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JBS 2025 Q3 财报电话会议

Operator: Good morning, and welcome to JBS' Third Quarter of 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Any statements eventually made during this conference call in connection with the company's business outlook, projections, operating and financial targets and potential growth should be understood as merely forecasts based on the company's management expectations in relation to the future of JBS. Such expectations are highly dependent on the industry and market conditions and therefore, are subject to change. Are present with us today, Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Wesley Batista Filho, CEO of JBS USA; and Christiane Assis, Investor Relations Director. Now I'll turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation. Gilberto Tomazoni: Good morning, everyone. Thank you for joining us today. The third quarter of 2025 once again demonstrated the strength and consistency of JBS, a global multi-protein platform and more important, how we operate with discipline, agility and resilience. We achieved a record net sales with growth across all business units. This performance reinforced the balance and scales of our operation and show our ability to manage the platform proactively, mitigating the impact of local market cycles. Net income reached $581 million and return on equity over the last 12 months was 23.7%, reflecting solid sustainable performance. We continue to navigate a challenging cattle cycle in the United States, marketed by historical high price and tight supply. Even in this environment, JBS Beef North America delivered a record net revenue, supported by resilient domestic demand while cattle availability remained limited, consumption held steady and the team continues to execute with discipline. Although cutout value remained elevated, they were not sufficient to offset higher cattle costs. Australia was a clear highlight. Profitability stayed strong, supported by improved cattle availability and healthy global demand. The regions continues to play an important role in diversifying our geographic exposure and balancing results across protein. In Brazil, Friboi delivered another consistent quarter with solid performance in both export and domestic sales. The team strengthened relationship with the key customer through our value creation approach and remain focused in operational excellence and disciplined execution. Seara also posted another quarter of consistent results in a period still impacted by restriction to export to Europe and China, which have recently been refit. The business maintained healthy margins, driven by a disciplined commercial strategy, effective mix management and continuous innovation in its product portfolio. Initiatives such as the launch of high-protein ready meals, the development of a dedicated Air Fryer portfolio and a partnership that bring the brand closer to the consumer, including with Netflix, illustrate our growing commitment to innovation and value creation. In the United States, our chicken and Pork business also remained resilient. Pilgrim'’s Pride continues to grow, supported by a diversified portfolio and ongoing efficiency gain. The Prepared Foods segment stood out with sales raising more than 25% in U.S. while operation in Europe and Mexico also outperformed their market. In Pork, lower grain cost and steady demand created a positive environment, though supply constraints continue to limit overall market growth. These results show how we operate in our global platform, managing scale, efficiency, sharing knowledge across the region and make a quick informative decision to protect performance. We continue to invest in innovation and value-added products as part of our long-term strategy, strengthening brands and expanding higher-margin category remain central to sustainable growth. We end the period with a leverage of 2.39x, fully aligned with our long-term target. Overall, the company remains stable and well positioned. Global protein demand continues to rise. And JBS is prepared to capture this growth with a balanced portfolio, solid execution and a long-term perspective. Thank you again for joining us today. I will now turn the call over to Guilherme, who will walk you through the financial results in more details. Guilherme Cavalcanti: Thank you, Tomazoni. Let's now move on to the operational and financial highlights of the third quarter 2025. Net sales for third quarter 2025 reached a record of $22.6 billion. Adjusted EBITDA in IFRS totaled $1.8 billion, which represents a margin of 8.1% in the quarter. Adjusted EBITDA in U.S. GAAP comparable totaled $1.6 billion, which represents a margin of 7.2% in the quarter. Adjusted operating income was $1.3 billion with a margin of 5.5% in IFRS and 5.6% in U.S. GAAP comparable. Net income was $581 million in the quarter and earnings per share of $0.52. Excluding nonrecurring items, adjusted net income would be $602 million and earnings per share of $0.54 per share. Finally, the return on equity was 24% and the return on invested capital was 17%. The free cash flow of the third quarter 2025 was $383 million, representing a difference of $612 million compared to the third quarter of 2024, mainly due to the following factors: adjusted EBITDA decreased $319 million, but excluding noncash items, we have a reduction of $230 million, driven by the impact of the beef cycle in U.S., avian flu in Seara and higher cattle costs in JBS Brazil, an increase of $226 million in capital expenditures, mainly growth CapEx, an increase of $258 million in working capital, mainly reflecting higher revenues and costs resulting from the increase in livestock prices. Our cash conversion cycles in days remained stable in relation to the previous quarter. Not considering a guidance, but simply updating the cash flow breakeven EBITDA exercise, it is expected to increase to $6 billion in 2025 and to $5 billion in 2026, driven by capital expenditures, $2 billion in 2025 and $2 billion in 2026, already including maintenance CapEx, although 2026 budget is still to be approved. Working capital expected to increase to $1.3 billion in 2025 and $700 million in 2026. The 2025 increase in nominal terms is related to higher prices, higher sales volumes, increased cost of livestocks and fulfilling the pipeline of organic expansions. It is worth mentioning that 2026 working capital depends on variables not in control of the company like grains and livestock prices. Legal settlements of $400 million in 2025, biological assets of $650 million in both 2025 and 2026. Interest expenses of $1.15 billion in 2025 and $1.15 billion in 2026. Leasing expenses of $500 million for 2025 and 2026. Last week, we completed another debt issuance in Brazilian capital markets. The total amount of agribusiness receivables certificate was approximately $570 million, with 2/3 placed in a 40-year tranche, the longest ever completed in the Brazilian capital markets. As a result, our pro forma average debt maturity reached 15.4 years with an average cost of 5.6% per year. Leverage increased to 2.39x in the third quarter against second quarter of 2025, primarily due to $319 million decline in the last 12 months EBITDA and the payment of $362 million in share buyback. In this regard, we announced the completion of a $600 million share buyback program. We believe this represents an efficient use of cash given the current valuation multiples relative to our global peers and the leverage at comfortable levels. Even with the share buyback program completed and the $1.2 billion dividends paid and the approximately expansion CapEx of $1 billion, we expect to end the year with leverage below 2.5x. Our $3.4 billion revolving credit lines and $4 billion available cash, combined with the expected cash generation in the coming quarter, provide us with the flexibility to continue executing our expansion CapEx and value creation projects while maintaining a healthy and robust balance sheet. With that in mind, I would like to open to question-and-answer session. Operator: [Operator Instructions] Our first question is from Mr. Lucas Mussi from Morgan Stanley. Lucas Mussi: I have 2 quick ones. The first one is related to the expansion CapEx, the ongoing expansion CapEx, especially related to the Pork expansion, the 2 plants in Iowa. If you could share more details on what should we expect as it pertains to revenue expansion or volume expansion into next year as you start opening up those additional capacity expansions in U.S. Pork? And my second question is related to U.S. Chicken. The third quarter results of PPC were very solid, especially in the U.S. But given that chicken prices were significantly down -- are significantly down into the fourth quarter, if you could give us an update on what you are seeing in the fourth quarter as it pertains to profitability, especially in the U.S. if maybe the commodity part is suffering a bit, but a bit more resilient on the other part of the portfolio. And coming into 2026, if you still see a solid supply and demand outlook given USDA is still very constrained outlook on chicken supply in the U.S. also in the light that one of your competitors was talking about cycling through a new genetic line that was a bit better than the one that was being used in the last 2 years or so. So maybe a little bit more details on U.S. chicken dynamics, both on a bit on the short term and looking in 2026. Those are my questions. Wesley Mendonça Filho: Lucas, so on the expansion we're doing