17 (sic) October 16. This is in line with the policy we announced in May 2024 to reduce net cash to around JPY 600 billion by the end of FY 2025. After reviewing our consolidated results for Q2 and the first half, I will discuss the performance and outlook by segment, followed by our full year consolidated guidance and finally, our capital allocation policy. Regarding FY 2025 Q2 consolidated results. In HR Technology, our focused monetization efforts were the primary driver of revenue growth, successfully counteracting the impact of a softer job market in the U.S. Revenue in Marketing Matching Technologies or MMT increased and revenue in staffing remained flat. As a result, total consolidated revenue increased by 2% to JPY 914.7 billion. As a result of continued efforts across all segments to further enhance productivity, EBITDA+S margin was 22.7%, exceeding Q1 of this fiscal year, driven by margin expansion in HR Technology and MMT. EBITDA+S margin over gross profit was 38.2%, reflecting our underlying cash flow generating capability. Before adding back stock-based compensation expenses, EBITDA margin improved compared to the same period last year, reaching 21.3%. For the first half of FY 2025, revenue decreased 0.3% to JPY 1,793.5 billion. EBITDA+S margin continued to expand, reaching 22%. Now I will move on to the results and outlook by segment. I will start by the results for HR Technology. For Q2, segment revenue on a U.S. dollar basis increased by 4.5% year-on-year and the 2.1% quarter-over-quarter to $2.41 billion. On a Japanese yen basis, segment revenue increased by 2.9% year-over-year to JPY 355.7 billion. As for revenue by region, turning to our U.S. performance, despite an approximately 8% decline in job postings, U.S. revenue increased by 5.8% year-over-year and by 5.6% quarter-over-quarter to $1.33 billion, exceeding our initial expectations. This was driven by successful monetization development of paid job ads with a notable contribution from premium sponsored jobs. This solution enhances our paid job ads by incorporating key features and leverages Indeed advanced matching and targeting technology. Revenue in Europe and others increased by 14.7% year-over-year to $509 million. The U.K., Canada and Germany together accounted for about 2/3 of Indeed revenue for Europe and others on a U.S. dollar basis. The revenue growth was primarily driven by the U.K. and Canada, where monetization development led to revenue growth of approximately 8% year-over-year, respectively, on a local currency basis as well as by foreign exchange impacts. Starting this fiscal year, HR Technology Japan consists of job advertising services, placement services and other hiring-related services after integrating HR solutions of the former Matching & Solutions. Revenue in Japan decreased by 7.2% year-over-year to JPY 84 billion or declined by 5.7% year-over-year on a U.S. dollar basis. Our job advertising service, Indeed Plus, which launched in January 2024, is performing above initial expectations. However, our placement services fell short of the initial assumption. This shortfall occurred because we underestimated the business impact of the system migration processes that followed our recent organizational integration. Even excluding the impact of the difference between gross to net revenue recognition related to the transition to Indeed Plus, overall, Japanese revenue came in below our initial expectations. Segment EBITDA+S margin expanded to 37.9%, driven by improved productivity and enhanced operational efficiency in the U.S. and in Europe and others. Even in a business environment where the total number of U.S. job postings continued to decline, the successful combination of a monetization development and improvements in operational efficiency and productivity was clearly reflected in segment EBITDA margin, which increased by 6.6 percentage points from the same quarter last year to 34.7%. As a result, for the first half, on a U.S. dollar basis, segment revenue increased by 4.1% year-over-year to $4.77 billion and on a Japanese yen basis, decreased by 0.5% year-over-year to JPY 697.5 billion. As for revenue by region, in the U.S., revenue increased by 3.4% year-over-year to $2.59 billion. In Europe and others, revenue increased by 13.7% year-over-year to $985 million. In Japan, revenue decreased by 5.8% year-over-year to JPY 174.3 billion or decreased by 1.3% year-over-year to USD 1.19 billion. Although placement services revenue fell slightly short of our initial expectations, job advertising services revenue performed above expectations, resulting in total revenue in Japan coming in slightly above our initial projections. Segment EBITDA+S margin was 36.5%. For the first half, sales commission, promotion expenses and advertising expenses in total amounted to approximately 13% of segment revenue, while employee benefit expenses and service outsourcing expenses totaled approximately 46% of revenue, reflecting the impact of the workforce reduction announced in early July, which began to take effect in the latter half of the first half. Now I will look -- discuss the second half outlook. But before diving into the outlook, today, I am introducing a new key performance indicator to track our monetization progress and serve as an important indicator of the future evolution of HR technology in the U.S. The U.S. average revenue per job posting on Indeed or U.S. ARPJ growth rate. Hereafter, we refer to the U.S. average revenue per job posting as U.S. ARPJ. For clarity, the U.S. ARPJ is calculated by dividing HR Technology U.S. revenue by the total number of free and paid jobs in the U.S., including those posted directly to Indeed and those aggregated from the Internet. It represents the average revenue generated per job posting on Indeed in the U.S. The U.S. ARPJ is based not only on paid job ads, but the denominator includes all jobs listed on Indeed, regardless of whether they are paid or free. Its year-over-year growth rate is the U.S. ARPJ growth rate. The revenue increase of 5.8% in the U.S. during this Q2 was driven by the U.S. ARPJ growth rate coming in at approximately 15% increase year-over-year despite an approximately 8% decline in the total number of job postings. For the first half, the U.S. ARPJ growth rate was around 13% increase year-over-year, clearly demonstrating the progress and success of our monetization strategy. This chart shows the index trend in total number of U.S. job postings on Indeed from February 2020 to the present, represented here by the Indeed Hiring Lab U.S. job posting Index. This index is based on the total number of U.S. job postings used in calculating the U.S. APJ growth rate. It is important to understand that this index is based on both free and paid job postings on Indeed, which are sourced in 2 ways. Hosted jobs are posted directly on Indeed by business clients. Indexed jobs are aggregated by Indeed from employer websites and other sources across the Internet. Our CEO, Deko stated in May 2024 that we assume that hiring demand in the U.S. will hit the bottom after decreasing for another 18 or 24 months, i.e., this second half. and we will run our business based on that. Given the current U.S. business environment, we still expect hiring demand in the U.S. to be broadly in line with our assumption at the beginning of this fiscal year, which is to continue a modest year-over-year decline throughout the second half with the trend bottoming out in Q4. Based on our assumption, we have revised our U.S. revenue outlook for Q3 and Q4. This chart shows the quarterly trend of U.S. revenue in HR Technology since Q4 FY 2019, together with the index chart that I mentioned earlier. On the far right, we have added the HR Technologies assumed trend for the IHL Index in the second half and the revenue outlook for Q3 and Q4. Looking at these results through Q2, as you can see, through FY 2023, HR Technology U.S. quarterly revenue moved largely in line with this index. However, from the beginning of FY 2024 through the first half of the current fiscal year, meaning 6 quarters, HR Technology U.S. revenue has decoupled from the declining trend in job postings. This divergence is the direct result of ongoing developments in monetization, which we have been successfully executing since our CEO, Deko, announced the beginning of year 0 in May 2024, a period of strengthening our foundation and preparing for a recovery in the business environment following the downturn. To provide clear insight into this divergence, we will report the U.S. ARPJ” growth rate as a new KPI. This metric represents our continued progress in evolving our business, capturing the success of our entire product and monetization strategy built on Indeed's foundation as a 2-sided talent marketplace that connects job seekers and employers. Currently, paid job ads remain just under 1/4 of the total number of U.S. job postings on Indeed. As we increase this penetration and as more business clients adopt our other value-added subscription services, including sourcing, branding and new AI products, the U.S. ARPJ will rise and its growth rate will accelerate, further widening the divergence from the IHL Index growth rate. Now turning to our U.S. revenue outlook for Q3 and Q4 in U.S. dollars. Despite an anticipated year-over-year decline of around 7% in the total number of U.S. job postings in the second half, we expect the U.S. ARPJ” to continue growing year-over-year at around 16% for the second half. We expect revenue for Q3 to increase by 7.2% year-over-year and decrease by 4.8% quarter-over-quarter, reflecting the seasonality of the holiday period when both job seeking and hiring activities tend to slow down. For Q4, we expect revenue to increase by 8.6% year-over-year and by 1.6% Q-on-Q. Our second half outlook is based on exchange rate assumptions of JPY 145 to the U.S. dollar and JPY 172 to the euro. We expect segment revenue to increase by 7.8% year-over-year to $4.74 billion and to increase by 2.5% year-over-year to JPY 687.9 billion. By region, in the U.S., based on the quarterly revenue assumptions I discussed earlier, we expect revenue to increase by 7.9% year-over-year to $2.56 billion and to decrease by 1.4% compared to the first half, reflecting normal seasonality. In Europe and others, we expect revenue to increase by 21.5% year-over-year to $1.03 billion, reflecting ongoing developments and monetization. In Japan, revenue in placement services, as explained earlier, will continue to decline in the second half, and we expect revenue to decrease by 7.2% year-over-year to JPY 167 billion or by 2.4% year-over-year to $1.15 billion. As I stated in the earnings presentation in May, in Japan, we are prioritizing the stable operation of our newly reorganized structure following personnel reassignments to facilitate future growth in the coming years. Since April, we have focused on maintaining stable operations for the integrated organization while launching a range of initiatives to drive business evolution and enhance efficiency, including actively leveraging AI to support future growth. Some of these initiatives are already yielding results, while others have required us to make adjustments. For those that did not meet our initial expectations, we have identified the underlying causes and are working to rectify and improve them. We remain committed to pursuing innovation boldly without fear of failure. Although corrective measures have already been underway, placement services generally take more than 6 months from the time a job seeker is introduced to a position until a successful match is finalized and revenue is recognized. Therefore, we expect the impact of these corrective actions to begin contributing from the first half of next fiscal year. Segment EBITDA+S margin is expected to reach 35.1%, up 3.4 percentage points from 31.7% in the second half of last fiscal year as we aim to balance monetization developments with further improvements in operational efficiency and productivity even in a business environment where U.S. hiring demand continues to decline modestly year-over-year. Margin expansion in the U.S. and in Europe and others is expected to continue, driven by upward revisions of revenue and progress in efficiency improvements, including the workforce reduction implemented in July. In Japan, we expect lower revenue due to the performance of placement services to contribute to a lower EBITDA+S margin. However, we also plan to control advertising and other promotional expenses carefully, which will partially offset the negative impact on margins. Based on the results for the first half and the outlook for the second half, the full year outlook has been revised upward. We now expect segment revenue to increase by 5.9% year-over-year to $9.52 billion, up from the initial outlook of a 2.4% increase to $9.2 billion. On a Japanese yen basis, we have revised our outlook upward to JPY 1,385.5 billion, representing a 1.0% increase year-on-year from the initial outlook of a 2.8% decreased to JPY 1,334.4 billion. By region, in the U.S., we have revised our outlook upward from the initial assumption of a 0.3% year-on-year increase to an increase of 5.6%, reaching $5.15 billion. In Europe and others, we have revised our outlook upward from the initial expectation of an 8.1% year-on-year increase to a 17.6% increase, reaching $2.01 billion. In Japan, we have revised our outlook downward from the initial expectation of a 2.7% year-on-year decrease to a 6.5% decrease to JPY 341.3 billion and on a U.S. dollar basis to $2.34 billion, representing a 1.9% decrease year-on-year. Segment EBITDA process margin has been revised upward from the initial outlook of 34.5% to 35.8%, representing an increase of 2.8 percentage points from 33% in the last fiscal year. Segment EBITDA margin is expected to be 31.1%, representing an increase of 3.7 percentage points from 27.4% in the last fiscal year. As for Staffing, segment revenue in Q2 increased by 0.8% to JPY 421.3 billion. In Japan, revenue increased by 6.1% to JPY 209.4 billion, driven by stable demand for Staffing. In Europe, U.S. and Australia, revenue declined by 3.9% to JPY 211.8 billion. This represents an improvement from the first quarter, driven by increased orders from large business clients as well as the impact of the Japanese yen depreciation. Segment EBITDA+S margin was 6.6%. For the first half of the fiscal year, segment revenue decreased 1.3% to JPY 829.4 billion. Segment EBITDA+S margin was 6.6%. For the second half outlook, segment revenue is expected to increase 2.3% to JPY 846 billion. Segment EBITDA margin is expected to be 4.8%. For the full year outlook, we have revised segment revenue to JPY 1,675.4 billion and segment EBITDA+S margin to 5.7% with only minor changes from the figures disclosed on May 9th. Next, I will discuss Marketing Matching Technologies or MMT. Regarding Q2 results, segment revenue increased by 6.3% year-over-year to JPY 144.3 billion with revenue growth across all subsegments. Revenue in Lifestyle, which consists of beauty, travel, dining and SaaS solutions increased by 8.5% to JPY 76.9 billion, driven by the continued growth in new business clients in Beauty. Revenue in Housing and Real Estate increased by 4.3% to JPY 38.5 billion, driven by the growth in the number of contracts closed for custom homes through Sumo Counter, our face-to-face housing consultation service. Revenue in others, which includes car and bridal, increased by 3.5% to JPY 28.8 billion. Segment EBITDA+S margin expanded to 32.3%, driven by appropriate cost control, principally related to service outsourcing expenses. For the first half, segment revenue increased by 6.7% year-on-year to JPY 281.2 billion, and segment EBITDA+S margin was 31.9%. For the second half outlook, segment revenue is expected to increase by 3.7% to JPY 286 billion, driven by continued strong performance in Lifestyle, including growth in new business clients in beauty and dining and continued increases in the number of room nights and unit price in travel. Segment EBITDA+S margin is expected to be 22.2%. I will now explain the background behind the significant difference in EBITDA+S margins between the first half and the second half of MMT. The primary factor is the seasonality of advertising and sales promotion expenses in the Japanese market. When planning for the next fiscal year, MMT carefully prioritizes these expenses across its subsegments, consolidating proposals submitted by the respective business units. Based on the latest performance outlook during the fiscal year, MMT allocates funds intensively and effectively in line with these priorities when the number of actions by individual users on our matching platform increases. Our Q4 coincides with the timing when the number of actions taken by individual users increases the most within the fiscal year due to the start of the new fiscal year in Japan in April, particularly in housing and real estate. By concentrating our spending on these expenses during this period every fiscal year, MMT aims to maintain and increase the revenue recognized in Q4 and in Q1 of the following fiscal year. In the previous fiscal year, approximately 36% of total annual sales commission, promotion expenses and advertising expenses broadly defined as marketing-related expenses were recorded in Q4. And approximately 58% were recorded in the second half with an EBITDA+S plus margin of 28.6% for the first half and 22.4% for the second half. In this fiscal year, in addition to the concentration of usual seasonal expenses in the second half, we will increase sales promotion expenses exceeding initial projections to support new growth initiatives across multiple areas aimed at realizing increased revenue in fiscal year 2026 and beyond. As a result, we expect approximately 60% of the annual marketing-related expenses to be recognized in the second half of this fiscal year. Moreover, we have a onetime impact from a planned update to MMT's accounting system at the end of the fiscal year. This upgrade will refine our revenue recognition policy, moving from a previous pro rata monthly allocation method to a daily basis recognition. This onetime transition means approximately JPY 5 billion in revenue and