in prepared foods in the U.S., so it's 2 plants that we announced in Iowa, right? So one is the Perry plant that we're going to produce sausage there. And the other one is in Ankeny that we're going to do further ready-to-eat bacon and ready-to-eat sausage. Those are very complementary to what we are doing today. So we produce a lot of bacon in the U.S. We're going to start producing sausage. That's going to be -- it's going to use a lot of our trims, a lot of our -- the meat that will come from our sow meat that we're going to harvest in that same plant. So it's very complementary on the supply side of our business and very complementary on the business -- on the sell side as well because there is a sales side because there is a lot of demand right now from our customers there. So we think it's going to be a quick ramp-up. That's what I'm getting at for those plants. Next year, you're not going to see any impact because they're going to still be under construction, finalizing and we're just breaking ground right now in one of those plants. And the other one, it's going to be more putting equipment and lead time for the equipment. So you're not going to see anything for next year. 2027 is when you're going to start seeing a ramp-up and start -- for us to start doing -- starting to see the revenue and the extra margin that's going to come from those businesses in our Pork division. Those 2 businesses, you could expect something around $750 -- between $500 million and $750 million of revenues as we ramp it up. So something like that. And we see the margin for this extra business in the higher double-digit margins for that. So we're very excited about that. And we think it's going to be a relatively quick ramp-up for the plants given the complementarity of -- on the supply side and on the sales side. Gilberto Tomazoni: Related to the chicken that you have mentioned that dropped the price in the U.S. market, we see the drop in the price on the big bird segment. And -- but I think they found the limit for growth in the last weeks, they -- a little bit increase in terms of the price. And we -- but when you look for PPC, PPC has a balanced portfolio. We have a small bird, we have middle birds and big birds, and we have Prepared. And Prepared is part of our portfolio. We remain confident about the chicken market next year in U.S., even in Brazil because even that we see that increase in terms of the 1-day chicken, we see that the product is limited because we have a restriction in the infrastructure and the availability of genetic. You mentioned the new genetic of COVID. Yes, there is a new genetic of COVID still starting to go to the market, but this is not something that you put in the market is a quick reaction because you talk about genetic, you have time to get to the market. We -- in our view, will be more availability of chicken, but the export market remain very, very strong. If you have in consideration that Brazil that this year will be -- the year-to-date, they are flat compared to last year and the export market is in a lot of demand because if you just make the comparison with Pork -- Brazilian Pork is 14% more than the last year and chicken is flat. It is because the availability of chicken because of some market was closed, and now also limited as can mention Europe and China. And I think next year will be -- we see that there will be a strong market export from Brazil. We see the market from U.S. So look, we are still with this growth in terms of 1-day chicken rated, we remain very confident about next year. Operator: Our next question is with Isabella Simonato with Bank of America. Isabella Simonato: I think as you guys have been mentioning, right, and Guilherme, you mentioned a higher working capital consumption given higher raw material prices, but also given growth, right? And I wanted to maybe reconciliate when you look at the top line growth of this quarter or the year-to-date, right, and you try to look at the volume growth, can you tell us, I mean, how much came from -- first of all, what was the volume growth overall, but -- and how much came from expansion and new operating lines and et cetera? Because I think at some point, we have a tough time, right, looking at the expansion CapEx you have been doing that you should continue to do but translate that into top line growth, right, which has actually been quite strong. So if you could break down, I mean, what has been as a result of top line growth of your organic expansion, I think that would be quite helpful. And second, going back to the chicken market and especially in Brazil, right, both bans from Europe and China have been removed. If you guys could explore a little bit how you've been seeing the export market now in fourth quarter and the dynamic also of mix and that includes the domestic market of Seara, I will appreciate. Guilherme Cavalcanti: Isabella, so the major part of the working capital consumption was really due to prices. In terms of volumes, I would highlight Pilgrim's Pride and JBS Brazil had an increase in volumes of 3% and Seara, which we have been making investments in organic expansion, we had volumes growing in 8%. So on the other hand, again, we have been in some business units, price going up 16%, sometimes 24%. So basically, the main variable, it was prices that made this first increase revenues, increasing costs and consequently increase in working capital. Gilberto Tomazoni: The question about, Isabella, about the chicken market, if I understood well, it's about the Brazilian chicken market, how we see that export market in this next quarter and next year. Is it correct? Isabella Simonato: Yes, especially because the main headwind, which was the ban, right, from China and Europe, I understand that's gone. So... Gilberto Tomazoni: Yes, yes. They just lifted restriction from Europe and from China. I know that this is 2 important markets from Brazil because Brazil is -- they optimize the needs of the cart and these 2 markets play a very important role. Even for Seara, it's much more impact because Seara is -- have a strong market share in Europe and then to reopen Seara, for Seara make a lot of difference. And of course, for China, for all of the markets made a lot of difference. Seara is the leader in the export market from Brazil, they are suffering more than the others. And -- but now I see that the strong market, we not see any constraint in terms of demand. We have strong demand, and we see that next year, we will continue this demand because overall, we see that demand for protein remains very strong, not just for chicken, but for beef and for pork. Look, Brazil exports this year compared to last year, year-to-date, 14% more pork and chicken was stable, stable because of restrictions. But next year, I think Brazil will get the same track as before. And even there is more, I mentioned before when I answered the question, we see there is more chicken in the market. But the limit to grow -- there is a limit to grow because infrastructure, you cannot build a chicken house very easy. You have some genetic restrictions to increase production. Even that was mentioned before, the new genetic from COVID, but it will take time to go to the market and to be effective. We not see really -- we see more volume next year, but we see demand more than compensating. Operator: Our next question comes from [ Mrs. Heather Jones ] with Heather Jones. Unknown Analyst: Are you able to hear me now? Operator: Yes, go ahead. Unknown Analyst: Okay. My questions are related to the U.S. red meat business. I guess, first on the North American beef business, the volatility that we've seen in the Futures curve recently, just wondering if you could help us understand how that may affect your Q4 results? And then my second question is on pork. The sequential improvement in your results stands in sharp contrast to industry benchmarks as well as your competitors. So I was just wondering if you could explain what drove that strong sequential improvement despite what was really tight spreads, et cetera. Wesley Mendonça Filho: Heather, this is Wes. So on the beef volatility, for sure, when you have markets -- Futures being as volatile as it did, it creates instability in results. So it could impact us. On the other hand, it's showing a decrease in cattle costs. So on the other hand, it could help a little bit too. Cutout is suffering a little bit in the recent weeks. So -- but when you have instability like that in the future, it's always a challenge because it could create losses for us with our hedging position. So -- but overall, on top of just the Futures being more volatile, margins have been tighter on the fourth quarter so far than the third quarter, and they are usually tighter on the fourth quarter than third quarter just historically anyway. So yes, I think that could create a challenge for the fourth quarter on the beef business. On the pork side, Heather, this pork business that we operate in the U.S., I think there -- I don't know what I can say about our business is, we have very good plants. All of our plants are -- 4 of our 5 plants are double shift plants. They're very modern. They're very well invested. We've been adding a lot of value-added in our business. So if you went back in history, we would be producing very little prepared foods. And nowadays, it's becoming more and more of a bigger business of ours, and we intend to grow, as I mentioned in the last answer to Lucas. The other thing, too, it's a business that we've developed that we're -- it's very integrated. We are integrated on the live side. We're integrated on the prepared side. We have key customers that are very good for us. I don't know how to pinpoint one thing or another, Heather. I think I couldn't do that because it's a lot of very -- a lot of things. And it's a very consistent business of ours. So operational excellence is a big deal in that business. And if you look at our margins historically, they're pretty stable and it's a pretty stable business for us. I mentioned on the last call in the second quarter that it was a little bit of a tougher quarter for us that margins were going to come back. And here we are, they are back, and I'm still pretty optimistic about the fourth quarter as well. It's a pretty good business for us. I don't know how to put it in a different way. It's a business that's very consistent and very integrated on both sides and operates at a very high level. Operator: Our next question comes from Thiago Duarte with BTG. Thiago Duarte: I have 2 questions here. The first one is actually extension of the -- some of the remarks that Guilherme made during the presentation regarding capital allocation. You mentioned the share buyback and the dividends and it remains -- and how comfortable you remain with the leverage of the company towards the end of this year. My question is how M&A opportunities fit into this strategy. Over the past several months, there have been rumors about JBS participating in potential bids for different companies, especially in the U.S. So my first question is really about how confident or not you are that you will have M&A opportunities to invest and particularly in the Prepared Foods segment, which has been one of the main targets, as you have been saying for quite some time. So that's the first question. The second question is, I think, more to Wesley. There's an interesting chart in the company's presentation where you show the retail price for U.S. beef, pork and chicken. And what we have been seeing is that beef retail prices are close to all-time high. Chicken and pork prices haven't really followed suit, even though they remain higher, but they haven't been following suit. And the price ratio between beef and the other proteins is also at the all-time high, right? So my question to you, Wesley, is how do you see those trends unfolding going forward, right? Should we think more about beef demand at some point cooling off because of high prices and hampering further price hikes? Or do you believe that the high beef prices will continue to offer support for the other proteins to just continue to rise and catch up with beef, right? I think that's how you see this very unique situation of protein prices and how the consumer will behave on the back of that. Those are my questions. Guilherme Cavalcanti: Thiago, so in terms of capital allocation, I think the small M&As, I think as you can see, we have leverage and we have cash generation to cope with that. There's no big M&A that we are looking at the moment. But in case it appears a good opportunity, the first thing that I'm going to do is because I want to keep investment grade is to higher ratings assessment from rating agencies. So at the end of the day, rating agencies will tell me what will be the capital structure that I should have in terms to pursue that M&A. And today, we have more flexibility in shares given that we have 2 class of shares and they are listed in NYSE. So at the end of the day, I'm very confident that we can pursue any type of M&A once the opportunity appears. And -- but the end of the capital structure will be dictated by the rating agencies. Wesley Mendonça Filho: Thiago, a few things about the beef prices and beef prices versus pork and chicken. So first thing, I mean, just supply and demand, beef prices are going to be at the sort of levels that they are as long as supply is tight. When supplies increase, obviously, you're going to see probably these prices fall and the market adjusts to a more normal level. This is just what we should expect and it's what has happened in the past. So having said that, I think it's a big testament to the demand of beef to see even entry-level beef items like ground beef being at the price levels where they are, and there is still strong demand for it. So it's just a big testament for the quality of the product and just the structural demand that there is for all those products. Now as it relates to pork and chicken, again, there is some, obviously, substitution between the 3 proteins. And obviously, when beef is expensive and people -- pork and chicken are good options for somebody who's trying to find an affordable -- a more affordable option than beef. So it kind of generates -- it drives a little bit of demand for pork and chicken. And we obviously, as long as we have tight beef supplies, we're going to see higher demand for other proteins as well. And yes, so that's what we've been seeing. Now is it going to be a lot more than what it is? I don't know. It depends a lot on the beef supplies. I think it's -- we're getting very close here to the bottom of the trough of this cattle supply shortage. So I think we'll see what happens. But if we have more demand, if we have more supply for beef, we should see beef fall and that come back to a normality. If not, then obviously, chicken and pork is a big option for a budget -- for a more affordable protein solution. Operator: And our next question is from Gustavo Troyano with Itau. Gustavo Troyano: My first one is on Seara actually and more focus on processed foods here in the domestic markets. So some competitors reported like strong margin than volumes in the quarter. So I just wanted to touch base on how is your margin performing in the segment in the quarter? And what we could expect for these margins going forward? And if you could comment also on the ramp-up of the Rolândia plant that we discussed a couple of quarters ago. And if we could expect more volumes to come within the processed food segment here in Brazil would be great. And the second question relates to Australia actually, and we saw higher cattle prices in the region in the quarter. And despite that, margins remain quite resilient. And -- just wanted to understand a little bit more what to expect for the fourth quarter because cattle prices kept increasing. And I just wanted to hear from you guys, how do you see the balance between demand for Australian beef and supply going forward to understand a little bit more on the margins in the region. So if you could comment on the beef margins going forward and also how the other businesses in Australia are performing such as [ Walnut ] or the processed foods operations compared to the beef margins that you reported in the quarter would be great. Gilberto Tomazoni: Thank you for the question, Gustavo. Related to Seara, I think Seara is just mentioned about the performance of the brand. The hold-out penetration of the brand increased compared to the last year. We have increased the penetration. And the good things about the penetration that we grow in repurchasing more than last year means that the brand is strong. We are gaining preference. We gain top of market, top of mind because of our leadership in innovation, we are bringing new things from the market. Then the brand is very, very healthy and we are growing the brand. We are growing the margins, and we are growing the volume in Prepared. You asked about -- specifically about Rolândia. Rolândia is a full, double-sheet and breaded product, and the other part of sauces and hot dogs, and we are working through. And we are now thinking about the expansion of the plant. It means that Rolândia is -- we are -- in reality, we built -- the builder was preparing for the expansion. Now what -- we are investing part of them. We have put machines. Now this machine is full. Now we are considered to expand. In terms of volume, we are not disclosed margin by category, but I can share with you that in terms of volume, we have grown in domestic market quarter of last year with quarter of this year, 70% in terms of volume in domestic market. And in terms of price, we have increased 5.5% in terms of price. So we combine all of the products we sell in domestic market. Go to Australia. Australia is -- they are performing very well. I know that the price of live cattle increased, but demand from Australia is very strong. We export 75% of we produce in Australia, and it's -- our operations there is a strong focus on export and export of beef, strong demand. Is demand strong from Brazil? Is strong from Australia? The demand of beef is strong because we increased the income of the population and because of this trend of the new generation want to eat more protein and because of the adoption of the new drugs in the GLP-1 and so on. And, look, we see for the next year, we are very confident about the business there. Availability of cattle is good. And the other business like the Salmon business that we have there, we had in the past some challenge in terms of the disease. This is over. We are outperformers in more than 20% of margin of this business there. Pork is going very, very well. We are increasing the productivity. We're sharing best practices with Brazil, with U.S. that bring a lot of leverage for our business there. We are investing to update all of the farmers that we have there that help us to increase yield, increase productivity. And say, look, we are bullish in Australia business that we have there. And I think next year, we are seeing a strong results from