associated profit, which we had expected to book in March will not be recognized within the current fiscal year. Taking this into account, we expect EBITDA+S margin for the second half to be 22.2% compared with 31.9% in the first half. The full year segment revenue outlook is largely unchanged with an expected increase of 5.1% year-over-year to JPY 567.2 billion compared to the initial outlook of plus 5.1% year-over-year to JPY 567 billion, even after reflecting the one-off impact from the revenue recognition refinement that I mentioned earlier. Due to the one-off profit impact, segment EBITDA+S margin has been revised downward from the initial outlook of 27.5% to 27.0%. Regarding our segment EBITDA+S margin, our future targets remain unchanged. MMT aims to reach segment EBITDA+S margin of 30% in fiscal year 2026 and approximately 35% by FY 2028. We plan to share specific details about initiatives to drive revenue growth in the next fiscal year soon. Now based on the segment outlook, let me turn to our consolidated outlook for the second half. For the second half, we assume exchange rates of JPY 145 per U.S. dollar and JPY 172 per euro. As for the consolidated outlook for the second half of the fiscal year, revenue is expected to be JPY 1,805 billion. EBITDA+S is expected to be JPY 339 billion with the EBITDA+S margin to be 18.8%. We have revised the full year consolidated guidance, reflecting the first half results and the second half outlook of -- for each segment. Revenue guidance has been revised from JPY 3,520 billion, minus 1.1% year-over-year to JPY 3,598.5 billion, plus 1.2% year-over-year. EBITDA+S has been revised from JPY 697 billion, plus 2.7% year-over-year to JPY 733.5 billion, plus 8.1% year-over-year. EBITDA+S margin is expected to be 20.4% with EBITDA+S margin over gross profit assumed to be 34.5%. Profit attributable to owners of the parent has been revised to JPY 448.3 billion, representing an increase of 9.8% from the last fiscal year, and basic EPS is revised to JPY 313, up 15.3% year-over-year, reflecting the impact of share repurchases. Consolidated full year results will be expected to reach new record highs. Our capital allocation measures, I would like to cover this topic last. During the first half, we repurchased approximately 53 million shares for JPY 423.7 billion. Consolidated net cash and cash equivalents as of the end of September was JPY 590.5 billion. A new share repurchase program with an upper limit of JPY 250 billion started on October 17, and the market repurchase is currently being conducted through an appointed securities dealer with transaction discretion. The repurchase period is scheduled to continue until April 30, 2026, at the latest. We note that following the commencement of the share repurchase program, we may consider and execute strategic M&A transactions. The Board of Directors resolved today to pay an interim dividend of JPY 12.5 per share. The total per share dividend amount is expected to be JPY 25.0. We retired treasury stock in March of both fiscal year 2023 and fiscal year 2024 using shares acquired during the respective fiscal years. We will also consider retiring the treasury stock to be acquired through our share repurchase programs in fiscal year 2025 at the end of the fiscal year, taking into account market and business conditions. Finally, regarding the total payout ratio for the fiscal year, if we assume the currently ongoing JPY 250 billion share repurchase program is completed within the current fiscal year, in addition to the share repurchase results up to September 30 of this year, the total amount of shares repurchased this fiscal year will be JPY 677.9 billion. Additionally, taking into account the expected dividend for this fiscal year, the total payout ratio is expected to be approximately 159% based on our full year consolidated earnings forecast announced today. This concludes my presentation. Now we'd like to proceed to the Q&A session. Mizuho Shen: [Operator Instructions] So first, Nomura Securities, Oum,san please. Jiyong Oum: This is Oum from Nomura Securities. So my first question. U.S. ARPJ” second half plan, 16% increase, you said. Majority of that is premium sponsored ad contribution. Is that correct? Are there non-premium factors? Junichi Arai: Of course, premium contribution is expected. But it's not only that. There are various factors that will contribute to this number. We have incorporated other factors. As I mentioned earlier, subscription sales have partially started. And according to what we experienced now, it seems like we -- this is gaining traction. It is received positively. And as I mentioned earlier, market will continue mildly expanding. So we want to harvest and exert this monetization impact. So whether you think this is questionable or aggressive or we can do more, I hope you could take a good guess. So there are existing ones and the newly developed ones, newly launched ones. So when we announced our Q3 results, we will share with you what contributed to the results. Jiyong Oum: And my follow-up question is the current status of premium, if you could elaborate on that. I know it is difficult to disclose, but the breakdown between standard and premium, for example, what is the percentage of premium? And the number of countries or regions that you have deployed this, where you stand. So if you could give us a hint on penetration, it would be helpful. So today, we focused on the U.S. So how impactful premium is in the U.S. market and how things look like in Europe. Junichi Arai: I hope we can use different parameters to explain going forward. But today, we are focusing on the U.S. And when we disclose these numbers, then what is the revenue breakdown or hosted or indexed. All these breakdown will continue. So for today, we'd like to refrain from giving you the breakdown. But the number of users using this is increasing as we speak. Jiyong Oum: Thank you. Understood. I already use my right for one follow-up question. But in the premium, there are many functions. What is received well particularly? Junichi Arai: So the biggest reason from migration from standard to premium merchant hiring or Deko says, what we newly add on premium is what we often discuss. And any new things we can launch in the nonpremium. So what we include in the package, what we exclude from the package and the combination thereof and how we deliver this, offer this to our users. And have received the payment. There are so many things, factors that we consider. So of course, we may add new functions to raise the price of premium package in some case or do something else. So I think that the combination is diverse. So we may add some new functions to increase the unit price or take another option, and that all determines the final result. So we may share with you Q3, Q4 results on that. I hope you could look forward to it. So the candidate and the targeting function. There are industries that like that and not so well in other industries. So for the industries where this is popular, the numbers are showing. So I cannot say this across the board. It's difficult to make a general comment, market is large and the needs differ from client to client. Mizuho Shen: Next, Munakata-san from Goldman Sachs Securities. Minami Munakata: Hello. I'm Munakata from Goldman Sachs. Regarding the second quarter, U.S. Indeed growth is quite strong, which is reassuring listening to your presentation. And in addition, the -- you've also disclosed the average revenue per job posting a growth rate, which is very helpful. And here's my question. Comparing -- you have the bar graph showing the index and the revenue overlapping. The divergence between the index and the revenue with more monetization developments, you mentioned that this would increase. But currently, the assumption for the growth rate is 16% for the second half, which is at a high level. So from next fiscal year onwards, should we expect that this growth rate, the U.S. ARPJ growth rate will be maintained or even be higher -- is that realistic? And also more recently, Indeed, Talent Scout and other services have been announced and monetization of these new services, I don't think will come in, in this fiscal year, but more so for the next fiscal year, is that something we should expect? Junichi Arai: For the second quarter, the results -- perhaps this is not something I should mention much to external parties, but I think the results have some of the Deko effects. Currently, Deko is on the ground leading various efforts, monetization developments and perhaps there will be questions about this later from someone else, but we are also working on increasing efficiency of the business at such high speed, we are working on both of these efforts in parallel. Today, in my presentation, I talked about revenue outlook for the third and fourth quarters and also our interpretation of the index, our expectation of the index. This is the latest information, latest data that we are sharing at least for the third and the fourth quarters, we believe this is the level of impact of the monetization developments that we should expect. That is the pace that we are observing. For the next fiscal year, we've said that there will be many different things that will be introduced on a subscription basis, there will be an AI tool to be offered, things that are new that we have not done before will be introduced in the next fiscal year. So for these new services to be translated into value and how we should monetize in tandem, these are some of the things that we are currently considering. As for the market condition for fiscal year or calendar year 2026, we are making assumptions. And based on those assumptions, we are considering what should be the U.S. results that we can achieve for the next fiscal year. So it's not simply based on what we currently have. There will be new things that we will be stopping and by combination of these various different pieces, we are thinking about how we can increase our KPI and to reach the numbers that we've disclosed. I consider these KPIs to be quite challenging, tough KPIs with the market recovery with an increase in the number of jobs, even if we achieve the same level of growth, the growth rate itself does not increase. Therefore, we have to always overachieve in order for the growth rate to increase. So irrespective of the market recovery, we have to consider, what are some of the pieces we need to introduce in order to increase and increase revenues that we receive from our clients. So for next year, what will happen of course, will be something we will be talking about in February and May, but the fact that we've disclosed this time shows our unwavering resolve and determination for this. Minami Munakata: Thank you. I think I personally felt that determination through your presentation. As a follow-up, in my recent conversation with investors on our side, generative AI services have become more common. And some investors have said that things like ChatGPT, these are generative AI services provided by others, perhaps Indeed services may be replaced by the services offered by other companies. So that's a concern voiced by some investors. Could you elaborate once again on the strength of Indeed? Junichi Arai: For the past several months, when I met with investors, I myself have received the same questions from them. And what I said, how I responded to those questions at the time was that when a job seeker uses things like ChatGPT asking whether there is any good job out there. The ChatGPT says, what about this? And it also offers to write nice resume, I think that's a very plausible scenario. But then what would happen? So those are some of the questions that I actually received from the investors. And at the time, what I said was that job seekers, if that were to happen, they would be able to apply to more jobs since it's now easier. I think that's something that we can expect to happen. And if that is the case, how can we provide high-quality matching service and to address both job seekers and business clients to help them reach high-quality jobs for high-reach candidates. So I think that's one direction that will certainly be important. Job seekers may be sending in hundreds of applications, but they are not getting any reply because this puts a lot of burden on the business client side, the employer side. So Deko has said this from before, when matching becomes more difficult, how can we support the process is important. It's not simply placing advertisement or rather, how can we help business clients discover high-quality candidates? How can we help them select a better competitive candidates? I think these are the kind of services that will be in demand. So in that sense, as I said, we have a 2-sided marketplace. The fact that we have such a talent marketplace helps us increase the efficiency of matching. So that's how I responded to the questions from investors whether it's Yahoo!, Google or Facebook, there are already excellent platforms for jobs and technologies available for jobs. Other services have been in place and maybe if it was 10 years ago, people thought that they already had these platforms, and we would be no match. But if we look at the reality, the story is different. Maybe some companies started and they were not successful. For e-commerce, rather than booking or e-commerce, there are things out there that are mass produced as long as you pay for them, you can acquire. But jobs are different. There is only one job and selecting the right candidates, this is determined solely by the employers who are looking to hire people. So this is where we are different from EC and booking. In other words, it's always 2-way, two-sided. And I believe the fact that we have the 2-sided talent marketplace, this will continue to be appreciated by the 2 parties and to continue to be used by both sides. I think that's the nature of our business. My answer might not have been concise, but I often talk about things like this whenever I receive those questions. Minami Munakata: I understand the concept well now. Thank you. So how should I say what can we offer to business clients, simplifying hiring or helping clients determine whether a candidate is qualified or not, whether this candidate is these are real human person or not? Junichi Arai: I think in the future, there will need to be various aspects that need to be addressed. So by strengthening these pieces, I believe we will be able to differentiate ourselves. That's what Deko said. Mizuho Shen: Next, SMBC Nikko Securities, Maeda-san, please. Eiji Maeda: SMBC Nikko Securities, Maeda is my name. Thank you. So you have this proprietary original investment improvement and generating results, it's great. So the market model does not need to be worried, but every time we see the statistics, like you said, the job, we think will hit the bottom in Q4, as the stock market is having a more difficult view. And maybe that is reflected in your share price. But once again, you think that the job trend will bottom out, will show signs of bottoming out in Q4. Any changes in your forecast? And are there any risks? Junichi Arai: So when we say bottom, it is an image of ticking and turning upward. We tend to think of bottoming out that way. But even when there is a bottom, it does not necessarily mean a rapid recovery. And at the same time, it may not be overall trend. Industries may show different trends. We are starting to see many industries stopping their decline. So the U.S. labor market is impacted positively. So the decline in the labor supply in the U.S. is already impacting the market. So we do not think it will continue declining sharply going forward. That said, it may not show a V-shaped recovery right away. So to repeat my message, how we show our KPI U.S. ARPJ, how we raise our U.S. ARPJ, our important KPI, this is our focus. Eiji Maeda: Thank you. My follow-up question. So if things go as expected. Top line is growing as expected. But at one point in the future, you may shift gears to M&A. You are reducing cost through efficiencies. So once the projection changes, your cost will start rising again from Q4 to next fiscal year, what is your basic thinking of investment in this business? Junichi Arai: As we've been mentioning from the past, we do not think of doing M&A to increase our revenue. Even if we do that, it is for the future. As we received questions earlier, how we improve our U.S. ARPJ. In the future, will be the end goal. So for that purpose, we may do M&A. We will not do M&A for a short-term increase in the revenue or improve the margin by reducing the headcount. We are not thinking of that at all. So M&A will not have an impact in the short term, but will be impactful in the long run. So it will not impact in the performance in the short term. We will continue thinking on how we improve U.S. ARPJ growth rate. The same thing in the U.S. and further improvement in Japan. Once we see that, revenue will rise and costs can go down. So I think that combination is to steadily pursue this organically. Mizuho Shen: Yamamura-san from JPMorgan Securities. Junko Yamamura: This is Yamamura from JPMorgan. Can you hear me? Junichi Arai: Yes. Junko Yamamura: I just have 1 question. For me, regarding the outlook for the job postings, there may be 2 questions actually. I have a question around that. In the second half, you're expecting moderate recovery. There may not be a V-shaped recovery, but there should be a bottoming out in the Q4, which is, I think, a good thing. As Maeda-san pointed out, it is true the common debate, common discussion, there are 2 aspects. One is in the North America there has been restrictions on immigration. And if there is continued shortage of labor, it would put a lot of stress on recruit. And with the introduction of AI, of course, this would also impact the recruits business. So these are the 2 points often raised whenever we discuss this. So I would like to hear your views on these with even more shortage of labor, perhaps business clients are more motivated to hire. With the introduction of AI, maybe some companies or some jobs will no longer require human labor, but for higher quality talent that companies are willing to pay for, I think there is a huge or even a bigger demand for such talent. So with the efforts that you are currently implementing the monetization developments, perhaps will positively mesh with these developments in the market. So what is your view on the future state of your business? Junichi Arai: Well, this is what Deko says. The U.S. market is becoming closer and more similar to the Japanese market. So that's one thing. That's what he is saying over the past decades. Japan -- the Japanese market has experienced tightness, labor population declining, the population aging and others. So we are seeing similar things in the U.S. market, and he's saying the market in the U.S. is becoming more similar to the Japanese market. So as Yamamura-san said, things are happening in the market. What is happening today, what has happened? Perhaps if you trace them back to what has already happened in the Japanese market, you can certainly see a similar trend in the -- the number of job postings is actually increasing. And Deko today said this in one meeting. He, of course, looks at various stats and he tries to explain them to us. He looked at past examples of the U.S. market and from the latter half of the 1990s to 2010s over a 15-year period, the number of workers in factories in the U.S. decreased from 17 million to 11 million. However, the production output actually increased over the same period. So the white collar in the U.S. is said to be 30 million. So with AI introduction, I think this is a segment of labor that would be most impacted by AI. So we may see some decrease, but as I said, things that happened in the factory workers could happen. The unemployment rate as a result of these things did not actually increase rather workers were redistributed to other jobs -- other types of jobs. I say, oh, that's -- is that right? So the job market is huge. It's not specific to certain industries. It covers all industries. Therefore, the job market itself is enormous. I don't know what will be the analogies we would use as Japanese, maybe we would compare it to Lake Biwa, but if you consider a huge lake and a small pond, so just because AI is being introduced, it doesn't mean everyone will lose their job. I don't think that would happen. I don't think that's realistic. Maybe it will be the reality in certain areas. But if you look at the entire pool, there may be more people working in other industries, people earning more in other industries. Perhaps those are the results that we can expect. So if you consider all these things, in the U.S., the labor industry or where we operate, are becoming more similar to Japan. If you look at what is in high demand in Japan, where business clients are paying to higher talent. If you look at the Japanese market, I think we should reference that and consider them for what we are trying to do in the U.S. markets going forward. So with AI, I don't think there should be any immediate impact, but rather gradually, things will start to change with AI. So let's say, unemployment rate becoming 10%. If that were to happen, that's an extraordinary thing to happen, that's totally an extraordinary thing. And I don't think that will happen, at least that's what we are saying internally. We are not trying to make any excuses here, but let's say, the unemployment rate becomes 10%. And that is something beyond our control. That's not something we can address. It's for the government for the State to address. Of course, having said that, we want to help with no inflow of immigrants with the AI and so on. Of course, there are various factors, but they are localized and you ask us questions about recruits business being affected by these different pieces. I fully understand what you're saying, but we need to look at the entire pie, the number of jobs, the number of industries that exist, then I become skeptical with just these factors, would they bring a super huge impact on our business. It's like reducing the water in Lake Biwa by 10% or changing the color of the lake, what would it take? I think that's the kind of discussion that you are raising here. So there may be people who say that the business is quite challenging. It may be difficult. I fully respect their opinions. But I don't fully agree. I don't think that's the extent of the impact that we should expect. Going back to the question from earlier, should we expect a V-shaped recovery? No. And even without such a v-shaped recovery through efforts, I think we can go on. We want to go on. That's what I feel. Perhaps mobility will increase the type of talent. Business clients want to hire may change. They need to change. People want to work where they are needed. And I think that's the happiest situation for any worker. And of course, this is clients who are looking to hire such people. I'm sure there are clients out there who are willing to hire people who want to work with them. And we want to help support these job seekers and business clients and what are the services that we need to offer to reach and realize those goals. You go to a restaurant in the U.S., you go some places, and they are experiencing shortage of worker -- labor shortage is a serious issue. Junko Yamamura: I see. Junichi Arai: Whenever I have this -- I talk with you, Yamamura-san, we end up having conversations like this, very casual chat. Mizuho, are we already over the time? Mizuho Shen: It's already been 1 hour, but I see more hands up. So maybe we can stay on until quarter 2. So we'll go on to the next question. Morgan Stanley Securities, Tsusakan-san please. Tetsuro Tsusaka: Tsusaka speaking. Can you hear me? Junichi Arai: Yes. Tetsuro Tsusaka: So I have a simple or maybe a complex question. So Arai-san, you talked about Deko impact in one word. So for Indeed, as an organization, Deko's leadership is now incorporated and that resulted in a better growth than expected, better pricing increase than expected. So what is happening? So did the organization change or product change? I think all these factors are intertwined, but what -- in what way did things happen, if you could elaborate, please? Junichi Arai: Well, I don't want to praise him so much so that he blushes, but -- and I did not hear directly from him, but when I talk with Indeed headquarter people or the key office people I understand that he is quick. When we work with Deko, it's quick. He knows what we want and when things need to be decided, he decides right away. So what we want to do is clearly communicated. So it's easy to work with him, people say. So from the perspective of people working with him, I don't know, for a lack of a better word, it is rewarding. It motivates you, gives you a sense of fulfillment. That's what I hear from people, especially the people in products and sales. They do very detailed meetings with Deko. So if we make this kind of product, this is not good. This is what we want. Sales, please do this, very detailed requests come and concrete answers come for questions and consultations. So for sales increase and cost reduction, we can work on both sides in a very concrete terms. So the non-value-added products will not be focused. Focus is on where they are good results. Understand. So this is the recruit way. Tetsuro Tsusaka: I understand. Thank you very much. Junichi Arai: Of course, job seekers are very important. So how we offer value to job seekers comes first and foremost. That is the priority. But at the same time, how we can be appreciated by our clients so that they use more money. Deko is the businessman. So how we can bring smile on client's faces. That is all he thinks about every day, day in and day out. Please ask him directly too. Tetsuro Tsusaka: If there's an opportunity, I will. Mizuho Shen: Next will be the last question. Nagao-san from BofA. Yoshitaka Nagao: Nagao-san. I don't know if it's a question or comment. The ARPJ that you've disclosed, I have a question around that towards the second half. The ARPJ is going to increase, but looking at the formula, this is price-driven. If it is a price-driven increase, then that's good. Algorithm has been improved. Product unit prices increased and the profitability is enhanced. But if a number of job postings is decreasing or free advertising, free jobs are increasing. And still, we should see that this would contribute to the increase in the ARPJ as a residual effect. So how should we interpret this for the second half? Arai-san, are you intending for this to be price-driven increase? Junichi Arai: So far, we've had the Indeed model and if you continue to have a very strong impression of the past Indeed model, then if you look at the results 6 months from now or 1 year from now, you may think that the things are quite different from the expectations. I talked about subscription audio. For Indeed, this is a fairly new thing. So we need to consider everything, including all these new things divided by the number of jobs. We should increase, we should see an increase in the ARPJ. So as I said before, jobs that were not monetized in the past will bring in revenue and the paid jobs in the past should enjoy higher efficiency if clients are looking to reach better, more efficiently, then the clients can pay more. So the changes of how the jobs change irrespective of that, if we have more clients who value and are willing to pay for these things, then the ARPJ should increase. Just because the number of jobs decreased, it doesn't mean the growth rate increase is guaranteed. That is not the case. So as I said before, this KPI is a quite challenging, tough KPI for us. The reason I say this is because we look at the revenue for all jobs. So it includes jobs that we are not currently involved in at all. It is included in the denominator. So it requires us to consider how we can start to monetize these jobs. So that KPI includes all these things. So that's why I say this is a very tough KPI. AI tools like screening clients that are quite famous, they don't need to advertise. They already get enough applications. They have too many candidates applying. So those are clients that did not pay for our services. But going forward, this is something we can offer and sell to these clients. These are clients that we were not able to do business with in the past. But if we start to acquire these clients then, going back to Nagao-san's rather doubtful question, by doing things like this, we can increase -- we can see an increase in the ARPJ. Perhaps I did not answer that question. Yoshitaka Nagao: No, I get it. With the economic downturn, the number of job postings decrease, but there are still clients who are struggling to hire clients, who are determined to hire people, they will use the company's services and the paid advertisements or ARPJ, I don't know if it's going to be through subscription. In any case, the ARPJ will increase. Even in the economic downturn, the more clients paying for your products and services, you can see a higher ARPJ. That's certainly a realistic scenario. So as a KPI, I understand that this is a very difficult, challenging KPI that you've increased the hurdle rate yourselves, you're trying to take on this challenge yourself. I certainly see your determination, your resolve. So it's not that I've been doubtful. Junichi Arai: Sorry, because it's you Nagao-san, I was half joking when I said your question, I was doubting our intentions. Going after new clients as part of our recent initiatives. So we are starting to see positive results. That's what we are discussing with the business side. Deko also wants to maintain this momentum and do even more. Well, since Deko is saying that we can do this, I think we can. At least that's what I choose to believe. Mizuho Shen: Thank you very much for staying for a long time. So with that, we will close the Recruit Holdings FY 2025 Q2 Earnings Call. Thank you very much for late in the evening. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the DHL Group conference call. Please note that the call will be recorded. You can find the privacy notice on dhl.com. [Operator Instructions] I would now like to turn the conference over to Martin Ziegenbalg, Head of Investor Relations. Please go ahead. Martin Ziegenbalg: Thank you, and a warm welcome from my side to the Q3 '25 results call. As it says on the title, I have here with me our Group CEO, Tobias; and the Group CFO, Melanie. We aim to cover all ground within the next hour or so. So therefore, without losing any further time, over to you, Tobias. Tobias Meyer: Yes. Thank you, Martin. Thank you all for participating in this call and your interest in our company. On Page 2, the highlights for the quarter. Firstly, on the short term, dealing with the changes in the global landscape, particularly the outfall of the changes in U.S. trade policy. Within the quarter, we had the abolishment of the de minimis also for the rest of the world. I think we have been able to deal with that very effectively by adjusting and shifting capacity, especially in our more asset-intensive global transportation networks that being Express, especially to do adequate yield management to overall mitigate the impact on the U.S. trade lanes and continue to take advantage where there is growth, and we'll talk about where there is growth in a minute. What is also very important to us not to only be observed with the short term, but continue to spend time and execute measures to accelerate our growth through the focus on the industry verticals that we've laid out in our Strategy 2030, but also and very importantly, to invest in those geographies that are growing and will continue to grow. We have a list of countries, which we call GT20 Global Tailwinds 20 with related trade lane development measures. And I think we can say that we also made good progress on that in the third quarter. Cash flow generation was strong. Melanie is going to talk about that in a minute, and we continue to be committed and execute on our promise on attractive shareholder returns through dividends and share buybacks, which also continued in the quarter. On Page 3, you see a statistic a graph that we published in conjunction with our global connectivenness tracker. Those of you who follow us more closely, we have been doing this for some years in collaboration with NYU Stern. And we found it worthwhile to highlight that the average distance of trade has continued to grow, actually reaching a record high. There is a strong narrative out there that talks about regionalization and french shoring and there might be reasons for such trends. But the fact of the matter is that long-distance trade continues to grow. We have massive shifts that we see in our company, but also beyond due to the changes in U.S. trade policy. But we also see that other trading partners continue to expand. I think most notably that was visible in the September export figures of China, where trade to the U.S. was down 27%, but you had double-digit growth in the trade with Southeast Asia with the trade of Europe as well and particularly the trade to the Middle East and Africa was growing a lot, Latin America as well. These being long-haul trades and that compensating for some of the decoupling that we see as it relates to the U.S., which clearly has a lower share of participation in global trade as is increasingly replaced by China as the most important trading partner for many countries in the world. That is also visible on Page 4 when it comes to our volumes here, a focus on the time-definite international piece. So that specific segment of DHL Express. You see, by and large, the trend from the second quarter continuing. So especially the decline on the U.S.