Australia as well. Operator: Next, we have Ben Theurer with Barclays. Benjamin Theurer: As well, 2 quick ones. So one, on the beef side, I mean, obviously, a lot being talked about. There's still a lot of like constraints. But maybe, Wesley, can you elaborate a little bit on what you're seeing in the market in terms of rebuild of the herd, how you think about 2026, the challenges maybe with an even tighter market, if there's going to be some retention. So just to get a little bit of a sense how to think about '26 in the U.S. beef business versus 2025? And then my second question is related to working capital. I remember back in the second quarter, you've talked a lot about building inventory, putting into the cold storage because of the product that was shipped out to China. So I just want to understand how you -- how we should think about the timing and the delay to basically put into our models as to when this inventory is supposed to come down a little bit? How long is it going to take you to ship this out? Wesley Mendonça Filho: Ben, so when it comes to beef, so 2026, yes, we're going to -- we're seeing half a retention that's happening, female retention overall. Just a piece of data. This quarter, USDA numbers, we processed 545 -- cow slaughter was 545,000. Just as a reference, Q3 of 2022 was 973,000. So we're almost half of the cow of a few years ago. So I mean, it's a very important number in my opinion. And we're seeing also just our team members traveling and meeting people seeing that it is happening. So yes, we think 2026 will still be a challenging year from a supply perspective. And then probably from there, it starts getting gradually better. It's not going to be an overnight get completely better, but it's going to be a gradual improvement from '27 forward. So that's how we're seeing this. On the working capital side for pork, it was a very, very short-term thing that was restricted to the second quarter of 2025, did not carry forward into the third quarter. We cleared all of that inventory that had issues because of all the tariffs going back and forth. So no worry about that. Benjamin Theurer: The working capital was more related to like out of Brazil on what you had to build because of avian influenza actually on the Seara side. Yes, no, no worries. I mean helpful on the pork side as well. Gilberto Tomazoni: I do not see that Seara, there is -- we are -- we sell all of the additional number. I think it's volume yet because avian flu, I don't see any -- Seara is normal, the inventory of Seara. We don't see pork. We are selling a lot. We are the leader in the pork part. We are the leader in chicken. I think it's normal. Operator: Next, we have Mr. [ Ben Mayhew ] from Bank of Montreal. Unknown Analyst: First question is just on Seara. I just wanted to revisit the headwind with the China EU export bans on chicken. Is there any way to quantify the headwind during third quarter and the expected recovery pace of that headwind? That will be my first question. Second question has to do with just the Brazil and Australian cattle offsets for the U.S. And just remind us on the beef cycles there. So it's my understanding that Brazil, the cycle plays out kind of first where availability gets tighter. And then second is Australia with kind of a longer tail and more of a hedge against the pressures that we're seeing in the U.S. So if you could just elaborate on that a little more. Gilberto Tomazoni: Yes, that the constraints to -- the restriction to export to China and Europe plays a big role in terms of Seara export -- in terms of profitability of Seara because Seara has the strong market share in Europe. And Europe is the premium market of breast. Reopen in Europe make a lot of impact in Seara P&L because we keep producing the breast, and we are not able to export to Europe. We change this volume for the other markets. When we go to the other market with this extra volume, we have a pressure in this market with extra volume. Now we can back to -- reexport to Europe. That means that we reduce the pressure in the other markets. The other market will be helped to increase the margin as well for the breast. Then this is a huge impact. It's difficult to say how is the impact because there is a conjoint impact in the business. The other thing about China, China plays a very important role in terms of the optimization of the carcass. The wings that we sold to China is a premium market compared to the other markets. Of course, it's the same I explained about Europe, about breast, the wings is the same. We moved the wings from China to the other markets. Now we are back to sell wings to China. And the other thing important that the feet and paws that we are not market for all of the feet and paws that we have. Now we reopen that is reopened that will make really extra revenue from the company. So look, this is a very important impact in the Seara business. About the increased price of livestock in Australia and Brazil, yes, this increased the price, but the cutout more than compensate the increase in the price of the live cattle. We see strong demand from Australia. We have sold out our volume in Australia. We are not seeing that this will be an impact. Next year for Australia will be a strong year. And Brazil, yes, Brazil, there is some reduction in the herds, the availability of -- but the reduction is considered the top we got this year and next year, we grow more than 20%. Now some restrictions, but still much higher than before means that we -- the market in Brazil will be -- we see a strong market next year as well. Wesley Mendonça Filho: And just to complement, obviously, that there is -- as the U.S. exports a lot less, especially to Asian countries and other North American countries, it is a direct correlation to U.S. or to Australia and Brazil export volumes being stronger, right? As we need more domestic beef in the U.S., we keep more beef in the U.S., export less out of the U.S., automatically, you're going to see an advantage to our businesses in Australia and Brazil. And that's a very important correlation that helps minimize the impact of the beef cycle in the U.S. Operator: Next question comes from Carla Casella with JPMorgan. Carla Casella: You mentioned the Brazilian debt financing that you did. I'm just wondering, is that -- was that sold to the public markets? Or are there any concentration there of holders? And then I'm not sure if you gave a rate that you're paying on that. Guilherme Cavalcanti: Carla, so about the rate, yes, that depends on the tranches. We had tranches. The longest one was a 4-year tranche, was inflation plus 8%. But on a swapped basis, when you swap to dollars, it is dollar plus 6.2%. So all the tranches were launched at the rate that inside our bond curve in U.S. So that's one condition for any debt issuance is that it has to be inside my investment-grade curve. So that's what happened with these local debentures that we issued. There was a lot of individual investors demanded, but also treasuries from banks that generally they continue to be selling to individual investors throughout the next months because individual investors has a tax exemption on this kind of local debentures. And that's the reason why on a swapped basis, it is issued inside my bond curve. Carla Casella: Okay. That's great. And you do need -- I mean, you have cash flow in Brazil. So do you see, over time, putting more or less debt in Brazil? Or are you well balanced where you'd like to be now in terms of Brazilian debt versus U.S. debt? Guilherme Cavalcanti: Great. Yes, of my revenues, 12% of my total revenues is generated in Brazilian reais. Currently, I have around 10% of my debt in Brazilian reais. So I still have some room to put some local debentures debt and to balance and have no need to hedge. So I have this -- I don't have currency exposure. So I still have some room to have more real debt, but not that much. So I'm almost where I would want to be in terms of currency exposure balance that is my debt in reais is more or less equivalent to my reais revenues. Carla Casella: Okay. That's great. And then just one other question. You mentioned the 2.5x leverage target for year-end. Is that using IFRS EBITDA or U.S. comp EBITDA? Guilherme Cavalcanti: Yes, IFRS EBITDA. So we'll be below 2.5x in IFRS EBITDA. Operator: Our next question comes from Henrique Brustolin with Bradesco BBI. Henrique Brustolin: A few follow-ups here on Seara as well. First, the seasonal offerings now at year-end have been gaining, I think, relevance in your portfolio. So I would just like to hear a little more on how your expectations are for this year-end, especially thinking about the domestic market here in Brazil. The second, on the production growth that we see for the Brazilian market, right? There is the data of 7% growth in the breeder flock placements in Brazil this year. I know there are some bottlenecks. So I would just like to hear from you if you see that as a good proxy for what we should think about supply growth going forward? Or again, if given bottlenecks, it should be -- it could be a smaller number. And the third one on the export prices. We see this softening of export prices at the margin, as you mentioned, Tomazoni. The question is whether that's entirely related to the points you mentioned before about relocation of volumes from Europe and China to these other markets? Or if you also see maybe some signs of weakness in some specific markets. I think that would be really helpful in terms of thinking how Seara will shape up