-bound trade, the U.S. inbound that is, but we see also some other trades, also U.S. exports being somewhat under pressure as input factors for U.S. producers get more expensive if aluminum is double the price in the U.S. than it is in other parts of the world, it's obviously difficult to produce cost competitive products. So that is something that will continue to influence global trade and thereby our customers and the business that we do with them. As spoken, the de minimis now being abolished also for Rest of World that had a notable impact on volumes, less so for us on profitability because we were able to counteract that. But also we see that some volumes are declining that have been not so profitable for us to start with. So that also impacts our overall results. But the cost action is very important. And on Page 5, you see some details on that. Aviation costs down 8.5% in the quarter. That's hard work, and we are really pleased to see that the Express Aviation team has been able to deal with that very professionally. Service was very good in the quarter. And we are also really looking forward to the fourth quarter across all divisions. I think we're very well prepared with our setup to deliver excellent quality. But we do that in good balance with strengthening our cost competitiveness. So we have adjustments that are more cyclical, ramping down capacity shifting capacity. But on top of that, structural measures, which we have under the program Fit for Growth that really makes us a better company in many ways. Cost competitiveness is an important part of our growth journey going forward as well. So we see ourselves in making good progress on that. We keep the discipline that you used from DHL Express, but also the other divisions when it comes to yield. That's clearly also supportive of the result in the quarter. Some more examples on P&P on the following Page 6. Maybe before I go on to the profitability accelerators, it's important to note that the volume in the quarter for P&P had some shifts for some good carrying products between letter and parcel. There are details in the backup on that. So if you look on an organic basis, parcels were up around 2%. We had normal ups and downs in the volume of mail as well. The advertising mail had been quite weak in the third quarter of 2024. So year-on-year, it looks quite positive. But overall, when it comes to letter volume in Germany, there is no change to any trends. We still see that on the path that we talked about earlier. Now coming to the concrete measures that helped us also improve profitability to the level that we're now seeing, which is in line with the guidance that we've provided. AB steering, this is something that we can now do to a greater extent because of the lead time extension we got for the standard letter so that those standard letters are only brought to every address every second day, staying within the allowed lead time, but allowing for some efficiencies in that last mile and skipping households where we would elsewise only had a single letter on Monday and Tuesday, for instance, and now we bundle that to 2 letters on Tuesdays. That's what's meant with that AB steering. Joint delivery is something that we have been on for a long time. It's a really big program because it requires us to rebuild infrastructure to a great extent, but that is really very important in the long run to strengthen the efficiency of the system to ultimately become a parcel carrier that also carries some mail. We are now at 69% of parcels being jointly delivered with mail. So that's steadily progressing and supporting the efficiency, much needed efficiency within P&P. Out-of-home continues to be a focus. We continue to invest in that. We are as close to consumers as we ever were in Germany, and that is strengthening our position in that market and also on the support functions, we are nimble and efficiency focused, which you also see in the numbers. Technology plays an important role. On Page 7, there are some examples how we also deploy Agentic AI. Outside Europe, we have support for frontline recruiting, for instance, the prequalification, the initial interview of somebody who wants to work for DHL, an applicant that's done with the support of AI, customer service, probably across industries, the most common use case that is also visible in our company. More specifically on customs, it's very helpful not only from an efficiency point of view, but Agentic AI also does an excellent job in documenting the sources that were used for classification, so on the regulatory side, but also on the goods description side that does not only increase efficiency, but also service quality and compliance, very important in this area, especially when we talk about U.S. clearances is an important component of our success there. I think we have been leading in providing continued great service into the U.S. in recent months. So that's something where this also contributed. And then on service logistics, dispatch calls, for instance, following up on the dispatch of trucks is one of those areas where AI also comes in handy. When we look at growth accelerators on the following Page 8, we continue to invest organically, roughly at the same level than we had in previous years. This goes into infrastructure that improves our quality like in Barcelona and Helsinki for Express, but also investments that unlock new revenue streams, particularly in geographies like Middle East and Africa, where we're really getting into new verticals as well for supply chain, especially and then the ongoing expansion we have in our last mile activity. We continue to do targeted M&A, and we also had such in the third quarter as it relates to the merger of our e-commerce operations in U.K. with Evri. That is a consolidating move. We believe we need to be amongst the top 3 players in every e-commerce last mile market that we're in. If we're not able to reach this organically, we'll do so inorganically. We have announced a similar move for Iberia earlier in the year. We have now closed the transaction in the U.K., getting into such a market-leading position with that participation in the merged entity. We did a smaller acquisition in the U.S. that gives us access to specific capability on health care-orientated last mile, hospital logistics. And with our investment in AGEX, we get access to last mile activities in the Gulf Corporation Council countries. So again, an expansion of our footprint, which is part of the strategy that we have communicated. Similarly, we support the strategy with a strengthened management focus. We have a dedicated team for supply chain Middle East and Africa that has been executed in the third quarter. We just announced that we'll also have a similar move with DHL Global Forwarding as it relates to Latin America. So we want to have senior leadership in the region to drive the growth of those businesses. That's part of our strategy execution as well. That already brings me to my summary on Page 9. So we cover the short-term volatility that the business is exposed to. We're successful in protecting earnings and cash flow generation in that environment by doing the cyclical capacity flex, which I believe was highly effective also in this quarter, but also work on the structural measures that make us more competitive in the mid- to long term through the Fit for Growth initiatives, including increased deployment of technology such as AI-based tools. But also the long term, we saw progress in the quarter with those organic investments, the targeted M&A. We see ourselves making good progress on those structural elements of our growth journey towards Strategy 2030, and that is important to accelerate our growth trajectory in '26 and '27. We are aware that additional momentum is needed. With that, I would hand it over to Melanie to give you some more details on the financial performance of the divisions in the third quarter. Melanie Kreis: Yes. Thank you very much, Tobias, and good morning, and welcome also from my side. Thank you for joining our Q3 earnings call. I will start on Page 10 with the main takeaways by division. For DHL Express, Tobias already explained the effectiveness of our cost and yield measures. Reported Express EBIT contains a net negative EUR 54 million from nonrecurring effects, mainly related to a legal provision as well as some smaller cost of change and M&A effects. So it's worth pointing out that excluding these nonrecurring items, Express EBIT was actually up 9% year-over-year. In forwarding freight, we have seen similar market dynamics as our peers. In comparison, we have been performing relatively well in the quarter with underlying ocean freight volume growth of 5% and increases in GP and GP per tonne in air freight, both year-over-year and quarter-over-quarter, all leading to forwarding EBIT being up versus Q2. That being said, we are clearly not where we want to be with DGFF and Oscar de Bok is implementing structural improvements. Supply Chain continues to perform very well. Yes, we see somewhat slower growth in current circumstances with both currency headwinds as well as impacts from the general environment. But the structural growth tailwinds are intact for that division as reflected in very good new business signings with EUR 1.4 billion new contract value in Q3. One of the key drivers of these customer wins as well as a strong 6% plus margin is our leading digitalization, automation and standardization setup. In DHL e-commerce, EBIT includes a mix of nonrecurring effects, which I will address on the next page. Fundamentally, Q3 confirmed the intact structural e-commerce growth opportunity, which is not yet translating into accelerated profits as we keep investing into our network in this division. Last but not least, P&P is delivering very well on its strategic plan. Tobias has shown earlier the structural network changes which we are successfully implementing under Fit for Growth. And the Q3 numbers show that our measures are working with a year-over-year EBIT increase, both on a reported and as an underlying basis, which brings me to our Q3 EBIT bridge on Page 11. So in Q3 '24, we had a EUR 70 million positive one-off effect in P&P. If you adjust for this as well as this year's nonrecurring effects, our reported 7.6% year-over-year EBIT increase was actually a 10% growth, excluding nonrecurring items. On the main effects in this quarter, we are showing them very transparently on this page. There are, in total, EUR 37 million cost of change across Express, Global Forwarding Freight and DHL e-commerce. I already talked about the net minus EUR 54 million in Express being primarily driven by a legal provision. Now to the big number in DHL e-commerce. We handed over control for our U.K. e-commerce business to EY at the end of the quarter, which led to a positive deconsolidation gain. This positive effect is partially balanced by cost of change as well as a total of EUR 42 million in noncash write-downs for a full net positive effect of EUR 123 million in the quarter. We are explaining the accounting effects of the U.K. transaction on the dedicated e-com page in the backup, so I won't go through the accounting details now, but be aware that going forward, we will no longer fully consolidate our U.K. e-commerce business, but recognize the pro rata net income of our 30% stake in the combined entity in EBIT in line with the equity accounting rules. So that was a bit on accounting now. Sticking to the P&L, turning to Page 12, some more comments on the overall P&L. I think it's worth pointing out here that the 2.3% revenue decline is about equivalent to the minus 2.4% FX effect in the quarter. So while lower freight rates and U.S. tariffs were a headwind to growth, that also implies this revenue development overall also implies that on other trade lanes in regions and verticals, we saw continued growth, as Tobias already pointed out before. On the cost side, you see the benefits of our capacity flex and structural cost measures taking effect in terms of significantly lower cost for external capacity as well as in the reduction in staff costs. And at the bottom of the P&L page, you see that our continuous and consistent share buyback activity is driving a significant step-up in earnings per share growth in Q3 to 16% year-over-year. Coming now to the key points in our cash flow statement on Page 13. So EBIT growth is translating into higher growth of operating cash flow before changes in working capital. There are numerous movements across different lines in the cash flow statement. But ultimately, this growth in OCF before changes in working capital shows that -- while there are some moving parts in our EBIT bridge, the earnings quality of our EBIT growth is very healthy, and that is very important. Working capital changes contributed positively to cash flow in the quarter with the main contribution coming from DGFF. And this is, for me, another useful reminder that while we have work to do on DGFF, the business model of an asset-light forwarder is attractive through the cycle with working capital being one of the factors protecting the cash flow generation of the model. Strong growth in operating cash flow, coupled with ongoing investment control led to a very good free cash flow in Q3. And I'm pleased that in '25, we have shown a smoother cash generation across the quarters and are well on track to our unchanged EUR 3 billion full year target for free cash flow, excluding M&A. And that takes us to the use of cash and the next page. We have been consistently delivering on our dividend continuity promise and to our clear commitment on our EUR 6 billion share buyback program. With EUR 4.4 billion done by end of September, this leaves up to EUR 1.6 billion to go by end of '26. So no change here in our commitment to attractive shareholder returns. To round it up, let's turn to our unchanged guidance on Page 15. When we talked about our Q2 numbers in early August, the short notice cancellation of Rest of World de minimis to the U.S. had just been announced, and we prudently flagged a worst-case risk from this new development. By now, the abolishment of Rest of World de minimis has been implemented, and we have better visibility on the impact. So this impact is now fully reflected in the assumptions for our otherwise unchanged guidance as we reconfirm explicitly in the first bullet below the full year '25 targets. And this brings me right away to my wrap-up and the 3 main messages we want you to take away from today. The first is that in the short term, our cost and yield measures have driven a strong Q3 performance. And on this basis, we fully confirmed guidance today. Secondly, beyond short-term volatility and capacity flex, our structural cost savings drive a sustainably lower cost base, not only for the current environment, but also for the growth path thereafter. So they literally make us fit for growth. And thirdly, beyond P&L earnings, we also delivered a strong cash flow, which allows us to invest in a very targeted manner into the GDP plus verticals and regions we identified, while at the same time, offering attractive returns for our shareholders. And before we now turn to your questions, something special, a quick double advertisement in the name of our Investor Relations team. So first, for your questions, we now have a new AI tool on our IR website, which matches your questions with the information we have provided in our official publications. Martin told me that this is pretty unique in the IR arena. I would ask all of you to check it out, give me feedback. I hope that this will be a good example on how we strive to apply AI wherever helpful across the organization. And secondly, we have John Pearson and Mike Parra, our divisional CEO and our CEO, Europe of DHL Express, hosting an investor visit at our U.K. hub upcoming Monday. Contact IR here for more details if interested. I think it's definitely worth seeing. And with that, operator, please launch the Q&A. Operator: [Operator Instructions] Our first question comes from Alex Dogani at JPMorgan. Alexia Dogani: Just I'm going to limit it to 2. Just firstly, in freight forwarding, obviously, Oscar has now been in the seat for, I think, the past 90 days. Can you give us a little bit of an indication of what his plan is to improve the earnings kind of progression in that division? Because clearly, things have been approaching the 2019 levels faster than we would have thought a couple of years ago. So that's my first question. And then secondly, can you give us an update on the progress on the legal structure tiding up and when we should expect to see the overheads within the divisional reporting that you signaled at the CMD? That's it. Tobias Meyer: Thank you, Alex, for these 2 questions. So as it relates to Global Forwarding, I mean, Oscar is making progress. You saw the move on Latin America, for instance, which is, again, a closer to market move that enables us to execute our strategy in that as well. Overall, I think we know that in Global Forwarding, we have a great dependency on industry trends as well. You see that in the third quarter. That is hard for us to predict. We have seen clearly a normalization trend since COVID, but also within the year. I think there are some signs of that bottoming out, but there is a lot of uncertainty due to the changes in trade policy that we have talked about that obviously has implications on demand, quite notably so. On the other hand, we have compensating factors. I think we're all positively surprised by the trade figures that China published for September. That being one example of a counterbalancing effect. Overall, we see ourselves in the quarter with a positive development, especially in ocean freight. I think relative to our competitors, we have been doing quite well. Air freight, there's still more work to be done. And we also have that topic in terms of the freight market in Europe, especially our LTL network in Germany. So these are topics that Oscar is working on. But again, within the quarter relative to our peers, we are quite pleased. Melanie Kreis: Alexia, I'll take your second question on legal structure and the allocation of the corporate center costs. So we are well on track on the legal cleanup. As you may recall, target is to take the topic to the AGM next spring, and we are on track to do that. We will then, once we have implemented the new legal structure in the course of '26, start with the new reporting with the full allocation of the corporate center costs in '27. We will do some parallel shadow calculations for '26 so that when we start reporting in the new structure in '27, we can also restate the '26 numbers to that format. That's the time line here. Alexia Dogani: And can I just ask a follow-up on Tobias answer. Obviously, you talked about the external factors. productivity usually is an element that kind of helps improve the earnings kind of projections. We've seen other peers announce kind of relatively sizable cost savings programs. The Fit for Growth doesn't really apply to freight forwarding. Is there something that you are specifically looking at there, perhaps using natural attrition as a tailwind, just to kind of understand how costs should evolve there as well. Melanie Kreis: I think when you look, for example, at the numbers we show in our stat book, you can see that in terms of employees, we are 3.9% down in Global Forwarding Freight. So Fit for Growth and cost measures are also happening in that division. Tobias Meyer: Yes. So that I think I would absolutely echo we see ourselves good underway. You also have to see that productivity in the cycle has a cyclical element to it as well. In the downturn, we often see the files getting lighter and having less TEUs per file on the ocean freight side. Overall, also, if we look forward, Alexia, I mean, this is an area where we want to grow and rebuild also market share. So our obsession with cost is limited by that ambition to grow. We will look at productivity, continue to do so. But 2026 needs to be a year for growth for Global Forwarding. The environment is ripe for that. Some of the moves in the broader industry landscape might be helpful for us in that regard. So that's a strong focus that we have. We want to absolutely stay customer-focused in Global Forwarding and grow in those industry verticals that we have laid out. That's a clear focus for Oscar as well. Martin Ziegenbalg: Thank you, Alexia. We come to the next caller, which is from Wolfe Research. Operator: Yes, our next caller is Jacob Lacks with Wolfe Research. Jacob Lacks: So cost control was strong again with the ongoing volume pressure in Express. Can you help us think about how much of the cost outs are variable and how much are structural? And is in the EUR 1 billion Fit for Growth plan, is that on track? Or are you ahead of schedule here just given the global trade volatility? Melanie Kreis: Yes. Thank you for that question. So we are purpose really not breaking out how much of the cost is coming from the volume capacity flex and how much is structural because that is a little bit of an artificial calculation. So for example, -- we have done some rejigging to our aviation network by changing the partners we fly with. That has structurally improved our cost base under the Fit for Growth. But of course, that is now also impacted by how much volume we actually have in the network. So we don't see the benefit of kind of like pseudomathematically breaking it into the one bucket or the other. I think the important element is what you see in the bottom line and that is this very good cost development. And with that, we are overall a bit ahead of what we had envisioned under Fit for Growth for the third quarter situation. Jacob Lacks: Great. And then just one more for me. When you look at the U.S. volume declines, do you have a sense for how much of these declines are driven by de minimis and how much are higher tariffs? And to the extent we see tariffs taken off by the courts next year, could this drive a B2C volume recovery? Tobias Meyer: So I think we would not expect that. The -- even if IEEPA tariffs go, we all know that there are other legal grounds that the President could use to impose tariffs. So we think that the step down that has happened is permanent. If that would change, that would obviously provide opportunity. We would love that, would allow us also to definitely bring some business back, but we currently don't plan for that. The exact split between de minimis effect and tariffs is hard to do because it's also overlapping. So e-commerce has clearly taken a much more severe drop than B2B volumes. That's something that we very clearly see, and I think everybody would expect as well. Those B2B volumes are goods that are essential in many ways to the U.S. economy to U.S.-based customers. So the decline is significantly lower than the decline you see on the B2C on the e-commerce side. Melanie Kreis: And you also see in our overall numbers. So for B2C, we had minus 23% on the shipment side and for B2B, minus 2%, so holding quite stable. Martin Ziegenbalg: And on to the next caller from BNP. Operator: Our next question comes from James Hollins with BNP Paribas. James Hollins: James Hollins from BNP Paribas. Two from me. Melanie, please, could you try and quantify the de minimis impact? Obviously, you talked about up to EUR 200 million this year. Maybe you could give us any detail you think it's going to be and better still what you think it might be in full year '26. I know you told us not to annualize it. And then what I'd describe as a stream of questions on Express, but I'll keep it to pretend to one. If we look at Express TDI volumes obviously down 10%, 11% Q2 and Q3. B2C volumes down 23%. I was just wondering where that was versus the market, what you're seeing happening on market share and perhaps whether you could give us an early estimate where you think volumes might go in 2026. And then let's turn to the second part, TVI B2B volumes. I think previously, obviously, volume is pretty solid there. You talked about average weight per shipment. I was wondering if you could give us a bit of an update on that, if possible. Melanie Kreis: Yes. Thank you. So starting with the de minimis question. So I mean, again, when we talked about the EUR 200 million on August 5, that was days under days after the announcement that de minimis would go out end of August rest of world. So what we had done to come up with EUR 200 million was basically extrapolate the development we had seen for China, Hong Kong to the U.S. And I had already flagged then that this was really a worst-case scenario. We have now seen that there is an impact, but that we are able to manage that quite well as visible the Q3 numbers for Express. With regard to the TDI volumes, I mean, first of all, we had already taken a yield and profitability focused approach to B2C volumes long before the whole de minimis thing started. We had talked about that now for, yes, 6 quarters that we had really taken pricing action and that this had impacted our volumes, particularly on the Transpacific. And in that respect, we had seen stronger volume declines than competition. But when you look at our profitability development, I think that shows very clearly that the development is -- our approach is the right one. And to the weight question, yes, I think that's a very important point. When you look at volume and weight development, we see a less pronounced development on the weight side. So the focus also on heavier shipments for the Express network is actually paying off. Tobias Meyer: And I think if I may add to the market share, we are following that. You might have seen that some of our competitors have also published or said something to the in-quarter development. So that is something -- if you look at the entire quarter, it gives an impression that we might have lost. If you then look at how that development was within the quarter. We're not so sure about that anymore. So it's something that we watch. We obviously here are focused on TDI. We do not play in the intercontinental deferred market where there is clearly some growth that competitors have shown. Melanie commented on the profitability. The focus for 2026 is more on the weight side, given the focus on growing in industrials and the focus verticals that we have laid out. So that's our focus there, clearly B2B and tilted towards somewhat heavier weight of high-value critical goods. That's very much the focus of Express as we go into 2026. Operator: Next question comes from Marco Limite with Barclays. Marco Limite: Congrats for the Q2 results. So a question indeed on cost savings because I think the Q3 was a bit was mostly driven by cost savings. When we think about the 2026 outlook, I mean, I'm aware that probably is a bit too early to discuss about '26. But I mean, if -- specifically in the Express division, I mean, if we think about an environment where macro does not improve, you've got pricing that offset inflation. So let's say, the year-over-year improvement will be driven by cost savings. And then in your Fit for Growth program, I think you have said you have only EUR 250 million cost savings in '25 and a lot more next year. So is my, let's say, statement of Express growth next year of EUR 300 million, EUR 400 million year-over-year, right, if we assume macro stable and all coming from cost savings or that you think is a bit too bullish and I'm missing something else? Yes, maybe this is the first question. And my second question is on your full year '25 outlook. You have reported 3 quarters year-to-date up year-over-year and your current guidance at the low end implies Q4 down year-over-year. Yes, is that just, let's say, the low end is a bit more cautious? Or how do you explain that? I mean, do you just expect the e-commerce season being particularly bad? Or any color on that would be helpful. Tobias Meyer: So maybe I take the first question and then Melanie can comment on the 2025 outlook. Look, I think in the current environment to say what a stable macro means, we find this relatively difficult. If you look on the macro assumptions that we based Strategy 2030 on, and we rely on external sources that has been very disappointing, not only as it relates to trade and what has happened with tariffs in the U.S., but also the continued weakness in Europe, especially Germany, Germany having the third year without growth. So we will provide guidance in due course. We are in that process. We'll obviously continue the focus on cost savings, the cyclical part, but more important, also the structural part. We see ourselves good underway, but I think we need to wait a bit more to see with what run rate we really now exit 2025. We have picked up momentum in some areas as it relates to contract closings, for instance, in supply chain, which is also needed to get back on a solid growth term. We need to see now what happens on the U.S. side with APA and how that turns out. So these are all factors that will play out in2026. Marco Limite: Okay. Sorry, just a follow-up on that. asking the same question in a different way. Like can you confirm that you still got additional EUR 750 million cost savings next year and only EUR 250 million cost savings in '25 from the EUR 1 billion Fit for Growth program? Melanie Kreis: So as I said, we are actually ahead on the Fit for Growth measures. So in that respect, we will already see more benefits in the current year. As Tobias said, we will give guidance for '26 in March. There will be a positive contribution year-over-year from Fit for Growth going into the next year. We also have some negatives, for example, in P&P, it will be the second year of the price regulation. And then we have the macro question mark. We will put all that together for our guidance in March. With regard to Q4, yes, I follow the mathematics and the year-over-year comparison. I think one important element also linked to the first part of your question, we do plan further cost of change bookings for the fourth quarter. So in total, we will probably have cost of change up to million, half has already happened, but that means that we will also do some more cost change in Q4. And as we guide on reported EBIT, that is, of course, all included in our EBIT guidance. Operator: Next question comes from Cedar Ekblom with Morgan Stanley. Cedar Ekblom: I've got 2 questions. So firstly, on the AI rollout that you guys talk about. Have you thought what you could quantify those cost savings at considering we've got headcount down a couple of percent versus the end of 2024. I don't know if you could put some numbers around sort of lowering cost to serve. Maybe it's too early in the process, but that would be interesting to understand. And then the second question is just related to sort of the macro outlook that you talked about, Tobias, at the beginning on your global connectedness tracker. That obviously points to a world where global trade as a multiplier of GDP should continue to be pretty solid. I'm not so sure that, that is consistent with the message you gave at the Capital Markets Day where we had that sort of long-term trend that saw that decelerating. But the broader question here is, you are not growing your volumes in the businesses that are sort of most geared into global trade, sort of freight forwarding and Express. And I wonder, is it a case where the global market might continue to grow overall, but the verticals that are actually profitable for your business become far more niche. So I suppose the overall market can grow, but can your business grow overall? Or is it a case that there's only certain segments that remain profitable? It's a bit of a macro question. Tobias Meyer: Yes. Thank you, Cedar. For both of those questions, I think for AI, we would not quantify this. I think this is also very difficult to do. This technology is ultimately becoming a part of many, many applications that we use. We have dedicated programs as for customs, where we also drive that with own capacity, and that's easier to measure. But even that will quickly infiltrate into normal productivity increasements and the like. So singling out the AI effect as important as that emerging technology and very helpful technology is something that we see as difficult. Well, we'll continue to report and give updates on how we use it. and at least on a qualitative level, how it connects to our figures. As it relates to the macro outlook, I think we would stay with the view that we have shared that there is a deceleration also in the multiplier. The multiplier was significantly above 1 since at least 1990, and that will -- is not what we expect going forward. But the narrative that is out there of the regionalization is a Western perspective, and it's not a global perspective. China continues to globalize. Now in terms of us benefiting from that, it's not falling into our lap. That's, I think, a fair observation. There are some also industry sectors that we have strong exposure to that are not going to deliver the growth in Express, -- it is a story of an industry that has taken share from the general airfreight market over the last 40 years by expanding its capability. And that's what we need to do to be able to continue to grow that we have express cold chain capability, for instance, to have access to the sector that we're absolutely convinced will continue to globalize. The U.S. has a very unique point being the world's largest market and thereby being able to force companies to produce there. The rest of the world doesn't have that choice. Maybe China is the only second one to that. You will not produce modern pharmaceutical biogenetic pharmaceuticals in 20 places on this planet. This is just not what our customers tell us. These modern technologies are going to be highly concentrated, which means that for the rest of the world to participate, in that technological progress, there will be trade. That's what we see happening with a different focus, and that's what we expect going forward. Again, something that we need to actively address geographically, but also as it relates to our capability portfolio, and that's what we are working on and need to deliver on to be able to show stronger growth. I think we have a good track record in supply chain with that gradual expansion of our capability portfolio, but it's clearly a strong focus point for Express and Global Forwarding as we go into the year 2026. Operator: Our next question comes from Alex Irving with Bernstein. Alexander Irving: Two for me, please. First of all, on Express into the air peak season, both on volume and on the success of the surcharge, how are you seeing that develop, please? Second, also on Express, you've taken out quite a lot of costs year-over-year, but how much of that we need to add back as and when volumes rebound? Maybe related to that, where is the weight load factor currently, both year-over-year and also relative to your view of a normalized baseline? Melanie Kreis: I think with regard to the Express peak season, maybe not just in Express, but also in the other businesses where we see a peak season, we do expect that there will be a B2C peak season. How dynamic that will be remains to be seen. But we clearly expect the seasonal increase in the B2C volumes, and we are prepared for that in Express, but of course, also in Post & Parcel Germany and the e-com divisions. And with regard to the yes, demand surcharge driven by this seasonal additional stress on the system. We are on track with the implementation. So we do expect the positive cost offset from that seasonal surcharge also in the fourth quarter of '25. With regard to how much of the cost improvement is there to stay, as I said before, it is a mix, what we see at the moment between volume-induced capacity adjustments and structural growth levers. So of course, when volumes come back, we will eventually also flex back with capacity. But we also think that those structural fit for growth measures will give a lasting benefit, but we can't quantify that to a very precise number. With regard to weight load factor, well, given the current volume and weight situation, we are still not at an optimal point. So the cost measures are helping. But of course, ultimately, that is still a fixed cost network where it is more enjoyable when there is more volume and weight. I mean, also with regard to margin, we have seen a good development, but this is not our ultimate margin goal. So I think very well managed given the circumstances, but we look forward to the moment when volumes come back. Operator: Our next question comes from Michael Aspinall with Jefferies. Michael Aspinall: Michael here from Jefferies. A couple on Express. On the Express Rest of World kind of impact, it was mostly lower volumes. Maybe you can just talk to us as to why that is? And just thinking about the characteristics of those products. Are they kind of highly desirable B2C products or B2B that still need to move? Just thinking kind of what's happening underneath the numbers. Melanie Kreis: I think what we already assumed in August or what was kind of like our hope to keep us away from the worst-case scenario was that particularly the higher valued shipments, which had entered into the U.S. under the de minimis rule that they would be more resilient. So I mean, you had lots of machinery spare parts valued below $800 going into the U.S. under the de minimis. And our base case hypothesis was that these volumes would keep moving, but of course, then with clearance, and that is what we have now seen happening. So particularly the very low-value B2C stuff has seen the impact. partially also because customers are then changing to different forms of transporting B2C into the U.S. but we have seen more resilience on the B2B side, and that explains the difference between the minus 23% B2C volume decline and the minus 2.2% B2B. Michael Aspinall: Great. And 2 other just small ones. In Express on TDI volumes, Europe improved sequentially a little bit from minus 3% to minus 1% in 3Q. Is there anything underneath that to read into in terms of Europe getting better or not really yet? Melanie Kreis: I think it's a glass half full, glass half empty question. So yes, from minus 3% to minus 1% is moving in the right direction. Can we be satisfied with minus 1% -- clearly not. So yes, I think at the moment, we still see a more stagnant European development than we all would have hoped for. Michael Aspinall: Okay. Great. And last one, sorry to slip in 3. I think you don't really get into fuel hedging in Express. Maybe you can just remind us on that. And similarly, if there's no hedging, but you expect lower fuel surcharges, would that normally help on the volume front? Melanie Kreis: So on the fuel side, and there's a well-established mechanism in DHL Express, but also in the industry where you have a fuel surcharge. So there is a bit of a time lag about 6 weeks. But fundamentally, you then adjust and pass fluctuations in underlying fuel price on to the customer. Tobias