going forward. Gilberto Tomazoni: Thank you, Henrique, for the question. First, the question for the -- we see that this has become more and more important because we develop a portfolio of the product to attend this market. It's the crystal market that we have at Fiesta and some other products. And the market is -- we plan to grow above the next year. And we are seeing a strong market. We are just this morning before to have this call, I talked with the people from Seara, how is going the operation -- crystal operation and say they are very confident and happy with the demand so far. Of course, the first demand go to the retail and the second demand you need the consumers buy the product in the shelf. But so far, we are seeing strong demand from the retailers. We are not seeing that any constraint in terms of the volume to sell in the year. And some news about the Brazilian market -- the retail market is constrained. But for our category, we are not seeing this constraint. We are selling not just the product for the Christmas event, but just the current product, the portfolio we have, we are selling well. We are not seeing this constraint in our portfolio. The second question, if I understood it, about export, correct? Henrique Brustolin: It's about exports and prices, whether that's related to the redirecting of volumes. And the other one was about the production growth if the 7% breeder flock is... Gilberto Tomazoni: Okay. Thank you. About the -- we see now -- with this reopened Europe and reopened China, we see opportunity for increase in price because some of the market with extra volume I mentioned before was depressed because not just us, but all of the Brazilians need to sell in this -- the market share is for this product, mainly for breast and wings and we see now the opportunity for this product to grow in terms of price. We are seeing some movements already in the market. And yes, but the average price for Seara will be higher for sure because even we are not increasing the price, we just access the premium market, it will be increasing our average price. And what is the challenge in terms of volume or price in the external market is the small birds that go to Middle East. This remain a very, very challenged market because they are -- there is a local production. And before it was a big market for the Brazilian small birds, the grillers. And now we compete with the local production. This is -- if you consider all of the market, we could see that this is the most difficult market. And about the increase in terms of the genetic, you mentioned that the breeders, yes, they increase, but they need to increase in order to replace the old ones because we have restriction in terms of availability of genetic before breeders before and all of the Brazilian producers keep longer the bullets, the breeders in the farms in order to compensate the not availability of the new ones. Now -- and then this is not good in terms of productivity, in terms of -- because when they get older, you -- the eggs that come from them, it's less achievability, more mortality. And now it's an opportunity to have a more healthy age in terms of breeders. And see, Brazil, I mentioned before that if you look at Brazil in this year, with a strong demand for the external market, strong demand for protein, we are not growing. We are not grow because a lot of restriction that come from the avian flu. I believe that next year, the export from Brazil will be strong as we saw now in the last month was one of the record export from Brazil. I believe that Brazil will be compensated next year what we are not able to export this year in foreign market. Operator: Next question comes from John Baumgartner with Mizuho. John Baumgartner: I'd like to ask about JBS Brazil. Thinking forward from here on the revenue side, can you speak to how resilient you expect domestic demand will be given higher prices? Just your expectations for resilience there? And then second, how export opportunities are evolving for Brazil. And I'm curious about maybe the structural opportunities to diversify exports across Asia, Korea, Japan, maybe some opportunities to supply more into Mexico, the trade deal with the EU and Mercosur. How do you think about new export opportunities for Brazil that are longer lasting? And in 2026, specifically, the ability for any incremental demand from exports to support prices and minimize the pressure on profit margins from higher cattle costs? Gilberto Tomazoni: Thank you for the question, John. See, look, JBS Brazil is -- we have other correlated business we put together, but the main business is all of the -- our beef business. We see that the market will be strong for export to Brazil. Brazil in the last -- I think in the last 2 years opened more than 100 new markets, and they keep open market for Brazilian export for beef. And we see strong demand and I think will remain next year, the demand from the market. And they are more than compensate the increase in cost of livestock, more than compensate. And the domestic market is remaining strong as well. I think it's for beef, we see that will be good next year for all of the market, even in the Brazilian market because in Brazilian market, we are developing a special work with our key customers. We manage -- we call category management 2.0 that we are managing the category inside of the retail. We manage the portfolio, we manage the presentation. We train the people that they take care of the butcher area. And the good news from that besides to increase the volume of the beef, they increase the volume for all other categories. It means that the retail they have a partnership with Friboi, they are able to grow not just in beef, but all of the categories that we have a strong product here. It is a mature product. It's proven results here in Brazil. And the external market, I think the external market demand is huge. We are not seeing a restriction on that. Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs. Thiago Bortoluci: I also have 2. The first one, I think, is for Wesley. I remember, Wesley, early in the year, you mentioned a bunch of investments into your U.S. beef operations, right? And we know, obviously, those are aiming for the medium term, not necessarily the cycle. But I'd just like to understand from you, given the run rate profitability that you're delivering there, how much of those investments or any other work you could do in terms of efficiency could help protecting a little bit the sequential evolution into 2026? And how comparable you think margins could go on a sequential year versus where we are year-to-date? This is the first one. And the second one, I think, is for Guilherme. Guilherme, you have the soft guidance, right, of returning $1 billion per year to shareholders either through dividends and buybacks. I know this year was a very special one because of the listing, but you are delivering so far a run rate closer to $2 billion, maybe $1.5 billion if you exclude the dividends related to the listing. Does it mean maybe there might be space for you guys to be a bit higher on shareholder returns, particularly if, as you mentioned, there is no clear M&A on the table for next year. Those are the questions. Wesley Mendonça Filho: Thiago, so the investments we're doing are not going to impact 2026. They're going to impact 2027 going forward. So you shouldn't be seeing anything there. Actually, it's perfect timing to think about it because 2026 will still be a low supply for cattle and all of those plants are going to be with their revamp and extra better efficiency, better capacity for use for value-added items, even for more volume in the -- into 2027, which is when things should start to look better, at least better than '26 and then from then on, get better. So it's -- actually the timing there couldn't have been better. Just overall, we should probably think of 2026 being a year that from a margin perspective, I think will look similar to what 2025 looks like. Guilherme Cavalcanti: Thiago, so in our decision to return money to shareholders. The main variable so far is our leverage, given that we want to keep investment ready, and we are a BBB- company. So that's the main variable for that. So this year, again, we will -- besides having all the return that you mentioned, we'll finish the year below 2.5x, which is a very comfortable level. So we are now in the process of budgeting for next year. We also have to wait for the first quarter, that's always a cash consumption quarter. So generally, those decisions will start doing in second quarter next year. So probably returns will be more skewed to the second half of 2026. But I think we are confident that we can continue to have the dividends of around $1 billion per year as long as we can keep leverage on our comfort zone. And again, any excess, we will be deciding in terms of share buybacks or extra dividends and also depending on M&A opportunities. Operator: And our next question is with Mr. Lucas Ferreira with JPMorgan. Lucas Ferreira: A quick follow-up to Guilherme, on that $700 million expected working capital investments for 2026. Just ballpark numbers, how much of that is volume growth and how much is pricing? So just we have a sensitivity here of how things could go. Guilherme Cavalcanti: I would say it could be half and half. This $700 million, as I mentioned in the beginning, depends on a lot of variables that is out of our control. So basically, I did an average of many years before. But it all depends on 3 things, on grains, prices, in