Meyer: And the volume elasticity is relatively low to that. Operator: Our next question comes from Cristian Nedelcu with UBS. Cristian Nedelcu: Can I ask the first one in Express, your competitors are talking about adding air capacity on intra-Asia and Asia Europe. And I believe -- and correct me if I'm wrong, but I believe those are usually trade lanes where your Express margins are higher than the divisional average. So how do you see the risk of potential market share losses or margin compression there in 2026? The second one, maybe a small one on the Q3 Express. For what concerns the U.S., we've heard about the postal operators temporarily stopping deliveries to the U.S. in September. There's been maybe also some de minimis front-loading in August. did those bring any benefits to the profitability in Express in Q3 that may not repeat going forward? And the last one on Express, very useful the chart you offer with the weights into different regions. And looking at Q2 and Q3 and just focusing on Europe, weight down 3%, weight down 1%. If I compare it with the CTS ocean volumes into Europe, those have been growing around 10% year-over-year. Air freight capacity into Europe overall is also up high to low -- high single digit, low double digit. So I guess my question is a bit what do you think is driving the underperformance of Express versus ocean and air cargo only when we focus on Europe? Do you think it could be market share loss? Do you think it could be down trading or other factors that could explain that? Melanie Kreis: Okay. So maybe starting with the third one. So the missing element in the comparison is the intra-European business, where obviously air and ocean freight statistics don't show what is happening intra-Europe, but that's a big part of our Express business, and that has clearly not been the most dynamic. So that explains the difference there. Staying with the trade lane questions. So yes, I mean, the fact that intra-Asia and Asia to Europe is developing more favorably, which is why others are apparently thinking about moving capacity there is ultimately a good thing because those trade lanes are strong trade lanes for us market position in terms of profitability. So I see it more positive if intra-Asia and Asia to Europe is developing favorably. And yes, I think overall, we haven't seen any crazy capacity movements leading to difficult pricing situations beyond the normal competitive dynamics. Tobias Meyer: I would echo that. So this is good. We see ourselves in a very competitive situation, both intra-Asia. We sometimes say that Asia is DHL's second home and also Asia to Europe. So the trends that you're seeing that competitors are more interested in is something that we recognize and overall see as a positive message of this being a trade lanes where we can also can expect some growth in 2026. To your second question on the postal operators and the de minimis front loading, I think there might be small effects of that, but really not much. The de minimis front-loading, we -- others might have seen to a greater extent than we have. The postal operators, there might have been some shift for some time, but I think most of that volume just didn't show up. And we, as you are aware, have already now for several weeks, re established the postal channel to the United States Postal Service, which is particularly strong on the C2C side. So not much effect on Express in the third quarter as it relates to that. Operator: Our next question comes from Muneeba Kayani with Bank of America. Muneeba Kayani: I just wanted to understand your guidance that you've maintained and unpack some of the moving parts there because it's, of course, on the reported number and with all the one-offs. So you've got the EUR 178 million benefit on the accounting on e-commerce. That's certainly new for us. Was that something that you were expecting kind of already when you were giving your guidance maybe earlier in August? Similarly, on the cost of change, this was something you'd kind of highlighted and kind of we've taken into account into our numbers, but has that kind of impact of cost of change been different because of the phasing than what you had initially expected? And then lastly, on the de minimis kind of -- what have you accounted for into the year-end on that impact compared to that worst case of EUR 200 million. So if you could unpack those moving parts, that would be super helpful. Tobias Meyer: I think in the de minimis for us, this is now part of the run rate. So the effect is there. We don't expect much further to move than what we now have. As Melanie laid out, the impact was smaller than the worst case, significantly smaller than the worst case, and it's now part of everyday life. As it relates to the guidance, overall, this will net out for the year. So we roughly stay to where we originally seen that. Obviously, there's now the impact quarter-by-quarter, and Melanie can further elaborate on that. Melanie Kreis: Yes. I think if you put all the one-offs together, what we disclosed in Q2, what we disclosed in Q3, we currently have a net positive effect of a bit over EUR 40 million. We expect that to turn to a negative number because, as I said, we will have more cost of change now in the fourth quarter, and we don't anticipate a positive one-off in the fourth quarter. So if you say we have close to EUR 100 million in cost of change year-to-date. If you want to take that up to EUR 200 million, that gives you a feeling for the order of magnitude in the fourth quarter. So we should end the year with a negative contribution from one-offs for the full year. Muneeba Kayani: And just kind of on your 3Q Express volumes and the B2C minus 23%. Can you give us a sense of how that was in the month and like what happened in September post the de minimis? Tobias Meyer: So the swing that others might have seen was not as big for us. So I think you see over the quarters a pretty consistent trend, and we would not see much deviation from that trend. Operator: Our final question comes from Marc Zeck with Kepler Cheuvreux. Marc Zeck: One question left for me, maybe a bit on the P&P performance, I guess, that was good, certainly much higher than expected by the market. Is like EUR 200-plus million EBIT in the -- every quarter that is not Q4 kind of the run rate that you would expect now for the next year as well? I guess, we've seen the wage increases already for this quarter. So it seems like a pretty decent run rate. And with Q4 coming in, would it be fair that maybe you will end up in EBIT maybe more at the EUR 1.1 billion rather than the EUR 1.0 billion in P&P? Tobias Meyer: So I think -- the recovery that we see this year is also because the last year was relatively weak. I think that's important to keep in mind. Overall, we see ourselves very well underway to deliver the guidance. For next year, Melanie already highlighted, this will be a year without regulatory price increases in Mail. So that provides some pricing headwind for 2026. We obviously have some freedom in parcel that will also adequately utilize. So similar to other elements that we talked about, we don't see a change of trends for P&P. We have some seasonality in that business as it relates to volume and also earnings, and we expect that to be a normal peak season. That's where everything is currently pointing at. We also have higher cost to deal with that. So a normal seasonal development is what we expect to close out Q4. And then again, obviously, some of the structural cost measures will carry forward, but the headwind on input factor cost and pricing will be a factor in 2026. Operator: This concludes the Q&A session. I now hand it back to management for closing remarks. Martin Ziegenbalg: All right. We're not too far away from the 60 minutes that we were looking for. Good news for the guys in Copenhagen, who are next. Tobias, your closing remarks, please. Tobias Meyer: Well, it was an interesting quarter, and it, from our perspective, turned out quite well. We do not expect that volatility will go down. We will stay close to our customers. So first and foremost, impacted. It's easier to shift airplanes around than factories. We do see our narrative confirmed in terms of globalization not being derailed. There's clearly a deceleration relative to decades earlier, but especially in those areas that we focus on technology and the concentration of manufacturing due to economies of scale and economies of scale that continues to drive globalization and the growth of trade. And we are very focused on, a, staying close to our customers, adjusting capacity and remain fit in the institutional capability to do so. But secondly, to have enough time and management capacity to do what we clearly need to do to accelerate growth to execute on Strategy 2030, where we have more headwinds than we had originally anticipated from a macro environment. We talked intensively about that in this call as well. So there's clearly work to be done, but we remain optimistic about that and to a great extent, also excited about the opportunity that the world still offers to our company. With that, I thank you for your interest and the great questions that you post. Have a great day. Operator: This concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Freshworks Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Brian Lan, Director of Investor Relations. Please go ahead. Brian Lan: Thank you. Good afternoon, and welcome to Freshworks Third Quarter 2025 Earnings Conference Call. Joining me today are Dennis Woodside, Freshworks' Chief Executive Officer and President; and Tyler Sloat, Freshworks' Chief Operating Officer and Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our third quarter 2025 performance and our financial outlook for our fourth quarter and full year 2025. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate and market volatility and certain other assumptions made by the company, all of which are subject to change. These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain our growth, to innovate, to reach our long-term revenue goals, to meet customer demand and to control costs and improve operating efficiency. For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our most recently filed Form 10-K and other periodic filings with the SEC. Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law. During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our Investor Relations website at ir.freshworks.com. I'd encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports and a replay of today's call or to learn more about Freshworks. And with that, let me turn it over to Dennis. Dennis Woodside: Thank you, Brian. Freshworks delivered an outstanding Q3, marking the third consecutive quarter this year that we surpassed our estimates across growth and profitability metrics. We grew Q3 revenue 15% year-over-year to $215.1 million on both an as-reported and constant currency basis, approximately 3 points above the high end of our previously issued estimates. Non-GAAP operating margin expanded to 21%, 5 points above our estimate. Our free cash flow margin was 27%, and we added a fifth straight quarter of Rule of 40 plus. We ended the quarter with nearly 75,000 customers, including new logos such as global auto manufacturer, Stellantis; multinational bank, Societe Generale; the Pennsylvania Gaming Control Board; and Travis Perkins plc, the U.K.'s leading distributor of building materials. Our positive results also reflect significant expansion deals with existing customers like Wiley, The Access Group and iRhythm Technologies. In Q3, we saw a more than 40% year-over-year increase in the number of new and expansion deals with greater than $50,000 in ARR. Our strategy has focused on 3 key growth drivers: investing in Employee Experience, delivering AI capabilities across our products and accelerating adoption and driving continued expansion in customer experience. At our Investor Day in September, we outlined our path to $1.3 billion in ARR in the next 3 years, and we continue to make progress towards our goal of ESM, AI and ITAM, each generating over $100 million in ARR. Before we dive into the results, I want to speak to the transformative AI opportunity ahead for Freshworks. We have over 50 AI-driven applications in the hands of customers right now, and the direct monetization of these products demonstrates that we are driving incremental growth and that customers are realizing tangible outcomes from our AI. The headline here is that businesses need the right foundation, workflow, data and security that all work together, and that's what we provide. Companies will continue to rely on us because we have the operational context, data connections and governance needed to manage full-service functions like customer support and IT service at scale. Security, privacy and compliance are already built into our architecture. That's what makes our AI enterprise-ready compared to general purpose AI. Employee Experience continues to lead in durable growth, achieving over $480 million in ARR. That represents 24% year-over-year growth on an as-reported basis and 23% year-over-year growth on a constant currency basis, an acceleration from Q2. Three primary growth drivers that contributed to these results include expansion into departments outside of IT, continued growth upmarket and deepening our foothold in IT asset management with Device42. Enterprise service management continues to be an important expansion lever as customers increasingly use Freshservice in areas of their business outside of IT. Our ESM solution, Freshservice for Business Teams has doubled its annual recurring revenue in the past year and exceeded $35 million in ARR in Q3. Customers like Databricks, RingCentral and Qualcomm are using our ESM offering to automate workflows and deliver more personalized Employee Experiences at scale. As of Q3, 1 in every 4 eligible Freshservice customers are using Freshservice for business teams. To meet this surging customer demand, today, we announced that we are expanding enterprise service management access by making Freshservice for Business Teams available as an independent product for non-ITT functions. With a stand-alone product, we are no longer limited to using IT as our entry point, and we can now sell directly to HR, finance, facilities and legal, even if an organization is already locked into another ITSM tool. Second, we continue to move upmarket with midsized and enterprise customers. In Q3, ARR from customers who spend more than $100,000 with us grew 25% year-over-year. The steady flow of new product innovations like employee journeys, our AI-powered onboarding and offboarding capability and increased adoption of business teams contributed to the momentum of these larger customers. Freshworks is positioned as a clear alternative to legacy players, and we continue to displace incumbents. In Q3, we delivered our highest ITSM competitive win rates in 2 years as customers selected Freshservice for its ease of use, fast deployment and lower total cost of ownership. Freshworks has an established track record in ITSM. Mid-market and enterprise organizations want speed and simplicity and Freshworks delivers. One example is HOLT CAT, the largest U.S. dealer of Caterpillar equipment, who saw significant improvement in efficiency and productivity as agents were able to handle nearly 10,000 tickets within 6 months and bring their average ticket resolution time to under 5 hours. The third growth lever in EX is our advanced IT asset management offering expansion with Device42. In Q3, we closed our biggest Device42 new deal to date with the largest U.S.