livestock prices and finished product prices. This can swing a lot. So this is again the $700 is working capital is something that is really what can swing more in terms of what we're forecasting for next year. So maybe again, we can even have a neutral value, right, not consuming, not releasing, except for the biological assets that you always be consuming. That's why I separate biological assets. But again, this number was just an average of years before because we will have some volumes that will impact that, especially from the expansion that we do. But the main impact will always be on the prices of these 3 elements that I mentioned. Lucas Ferreira: And a quick follow-up on the biological assets that you're guiding pretty much like a flattish number, right, in dollars. Obviously, there is the FX effect. But can we assume, given all the industry inflation and the cost of grandmothers, et cetera, that this implies also that your -- and obviously, I assume that chicken is most of the biological assets, right, that your placements are sort of flattish or at least not growing significantly. Is it fair to assume? Guilherme Cavalcanti: Because the main variable that impacts this is the grain prices. So basically, we are considering that grain prices will not be much higher next year, so we can consider it flattish, okay? Because the livestock, the chicken and pork, they basically are valued through their cost of feeding, that's the grains. Operator: Next question comes from Pooran Sharma with Stephens. Pooran Sharma: Just wanted to follow up on some of the hedges you talked about last quarter. I think you mentioned you put on -- you took a $250 million loss due to some of the hedges. I was just curious if you're able to share how much of that rolled off in 3Q? And how much should we expect to see roll off in 4Q? Guilherme Cavalcanti: Yes, bear in mind that you're talking about the cash impact of the derivatives because they offset on the physical purchase. But you're right, on the third quarter, we have this impact, this negative impact that will be -- so far, it's been with the decrease in future market is been offsetting from a cash standpoint in the fourth quarter. Of course, it depends from now to the end of the quarter, how is the behavior. But so far, we are releasing cash on the derivative side. But bear in mind that it is on a margin basis, it's offset by the physical purchases. Pooran Sharma: Great. And just thinking about the Pork business here, I was just wondering, you mentioned the supplies -- the industry supplies still remain constrained. And I was just wondering, just given where hog production margins are at, why don't you think you've seen any signs of expansion? And the last hogs and pigs report seem to indicate that we're not going to see any expansion. I think other players within pork processing are also walking away from raising hogs. So at this point, when you look at your integrated operations, do you see the shorter hog supply situation here in the U.S. as a benefit to your business given just where hog production margins are at? Or is it more of a negative just given it would be impacting your pork packer side of your business? Would just love your thoughts on that. Wesley Mendonça Filho: Yes. So we see, obviously, this year, we have a lower volume of kills. Next year, we're probably going to see higher kills if health is better than this year, and we believe it will be better than this year. So we might see more hogs into next year. Now this whole strategy of how much hogs we raise and how much -- we are basically a quarter -- 25% of our -- more or less 25% of the hogs we process, we raise. It's a number that we think we like it to be around that. So our hog procurement is very well balanced, taking risk on hog prices, corn risk, hog risk, and there is some cutout businesses as well that's hogs that we buy indexed on cutout. So it's a very -- the way we buy hogs is a way that minimizes volatility on each one of the indicators. So even in years that we don't have a great operations in -- great revenue -- or a great result in hog production, it ends up not being a terrible year for us. I think the way that we buy hogs and the way that we structure our hog procurement allows us not to feel huge impacts if one of these 3 price indexes cutout, grain or hogs, if they have big swings, we're able to kind of hedge that a little bit. So we're not -- obviously, we want our pork processing and our pork hog production to do well at the same time. But if one does worse and the other one does better, it's almost a hedge for us. Operator: Next question comes from Leonardo Alencar with XP. Leonardo Alencar: I would like to discuss a little bit further about Brazilian cattle. This year was a positive surprise, a surprise to the upside, but then we don't have much visibility for 2026. So first, what's your base case for cattle availability in the next year? And second, in a scenario, maybe a potential scenario of a tighter supply of cattle, should we view of this project, the Swift retail stores that we'll be building up for a long time now. Should we view that as a margin hedge or maybe this scenario of retailers with lower margins, squeezed margins will be a good opportunity to increase the pace of growth on that area. Those are my 2 questions. Gilberto Tomazoni: The availability of cattle in Brazil, we see that the information we have that will be less 3% to 5%. This is the market information about different search will be 3% to 5%. But, Leonardo, it's important to see this 3% to 5% for a high level. It's -- and there's still a lot of cattle available in the market because we are not -- if you back to 2023, we see that we are much, much higher than the time. Even that we have some reduction now, the reduction is never in different level, but we remain much more availability than before. This is one thing that we see that market and Friboi have a special program to purchase the cattle in the market. We have long-term strategy with the farms in order to have reliable supply along the years is one thing. The second thing, we see the Brazilian market grow a lot of the feedlot. And the rate of growth, the feedlot, it's incredible rate because with the booming of the ethanol corn industry in Brazil, the availability of DDG helps to enhance the diet of the cattles. And the combination of the improvement of genetic and the improvement of diet, we see that the age, the size of the yield of the Brazilian beef increase. And this is another point that we need to put in consideration because of that we improve the quality, we improve -- and we improve the -- let's say, we improve the quality of the product that is going to be harvested. And this is -- because of that, we are so excited about the Brazilian market because if you compare the Brazilian to the U.S. herds, U.S. has less than half of Brazilian herds and they produce more beef. The opportunity for Brazil grow beef market is a huge, huge opportunity in terms of genetic, in terms of diet, in terms of management of the herds. It is one thing. And the other thing you mentioned about our stock Swift store. Swift store was developed because we believe that the frozen beef there is a market. And they -- and if you sell frozen, we save some waste in the chain, some yields that when you sell fresh, we are losing yield during the process till to go to the consumers. And the consumer attitude, they go to the market, they not go every day to the stores. They go one day, they buy, they go to home and they frozen the meat. And this was the idea to develop the concept, why they frozen at home. When they frozen at home, they don't have the best condition to frozen. Let's frozen the meat inside of the plant that we save the yields and we get better product. And this was the idea to develop this market. And this market is going well. And we not compete with our customers because we have the solution to put a store in store, some of the customers, they want to have this frozen beef inside of -- in the store. We go there and we build a Swift store inside of the store. This is one segment we are growing. And the other segment is I mentioned before, the category management. We are -- we call a soggy Friboi or Friboi butcher that we teach the people that operate the butcher area in order they are preparing to attend better the consumers. And the other way, we help them to define the mix and to define the presentation of each one of the cuts. And then that is a win-win strategy because they don't just sell more meat, but they sell more of the other product inside of the store. Operator: Our next question comes from Priya Ohri with Barclays. Priya Ohri-Gupta: Guilherme, one follow-up. I know you've gotten some questions around the working capital. But it does seem like relative to what you discussed on the second quarter call, in the breakeven calculation, the working capital need has gone up about $400 million for this year, $450 million for next year. Can you just walk us through sort of what specifically is driving that? And then my second question is just around any progress you've made with regards to updating your bond ticker. I know that's something that you guys have been discussing for a little bit. So just wanted to see where you were there. Guilherme Cavalcanti: Priya, so basically, this year, the increase was mainly because of livestock prices and also finished product prices. Next year, as I mentioned, there's a lot of variables of the uncertainty. So I just made an average of last year because this is, again, depends on the variance that I mentioned before. So I can tell you what this year, it was mainly for the reasons of livestock prices and finished product prices and some increase in volumes. The ticker, we are in the process of making the N.V., our Netherlands company now as a co-issuer as well. So this will mean restructuring. So maybe with this argument of being restructuring, we will ask Bloomberg if now they can take the ticker -- the BZ from the ticker, but that's what our next try will be once we finish making the N.V. as a co-issuer. Priya Ohri-Gupta: Great. Do you have a time line around that possibly? And then just one final question around whether you've gotten any indications from BNDES around how they're thinking about selling down their existing holding, which is for sale? Guilherme Cavalcanti: No, we don't have a time frame, but I think by next year, we will have the restructuring of the co-issuer in place. And BNDES, we have no news on that. Operator: Our next question is with Igor Guedes with Genial. Igor Guedes: Are you listening me? Guilherme Cavalcanti: Yes. Igor Guedes: My question is about U.S. Pork. We understand that although domestic demand remains resilient, supported by consumers switching to cheaper proteins, margins still seems to reflect the effect of weaker prices for byproducts and offal. The operation has made progress in expanding its high value-added portfolio, including the strengthening in Prepared products line, but this has not yet been enough to offset the compression factors. We have an agreement the Chinese products will be subject to a 40% tariff in the U.S. Do you think this agreement will be enable to return of sales of byproducts and offal to China with the administration of the 2 countries reaching a better understanding on tariffs. Is it possible to see this margin improving going forward? Wesley Mendonça Filho: So obviously, if we have more markets for our products, including offal, it's always better and always will be better for margins overall to have more options. But margins are not compressed because of that. I mean we're just back to a 10% EBITDA here, close to what we had been operating in the previous quarters, except for the second quarter. So margins are not compressed because of that right now. It's just -- it was compressed in the second quarter because of some backup that we had on the exports, but not anymore. And again, obviously, if we have more market access for meat or for offals or for any one of our byproducts, it's always positive. But I wouldn't say the margins are compressed because of that though. Operator: Thank you, ladies and gentlemen. With there being no further questions, I would like to pass the floor to Mr. Gilberto Tomazoni. Gilberto Tomazoni: Thank you all for joining us today, and it's your continued interest in JBS. This quarter once again highlighted the stretch of our global protein platform and the way that we operate it with discipline and that guides our work every day. As we close, I want to express my appreciation to our more than 280,000 team members around the world. Their commitment to excellence is the foundation of our performance and the reason we continue to deliver consistent and long-term value. Thank you. Operator: This is the end of the conference call held by JBS. Thank you very much for your participation, and have a nice day.

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MSIF 2025 Q3 财报电话会议

Operator: Greetings, and welcome to the MSC Income Fund Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you, sir. You may begin. Zach Vaughan: Thank you, operator, and good morning, everyone. Thank you for joining us for MSC Income Fund's Third Quarter Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; Nick Meserve, Managing Director and Head of the Private Credit Investment Group; and Cory Gilbert, Chief Financial Officer. MSC Income Fund issued a press release yesterday afternoon that details the Fund's third quarter financial and operating results. This document is available on the Investor Relations section of the Fund's website at mscincomefund.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until November 21. Information on how to access the replay was included in yesterday's earnings release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the Fund's homepage. Please note that information reported on this call speaks only as of today, November 14, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call may contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may or similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the Fund's filings with the Securities and Exchange Commission, which can be found on the Fund's website or at sec.gov. MSC Income Fund assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss net asset value or NAV and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. MSC Income Fund defines ROE as the net increase to net assets resulting from operations divided by the average quarterly NAV. As previously announced, the Fund effectuated a 2-for-1 reverse stock split on December 16, 2024. All per share amounts, shared data and related information discussed on today's call reflect the effect of the reverse stock split. Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And now I'll turn the call over to MSC Income Fund's CEO, Dwayne Hyzak. Dwayne Hyzak: Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone is doing well. On today's call, we will provide you the Fund's key quarterly updates, after which, we'll be happy to take your questions. We are pleased with the Fund's performance in the third quarter, which resulted in a return on equity of 14.6% and favorable net investment income. We believe that the quality of the Fund's existing investment portfolio, combined with the Fund's existing liquidity, near-term expanded regulatory leverage capacity, which will become effective at the end of January 2026 and current attractive pipeline of new private loan investment opportunities, provided the opportunity for increased net investment income and shareholder dividends as we work to enhance the Fund's investment portfolio over the next several quarters. We are also confident that the Fund's sole focus on its private loan strategy for investments in new portfolio companies. Together with the Fund's contractual future base management fee reductions as the Fund's lower middle market investments decrease as a percentage of its total investment portfolio will strengthen the Fund's ability to deliver attractive recurring dividends and favorable total returns to the Fund shareholders in the future. The Fund generated NII per share of $0.35 in the quarter, after excise tax and NII-related income taxes of $0.01 per share or $0.36 on a pretax NII basis. These results, combined with our positive outlook for the future, resulted in our most recent dividend announcements, which I will discuss in more detail later. The Fund finished the quarter with an NAV per share of $15.54, a $0.21 per share increase from the prior quarter and we continue to be pleased with the performance of the Fund's investment portfolio, including both the private loan and lower middle market portfolios. Cory will discuss our financial results in more detail. Now turning to investment activity. The Fund's private loan investment activity in the quarter continues to be slower than our expected normal quarterly activity, resulting in a net decrease in private loan investments of $6.7 million. Despite the slower-than-expected activity in the third quarter, we remain confident in our ability to grow the Fund's investment portfolio in the future. The Fund remains highly focused on executing new investment opportunities that are consistent with its historical private loan investments, both to deploy its current liquidity and to position the Fund to deploy the additional liquidity the Fund expects to have access to through the increased regulatory debt capacity that will become effective at the end of January 2026. In addition, the Fund is focused on maximizing the benefits from the Fund's legacy lower middle market investment portfolio and recycling this existing capital in the private loan investments as investments are exited or repaid. We've also continued to see significant interest from potential buyers in several of the Fund's lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters, and we'll move the Fund closer to achieving the benefits of a reduced future base management fee percentage. Similar to the potential for investment realizations in the Fund's lower middle market portfolio, the Fund recently exited one of its private loan portfolio company equity investments and has a second exit in process, subject to customary closing conditions and regulatory approvals. With these exits expected to represent total realized gains of approximately $15 million or approximately $0.30 per share, both at meaningful premiums to the Fund's quarter-end fair values. Nick will cover the Fund's investment activity in more detail. Based upon the Fund results for the quarter and its future outlook, earlier this week, the Fund's Board of Directors declared a regular quarterly dividend of $0.35 per share and a supplemental quarterly dividend of $0.01 per share, both of which are payable on January 30, 2026, to shareholders of record as of December 31, 2025. Going forward, the Fund expects to continue to maintain a dividend policy that provides for total quarterly dividends, which are expected to include a