-based sporting goods retailer. Device42's deep integration with Freshservice and its differentiated discovery engine made it the clear choice for enterprises that are seeking real-time visibility and control. The momentum is evident as half of our top 10 largest deals in the quarter included a Device42 component. In addition to these 3 growth drivers, we're deepening our presence across key verticals. For example, in Q3, we doubled our law firm customer count reaching over 1,000. In sports, we want to congratulate the Los Angeles Dodgers, one of several Major League Baseball teams that rely on Freshservice on winning back-to-back World Series and also the McLaren Formula 1 team for winning back-to-back constructors championships. Finally, we continue to drive greater efficiency and focus on our go-to-market motion. On the leadership front, we welcomed Enrique Ortegon as Senior Vice President and General Manager of Americas Field Sales. Enrique's experience leading high-performing sales organizations will help sharpen our execution, accelerate growth and strengthen our GTM discipline across North and South America. Now let's talk about our AI tailwind. Freddy AI continues to be a growth driver and expansion opportunity across EX and CX and is delivering exceptional results for thousands of customers who are seeing tangible business value and returns quickly after adoption. As we stated before, we believe this can be a $100 million stand-alone revenue stream over the next 3 years. AI is becoming a core productivity engine for every team, not just for IT. And here's why Freshworks is winning. Our products sit where real work happens in customer support, IT, HR and operations, helping businesses automate tasks, resolve issues faster and deliver better experiences with less effort. Our AI is deeply embedded in how our customers work every day. It's writing replies, classifying tickets, generating insights and increasingly taking action on behalf of employees and customers. The results speak for themselves. AI ARR has doubled year-over-year. Customers are now using Freddy AI to resolve millions of problems every week. And our new AI agents are performing real work across industries from handling returns in e-commerce to managing employee requests in HR. As a testament to our AI momentum, we have seen AI Agent usage expand more than sixfold in the past 7 months, while our existing AI Copilot solutions continue to double in usage year-over-year. Freddy Copilot's ARR grew 160% year-over-year and was included in over 60% of our new customer deals over $30,000, a 5-point increase from the prior quarter. We also saw double-digit attach rates again for new SMB customers in Q3. The number of customers using Copilot grew significantly, too, by over 130% year-over-year. Travis Perkins plc upgraded from legacy complexities to service efficiency with Freshservice and Freddy AI Copilot. Travis Perkins is now able to provide best-in-class IT service management to 17,000 employees across 1,400 locations while improving operational execution, optimizing costs and increasing productivity for HR and IT teams. These Freddy Copilot customers stick with us. Their net retention rate is 112% in Q3 for both CX and EX, higher than our overall base and a tangible sign that AI is driving deeper engagement and long-term value. We believe this tailwind will continue to strengthen our growth trajectory. The number of Freddy AI Agent sessions grew over 70% in Q3, and we have seen 650,000 sessions per month since launch. Freddy AI Agent deflected more than 50% of tickets for CX and EX customers. Those who had early access to Agentic workflows that we launched in June are seeing their average deflection rate jump to 65% with a handful of customers seeing 80% of service issues resolved by AI Agent. We're seeing positive feedback from customers who have had early access in Q3 to several products we announced at our June refresh event. For example, GAIL's Bakery, a midsized U.K. cafe chain with over 170 locations used Freddy AI Agent Studio for Freshdesk to build AI agents. These Freddy AI agents now handle 1,000 inquiries per month to deflect more than 1/3 of total volume. Employees are freed from repetitive work and can dedicate more time to more complex customer cases like allergies, ingredients or complaints that require personal care. Next week, we'll share new product announcements across our entire portfolio at Refresh North America on November 13 in San Francisco and at our Virtual Summit on November 18. This includes new vertical Agentic AI agents that bring our growth strategy to life, demonstrating how we're executing through AI innovation that expands our addressable market and deepens customer value. Our third imperative, Customer Experience, grew to over $390 million in ARR, representing 8% growth year-over-year on an as-reported basis and 7% on a constant currency basis. Q3 growth was driven by deeper product adoption and customer sentiment that Freshdesk is easier to implement and use than the legacy alternatives. To build momentum, we refocused our CX products and we'll be announcing a new unified experience at Refresh next week, a single workspace that consolidates Freshdesk, Freshchat and all of our Freddy AI products for customer support teams. This hub centralizes all conversations, context and tools to help agents resolve inquiries and get work done more efficiently. This will be a force multiplier for frontline support teams, helping them improve the speed and quality of customer service. Freddy AI continues to be an expansion driver for CX with measurable impact for customers using Freddy AI agents in Freshdesk. For example, BirdsEye, a leading German outdoor retailer uses Freddy AI agents to automatically retrieve real-time order data and provide status updates, return label and invoices with customers in seconds. This has significantly reduced ticket volume and improved response times, driving higher satisfaction and greater trust in the Birds Eye brand. The potential of Agentic workflows is tremendous. Traditionally, building AI agents like this took months, designing customer support workflows, training data and endless testing. Our prebuilt AI agents help our customers deploy on day 1 to handle tasks like expediting orders, processing returns or checking delivery status. That means faster setup, faster results and a better customer experience from the start. While SMB and commercial segments continue to turn to Freshdesk, we are also seeing larger implementations with midsized and enterprise organizations like the University of Pennsylvania, who consolidated its finance support into a single hub with Freshworks. In just 6 months, the university processed more than 30,000 service tickets, streamlining workflows and improving stakeholder satisfaction. We believe customers of all sizes continue to choose Freshworks CX solutions for its AI-driven efficiency and uncomplicated customer support experience. Around the world, businesses are choosing software that delivers real outcomes, speed, simplicity and measurable ROI, and that's exactly where we stand out. Our enterprise-grade products deliver faster time to value and lower total cost of ownership, aligning perfectly with what today's buyers demand. With solid momentum behind us, we're leaning into the global opportunity ahead to expand our pipeline, acquire new customers and fuel durable growth. Thank you to our customers, partners, employees and shareholders for your ongoing support. Now let me turn it over to Tyler to go through the operational and financial details. Tyler Sloat: Thanks, Dennis, and thanks, everyone, for joining on the call and via webcast today. We are very pleased that we continued our streak of outperforming across both growth and profitability during the third quarter. We once again exceeded our revenue, non-GAAP operating income and adjusted free cash flow expectations. This strong overperformance reflects the continued demand for our AI-powered and uncomplicated EX and CX solutions. Our consistent execution and financial discipline position us well to capture the significant long-term opportunities ahead. For our call today, I'll cover the Q3 2025 financial results, provide background on the key metrics and close with our forward-looking commentary and updated expectations for Q4 and full year 2025. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses, restructuring charges and other adjustments. We will also talk about our adjusted free cash flow, which excludes the cash outlay related to restructuring costs. To provide greater transparency into our underlying business performance, we will also include constant currency comparisons throughout today's call. Starting with the income statement. Q3 total revenue increased to $215.1 million, growing 15% year-over-year on both an as-reported and constant currency basis. Revenue outperformance includes a onetime $1 million contribution coming from our on-premise Device42 business. Professional Services revenue modestly declined quarter-over-quarter to just over $2 million, consistent with our ongoing shift in leveraging our partner network as we scale our business. In 2025, we saw partner involvement expand significantly across our largest deals. Partners helped to lead implementations for over half of our ARR deals greater than $50,000, a notable increase from last year, underscoring the success of our robust and growing partner ecosystem. Our EX business accelerated in Q3, growing to over $480 million in ARR, representing growth of 24% year-over-year on an as-reported basis and 23% year-over-year on a constant currency basis. Our faster growth was driven by strength across our entire EX portfolio as we saw positive momentum in not only ITSM, but also meaningful progress in ESM, advanced ITAM and AI, each of which we believe can eventually be $100 million ARR businesses. Our CX business increased to over $390 million in ARR, reflecting growth of 8% on an as-reported basis and 7% year-over-year on a constant currency basis. We continue to see healthy and predictable demand for our Freshdesk products. Moving to margins. We maintained a non-GAAP gross margin of 86% in Q3 as we continue to scale our business efficiently. Our non-GAAP operating income for Q3 came in at $45.2 million, representing a non-GAAP operating margin of 21% and ahead of our prior expectations, reflecting our continued top line momentum and effective cost management. Moving to operating metrics. Our net dollar retention came in at 105% on an as-reported basis and 104% on a constant currency basis, both in line with our expectations. Just like last quarter, Device42 represented a small drag of 60 basis points to net dollar retention. We expect Device42 retention to improve gradually as we continue to scale the business with our ITSM offering. Looking ahead, we estimate net dollar retention of approximately 105% on an as-reported basis and 104% on a constant currency basis for Q4. As of the end of Q3, the number of customers contributing more than $5,000 in ARR grew 9% year-over-year on both an as-reported and constant currency basis to 24,377 customers. This customer cohort continues to represent over 90% of our ARR. For our larger customer cohort, as of the end of Q3, the number of customers contributing more than $50,000 in ARR grew 20% year-over-year on an as-reported basis and 19% on a constant currency basis to 3,612 customers. This cohort represents over 50% of our ARR if we have continued to move upmarket successfully. For total customers, we added over 260 net new customers in the quarter and have nearly 75,000 customers as of the end of September 30. Given the continued success of our upmarket strategy and our focus on mid-market and enterprise customers, we believe total customer count is no longer a meaningful indicator of our performance. Starting with the release of Q1 results next year, we will discontinue reporting this metric on a quarterly basis and shift our focus to larger customer measures that better reflect how we manage the business and its trajectory. Now let's turn to calculated billings, balance sheet and cash items. Our calculated billings grew to $224 million in Q3, representing growth of 14% year-over-year on both an as-reported and constant currency basis, matching our prior expectation on an as-reported basis and coming in ahead of our constant currency forecast of 13%. Looking ahead to Q4 2025, our initial estimate for calculated billings growth is 17.5% year-over-year on an as-reported basis and 14% on a constant currency basis. For the full year 2025, we expect calculated billings growth to be approximately 16% year-over-year on an as-reported basis and 14% on a constant currency basis, both of which are in line with our expectations from last quarter. Moving to our cash items. We generated $57.2 million in adjusted free cash flow in Q3, driven by continued operational discipline and strong collections. This resulted in an adjusted free cash flow margin of 27%, which represents an over 5 percentage point improvement year-over-year. For the full year 2025, we now expect to generate approximately $222 million of adjusted free cash flow with approximately $55 million in Q4. As a reminder, we successfully completed our inaugural $400 million share repurchase program after buying back an additional 12 million shares in Q3 at an average price of $13.28 per share. In total, we repurchased approximately 27.9 million shares at an average price of $14.35. We continue to manage and offset share count dilution by net settling vested equity amounts. During Q3, we used approximately $15 million for that purpose. This activity is reflected in our financing activities and is excluded from our adjusted free cash flow calculations. Looking ahead, we will continue to net settle vested equity amounts and expect Q4 cash usage of approximately $12 million at current stock price levels. For the full year, we expect to use approximately $58 million to net settle vested equity amounts. We ended the quarter with cash, cash equivalents and marketable securities of approximately $813 million. Turning to our share count as of September 30, 2025. We had approximately 309 million fully diluted shares, which represents a decrease of 7% year-over-year. The fully diluted calculation includes 282 million basic shares outstanding, which represents a decrease compared to both the prior year and quarter. It also includes 24.5 million shares related to unvested RSUs and PRSUs and over 2 million shares related to outstanding options. We remain committed to thoughtfully managing our share count dilution over time. Now on to our forward-looking estimates. For the fourth quarter of 2025, we expect revenue to be in the range of $217 million to $220 million, growing 12% to 13% year-over-year. Adjusting for constant currency using FX rates from Q4 of last year, this reflects growth of 11% to 13% year-over-year, non-GAAP income from operations to be in the range of $30.6 million to $32.6 million and non-GAAP net income per share to be in the range of $0.10 to $0.12, assuming weighted average shares outstanding of approximately 284.5 million shares. For the full year 2025, we expect revenue to be in the range of $833.1 million to $836.1 million, growing approximately 16% year-over-year on both an as-reported and constant currency basis. Non-GAAP income from operations to be in the range of $167 million to $169 million and non-GAAP net income per share to be in the range of $0.62 to $0.64, assuming weighted average shares outstanding of approximately 293.9 million shares. Our financial outlook is based on a few assumptions that we would like to call out. First, our forward-looking estimates are based on FX rates as of October 31, 2025, and do not take into account any impact from currency moves. As a reminder, we had a $1 million revenue benefit in Q3 related to a large Device42 deal that we would not expect to repeat in Q4. Secondly, given our strong operating and go-to-market execution this year, we are strategically reinvesting a portion of our earnings outperformance to further build on that momentum. As such, we anticipate a onetime increase in spending during Q4 to expand our pipeline and drive customer acquisition with a modest corresponding impact on operating margins. These planned investments are reflected in our financial outlook and position us well for continued growth. Looking beyond Q4, we are reaffirming the long-term model we outlined at our Investor Day in September. Based on our current forecast, we continue to expect full year 2026 revenue growth of 13% to 14%, and we remain on track to achieve GAAP profitability by end of year. As a reminder, the fourth quarter has historically been our largest bookings quarter and a good indicator for us. So we will follow our typical cadence of providing a more detailed outlook for 2026 on our next earnings call. With that said, let me provide some additional color on our operating margin linearity for the full fiscal year 2026. We anticipate that our Q1 2026 operating margin will be slightly better than Q4 2025 and represent the low point for next year. This is driven by the strategic decision to move the timing of our annual merit increase process from April to January as well as the reset of U.S. payroll taxes and the start of new benefit plans. Following this Q1 low point, we project a subsequent linear ramp-up throughout the remainder of fiscal year 2026, culminating in an operating margin exiting Q4 2026 at over 23%. Our results underscore the exceptional execution and financial discipline our global team has demonstrated throughout the year. As we get ready to close out 2025, we remain focused on continuing that momentum and thoughtfully reinvesting in our growth to capture the multitude of significant opportunities ahead. We appreciate your continued confidence in Freshworks as we execute on our strategy to deliver long-term profitable growth. And with that, let us take your questions. Operator? Operator: [Operator Instructions] Our first question will be coming from Scott Berg of Needham & Company. Scott Berg: Really nice results here in the quarter. Dennis, I wanted to talk about the announcement today, you're selling ESM as a stand-alone solution. That's certainly not news to us that we're paying attention at the Analyst Day. I just want to hear kind of, I guess, how you're thinking about that solution. Is this going to be sold with a, I guess, a separate sales force now as you're selling it stand-alone, it's going to be sold with the same sales folks that you're using? And any changes to, I don't know, pricing or I guess, whatever the marketing message looks like around that in the stand-alone environment? Dennis Woodside: Yes. Thanks, Scott. So first of all, we launched Freshservice for Business Teams in 2022. We had a lot of demand outside of core IT departments for a service desk solution. And that, as you know, has been a huge driver for us. We crossed $35 million in ARR. That business has doubled year-over-year. About 1/4 of our customers now for -- Freshservice customers now are using Freshservice for business teams in some way, shape or form. So it's a really strong value proposition. And what we've seen is some prospects where they might be locked into a contract for their Core ITSM with a larger incumbent, they don't necessarily want to increase their vendor dependency on that incumbent. They want to preserve optionality to potentially move to us at a later date. But they need a solution now for the teams outside of IT, and that's why we launched this. In those cases, we can sell to them now. We can preserve that optionality, get to know them a little bit. So when that contract does come up for renewal for Core ITSM, we were there, and they've had a positive experience with us. There's no new sales force around this. We already have a pretty well-worn try-to-buy way of getting a lot of customers started. So all of our typical outbound and inbound marketing methodologies apply here. It's going to be the same sales force we have. So we think we'll get a lot of scale out of that. And this is on top of the Core ESM business that we have, the product that is attached to Freshservice. We think that alone -- when we talked about this at Analyst Day, that alone has a path to $100 million. This is additive to that. So we're launching it today. We'll have more next quarter in terms of early traction, but we're pretty positive about where this is going to go just given the success of the products that we've had in the market already. Scott Berg: Excellent. And then from a follow-up perspective, maybe this is for Tyler, is it's around your buyback program expired in the quarter. You've certainly been buying back some shares at higher levels. I didn't see that repeated here, which I kind of almost expected, I guess, in the quarter or at least an expansion of those efforts. Should we take that as maybe an indication or a shift in your capital allocation strategy? Or maybe there's something more just on a timing basis there? Any details there would be great. Tyler Sloat: Yes. Thanks, Scott. Yes, so we finished the inaugural buyback in Q2 [Technical Difficulty]. So we just finished it 1.5 months ago. That was authorized a year ago for $400 million, and we completed that and we were happy to get that done. I think the weighted average price is just over $14. We are committed to working with the Board on a continued capital allocation strategy. We've always said we've been open to M&A., if that come forward. We're obviously going to invest in the business where that's needed, but we're producing a lot of cash flow now. And we'll continue to talk about the Board -- about other uses of capital, including other buybacks. We are still doing our net settles, and we provide the data there. And so we're still spending money every single quarter on net settlements, and that's been outside of the buyback. So that will be a continual discussion that we will have with the Board. Operator: And our next question will be coming from Alex Zukin of Wolfe Research. Mark Heatzig: This is Mark Heatzig, on for Alex Zukin at Wolfe. Congrats on great results. Can you just give us a little bit more color on how you're balancing the monetization versus adoption play with the Freddy AI suite of tools? Any way we should think about how that might change with the new agent capabilities? Dennis Woodside: Yes. So just to recap our strategy, we have Freddy AI agent, which is a consumption-based model for CX, where our customers pay us on a per session basis. We have Freddy Copilot, which is a per seat license adder. And then we have our Freddy Insights, which is only available in the enterprise plan. So different products have different monetization levers and paths. For AI agents, we've historically priced those based on sessions with our Agentic AI agents coming out in a matter of weeks. We have revisited pricing. We're not revealing that now, but we are going to be more in line with industry pricing, which is considerably higher than where our pricing historically has been. We think that the market will support that based on what we've seen in early access with some customers seeing up to 80% deflection rates based on their use of AI agents. What's coming in a couple of weeks are agents that are focused on very specific verticals like fintech, like travel, logistics, e-commerce that take action on behalf of the end customer, and we know that those interactions are quite valuable. We're not quite at the point to move to full resolution-based pricing and frankly, neither are our customers. So the session-based pricing makes a lot of sense for where we are now, but we're always open to evolving that as our customers ask us to and as customer demand warrants, but you will see a meaningful price change with that -- the launch of those products, which will allow us to monetize it quite well. Operator: And our next question will be coming from Patrick Walravens of Citizens Bank. Patrick Walravens: Congratulations on the third quarter in a row this year. So the big question I still get, Dennis, believe it or not, is for investors who are just looking at Freshworks, they still want to know, is it an AI winner or an AI loser. And I see lots of evidence that it should be in the winner's camp, including your $100 million target and what you just talked about actually is really interesting about the specific verticals for agents. But just to make it easier for people, if you're going to boil it down to 2 or 3 key points that you would make on that topic, why Freshworks is an AI winner? What are they? What would you lay out? Dennis Woodside: So first of all, look, we are the system of record for our customers in IT and in customer support. We have the native workflows that they're running their business off of. And that is super important for all of what we're focused on. The products that we ship have ready-made skills, guardrails, governance, things that our customers all need in order to run their support and IT departments, and that's what they demand. So there's a meme that, "Oh, everybody is going to go directly to OpenAI or to Anthropic to build their solutions." That's just not going to happen in such complex environments as Seagate's IT department or some of these others. The customers need the AI to be integrated into their workflow. They need the security. And we can tap into the best-of-breed models as the LLMs evolve by tapping into Anthropic for coding or Gemini for image and so forth. So we think that we're actually really well positioned as the market evolves and as customers continue to adopt AI to succeed there. Operator: Our next question will be coming from Elizabeth Porter of Morgan Stanley. Unknown Analyst: This is Oscar, on for Elizabeth. Congrats on the great quarter. I wanted to ask in terms of government exposure for Freshworks tends to be more state and local. But I just wanted to check if you have seen any impact from the government shutdown, either in the form of longer sales cycles or smaller deals and either directly or indirectly, if it has pressured any small businesses within CX? Dennis Woodside: Yes, it's Dennis. So we've seen no impact whatsoever. We do not have large federal government exposure. Our government business comes from state and local entities, municipalities, universities, none of which we've seen at least any kind of change. We actually landed quite a few governments and universities this last quarter, and we've seen quite a bit of expansion there. So we really just have not seen any impact at all from the shutdown or any of the federal issues. Operator: Our next question will be coming from Brent Thill of Jefferies. Brent Thill: Tyler, I apologize if you covered this, but this onetime investment you're talking about in Q4, can you articulate a little in more detail what that is? Tyler Sloat: Yes. This is really -- Brent, this is kind of reflecting on the fact that we've now strung together 4 really, really good quarters and really see a very strong demand environment for our EX products in the field specifically. And so because we've also done really, really well on our efficiencies this year, where we beat our operating kind of margin goals and consistently every quarter said, hey, part of it is timing, we're going to reinvest. But just keep beating, we actually, at the beginning of this quarter, did release spend specific to building pipe for EX in the field because the market opportunity is there. And we're still beating our goals, but we actually decided to release that spend for the year. It's more onetime just for Q4, not repeated. That's why we also kind of give the linearity for operating margins for next year as well. Brent Thill: And I'm sorry, where does that go into reps, marketing? Like what's the... Tyler Sloat: Yes. It -- majority of it is marketing, and it's really pipe and demand gen efforts. Brent Thill: Okay. I got some good ideas. We can talk later about the campaign. It has to do with Rogers. Freddy Fresh. The -- and just for Dennis, when you talk about that 25% growth above $100,000, it seems like the referenceability is building really well. Like what do you -- what are kind of the next milestones? It's been going well. It seems like it's headed in the right direction. But what are the next kind of hurdle that you'd like to see cross where you're like, okay, we're clearly on a continued trajectory and -- not that you aren't. It's just like what's the next stop, if you will? Dennis Woodside: Yes. Look, I think we've got a really good sweet spot in customers ranging from 5,000 to 20,000 employees. That's where there's a ton of business out there that's looking for a solution, that is enterprise grade, that is faster time to value, that's got AI built in, and we're going to continue focusing there. I think in terms of where we're headed, we talked in the Analyst Day about continuing to drive our EX business in the low to mid-20s in terms of growth. You saw a slight tick up in growth on a constant currency basis this quarter. We're going to keep pressing these larger and larger deals every single quarter. For us, the attach rate for D42, that's an important metric that we look at, how many of our larger deals are including Device42. We have a big milestone coming up in Q1, where we expect to release Device42 on cloud. Once we do that, we'll be able to tap into another segment of the market that doesn't want to go on-prem with any solution. They want everything to be in cloud. It will also make it easier for us to upsell our existing customers into Device42 as a product. That's going to be another accelerant to growth. So we've got a lot of positive, I would say, momentum and positive accelerants to that business. And Tyler was just talking about the demand gen investment we're making in Q4. That's all going into the EX business and into AI, but that really is a huge driver for us as well. So I think EX has a lot of kind of positive momentum behind it, and we're just going to keep leaning into it every single quarter. Operator: [Operator Instructions] Our next question will be coming from Brian Peterson of Raymond James. Johnathan McCary: This is Johnathan McCary, on for Brian. So I wanted to ask on some of the AI deployments in your customer base. Can you talk about the appetite for that and how that may differ between the SMB and then the more mid-market enterprise customers? I'm curious specifically if you're seeing that it's more important piece of the conversation in certain parts of the customer base or SMBs versus enterprises are moving from pilots to kind of forward deployments quickly. Just I'd be curious how that differs across the different customer sizes? Dennis Woodside: Yes. So as we look at our AI paid footprint, it's actually pretty even across SMB, mid-market and enterprise. We've seen traction across all 3. And different companies are in different stages of understanding AI and adopting. In terms of products, the product that clearly is leading for us has been Copilot. That's the product that for us is both most mature functionally. And if you think from a customer standpoint, that's the first port of call where you still have a human in the loop, they still have some control, so they feel more comfortable going there first. But what we've seen in the last couple of months is really an uptick in AI agent. And we think with the launch of our Agentic capabilities in CX in particular, that's really going to take off, and we're going to lean into it heavily. That plus the fact that we're going to monetize at a much higher rate than we have before. We've been, I would say, quite underpriced relative to the market when it comes to our AI agent capabilities. That we think is going to create a big opportunity for us going into next year. So I think overall, the customers, there's not one vertical. There's not -- it's not an SMB or mid-market enterprise issue. It's relatively even across CX and EX in terms of the monetization opportunities today. And we just think every one of our customers over time is going to need the AI that we offer. We're a little over 5,000 customers that are paying for AI now. That's just going to continue to grow. It's a core part of how we're selling now. Johnathan McCary: Very helpful. And then maybe one for Tyler here. It's good to see the continued strength in EX, the slight acceleration there. Just hoping, can you unpack the growth a little bit in terms of what's trending, how NRR is trending there versus net new and kind of where you think that should head longer term as you look to continue the low 20s growth profile? Tyler Sloat: Yes. I mean we're growing across all segments of the business, right? We talked about how ITSM core is strong, but also ESM that we gave out the number of over $35 million now. Device42, we've talked about as well and then the Copilot components within there. If you look at how that's going to trend, you asked about NRR. Our EX products have always had strong NRR. Device42 is a little bit of a drag because of the stuff we inherited when we made that acquisition. But we also said, "Hey, we expect that to actually start coming up." And we've also said that EX has kind of always had enterprise-grade net dollar retention numbers -- I'm sorry, churn numbers, which is single -- high single digits, and that continues, and it's just a very, very strong product. Operator: And our next question will be coming from Rob Oliver of Baird. Robert Oliver: Dennis, I wanted to go back to the ITSM win rates that you called out, I think the best in 2 years, and that's also coming, I think, as you've really pivoted the business up towards that mid-market or upper end of mid-market. And just wanted to get a sense from you for kind of what the biggest key differentiators have been there in terms of repositioning for that opportunity? And then as you look at kind of your pipeline today, how you feel about the pipeline as it sets up relative to the competition and kind of what's winning when you go head-to-head with some potentially bigger players at the low end of their stack? And then I had a quick follow-up question. Dennis Woodside: Yes, sure. So look, what we've built over the last couple of years is a complete enterprise-grade solution for -- that helps an IT department drive their operations, power their operations and deliver great employee service, and that's what we're selling. That's what's working in the marketplace. So enterprise-grade product that has the kind of security and extensibility that you'd expect and that can work in a large account. The kind of extensibility outside of Core ITSM. That's why Device42 is super important for us. Typically, buyers are looking for their ITSM and their asset management solution all in one. That's what we provide now. The functionality outside of IT, that's also something that everybody looks for when they're making these decisions. And 2 years ago, 2.5 years ago, the product wasn't there. So a lot of this momentum has happened relatively recently. A lot of customers are looking for choice in that market. There hasn't been a lot of choice. The largest provider is very focused on the biggest customers in the market or the biggest companies in the market. And that leaves a lot of room for us to compete in that kind of lower end of enterprise, upper end of mid-market. Think of New Balance with 5,000 or 6,000 employees or Seagate with 20,000 employees or we had a customer this time through Flowserve with about 20,000 employees. These are sophisticated customers. They've got sophisticated IT departments, but they're looking for something that's more modern, more flexible, enterprise-grade AI built in, and that's what we have. So I think we're just going to continue to invest in our capabilities and functionality there. We've got our Customer Advisory Board next week. We've got 40 customers coming in, and we're going to hear from them on what -- share our road map, talk about what can we do to move faster to solve more of their needs. We got a lot of ideas last year at our cab that we put into practice and launched an innovation that has delivered and that has helped us continue to move upmarket. And then at the same time, the whole go-to-market side of things has matured as well. That's why we're confident in investing more in Q4 in demand gen because we have a much better sense for how investment in demand gen connects to actual return. And we feel if we do that now, we'll just get a head start on Q1 because we've got a really good pipeline going into the last quarter. In terms of the pipeline, I would say that when we look at -- when I looked at pipeline, let's say, 18 months ago, $100,000 deal was a big deal and we made a big deal about it. Now we have tons of $100,000 deals. That's not an unusual deal anymore. The bigger deals are $0.5 million lands. And the other thing is that we would be invited into those $0.5 million RFPs 2 years ago, and we would often lose. And we'd win the $100,000 deal or the $30,000 deal, we lose to $500,000 deal. This last quarter, I don't -- I can't recall a deal over $200,000 that were involved in that loss. Now it may have happened, but nothing that I was involved in was a loss. So I think we're just getting better at competing and winning for those larger deals and the capability is there, the functionality is there. All that's a winning combination for us. Robert Oliver: Great. That's really helpful. And then, Tyler, I apologize if you touched on this at all, but that net revenue retention number is kind of really stabilized in that kind of 104% to 105% range on a constant currency basis for the last 3 quarters, and you guys are getting some market momentum. I realize a trailing indicator, but how you think about that kind of leveling off and potentially starting to improve and what kind of visibility you have into that? Tyler Sloat: Yes. We're pleased with the progress we've made there, both on the expansion products we've introduced, and we think ESM is going to be a new land, but then have a much bigger expansion opportunity once we start landing with that if we can bring in Freshservice, but obviously, with Device42 and others and on what we've been doing on churn. We've been talking about churn for a year now, how we've just been getting a little bit better incrementally, and that's not something that moves really quickly. We guided to essentially the same amount for Q4, which is stable. And obviously, at the end of the year, based on what we learned this quarter in terms of expansion in the pipe, we'll guide for next year. But yes, I feel like it's heading in the right direction. And then we've been talking about this. As the mix shift of our business continues to move more towards EX, and that is the majority of our business now, the attributes of that business are much better, and we will get a tailwind from that at some point. Operator: This concludes today's conference call. You may disconnect.