regular quarterly dividend and a supplemental quarterly dividend to be set at a level generally consistent with the Fund's pretax NII. Based upon the most recently declared regular and supplemental quarterly dividends and the current stock price, the Fund is currently providing its shareholders a dividend yield of approximately 12%. As the Fund executes its transition to a private loan-only investment strategy and investment portfolio and optimizes its use of leverage, our long-term goal is for the Fund to increase the total dividends paid to the shareholders in the future. As we look forward to the Fund's near-term investment activities, as of today, I would characterize the private loan investment pipeline as above average. Despite the slower investment activity over the last 2 quarters, we are excited about the current pipeline of new investment opportunities and we remain confident in our ability to generate attractive new private loan investment opportunities and grow the Fund's investment portfolio over the next several quarters. My last few comments are reminders of the continued support the Fund has received from Main Street Capital Corporation. Since Main Street's wholly owned subsidiary was appointed the sole adviser to the Fund in October 2020, Main Street has purchased over $23 million of equity in the Fund. In conjunction with the Fund's equity offering in January, Main Street entered into an open market share purchase plan to purchase up to $20 million of the Fund's shares for a 12-month period beginning in March 2025, at times when the Fund shares are trading at predetermined levels below the Fund's NAV per share. With the terms of such plan being identical to the Fund's open market share repurchase plan to purchase up to $65 million of the Fund shares and with any open market share purchases being split by the Fund and Main Street on a pro rata basis. Through today, Main Street has purchased over $2 million, and the Fund has repurchased over $7 million under these plans. As additional support for the Fund, Main Street, through its wholly owned investment adviser, voluntarily agreed to permanently waive a portion of its incentive fees earned for the third quarter to provide the Fund a resulting pretax NII of $0.36 per share. We believe these actions demonstrate Main Street's commitment to the future success of the Fund and reinforce Main Street's confidence in the strength and quality of the Fund's investment portfolio and investment strategy. With that, I will turn the call over to Nick. Nicholas Meserve: Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we are pleased with the performance of the Fund's private loan investment portfolio in the third quarter. The overall operating performance for most of the Fund's private loan portfolio companies continue to be positive, which contributed the Fund's favorable third quarter financial results. The Fund has continued to see softness in certain private loan portfolio companies, particularly those of consumer exposure, and we are working on maximizing recoveries on those specific investments over the next few years. One of the favorable realized exits in the fourth quarter that Dwayne mentioned was a previously restructured portfolio company with consumer exposure. Due to the significant efforts and successes of that portfolio company's management team, the hard work of our team and the patience to work through a difficult situation, we ended up with a positive outcome. We hope to have a similar outcome on several previously restructured investments in the future. We continue to work with the Fund's private loan portfolio companies to understand their current performance, plans and future expectations given the current economic uncertainty that exists across certain parts of the economy. And based upon those discussions and activities to date and the overall diversity of the private loan portfolio, we are comfortable with the future outlook for these portfolio companies. The largest portion of the Fund's investment continues to be in its private loan strategy, which, as a reminder, is now the Fund's sole focus with respect to new portfolio company investments. At quarter end, 92% of the private loan portfolio was comprised of secured debt investments, over 99% of which were first lien and 97% of which were floating rate loans. The portfolio had an attractive weighted average yield of 11.3%, which was down 70 basis points from the end of 2024, primarily as a result of decreases in the SOFR rates for these floating rate debt investments. During the third quarter, the Fund invested $75 million in the private loan portfolio, which after aggregate investment activity resulted in a net decrease of $7 million. The Fund ended the third quarter with investments in 81 private loan portfolio companies, totaling $751 million of fair value and representing 60% of the Fund's total investment portfolio at fair value. As Dwayne mentioned, our private loan pipeline is above average. As we all know, M&A activity overall and especially within the private equity industry has been lower than historical averages for the past few years. Since mid-third quarter, we have seen a meaningful pickup in M&A activity in both our late-stage and early-stage pipelines, are very full at the moment. As a result, we expect to have favorable new investment activity over the next 2 quarters. With that, I'll turn the call over to David. David Magdol: Thanks, Nick, and good morning, everyone. In addition to the private loan portfolio that Nick just covered, the Fund also maintains a portfolio of legacy lower middle market investments. As a reminder, these are combined debt and equity investments in smaller privately held companies, whereby the Fund partnered directly with the company's existing business owners and management team through co-investments with Main Street Capital Corporation utilizing the customized one-stop debt and equity financing solutions provided by Main Street's lower middle market investment strategy. After listing of the Fund shares on the New York Stock Exchange at the end of January, the Fund no longer makes any investments in new lower middle market portfolio companies, but continues to participate in follow-on investments in its existing lower middle market portfolio companies. We're pleased to report that the overall operating performance for most of the Fund's lower middle market portfolio companies continues to be positive, which contributed to the attractive third quarter financial results. These contributions included both strong dividend income and continued fair value appreciation. Despite the continued heightened level of concern and uncertainty in the overall economy, we remain confident in the ability of the Fund's lower middle market portfolio companies to continue to navigate the current climate. During the third quarter, the Fund completed $6 million in total lower middle market portfolio on investments, which after aggregate investment activity, resulted in a net decrease in the lower middle market portfolio of $2.6 million. At quarter end, the lower middle market portfolio had investments in 55 portfolio companies totaling $467 million of fair value and representing 37% of the Fund's total investment portfolio. The lower middle market portfolio at fair value is comprised of 53% debt investments and 47% equity investments. These debt investments had an attractive weighted average yield of approximately 13%, consistent with the prior year and over 99% were first lien loans. The Fund had equity ownership positions in all of its lower middle market portfolio companies, representing a 9% average ownership position. We expect these investments will continue to provide significant benefits in the future, including the opportunity for continued dividend income, fair value appreciation and eventually meaningful realized gains upon the future exit of these lower middle market portfolio company investments. As Dwayne mentioned, we've seen significant interest from potential buyers in several of the Fund's lower middle market portfolio companies, which we expect will lead to favorable realizations and additional fair value appreciation over the next few quarters. Turning to Fund's total investment portfolio as of September 30, the Fund continued to maintain a highly diversified portfolio with investments in 144 portfolio companies spanning across numerous industries and end markets. The Fund's largest portfolio companies represented less than 4% of the total investment portfolio at fair value at quarter end and less than 4% of the total investment income for the trailing 12 months ended September 30, with most portfolio investments representing less than 1% of the Fund's income and assets. With that, I will turn the call over to Cory. Cory Gilbert: Thank you, David, and thank you to everyone who has joined us today. The Fund's total investment income for the third quarter was $35.4 million, an increase of $1.9 million or 5.6% from the third quarter of 2024 and consistent with the second quarter. The third quarter included income considered less consistent or nonrecurring in nature of $1.4 million, and we previously discussed these nonrecurring items vary quarter-to-quarter and can include dividend income from equity investments and interest and fee income from accelerated prepayment, repricing and other activities related to debt investments. For the third quarter, these items were $0.6 million higher than the average of the prior 4 quarters, $0.9 million higher than the third quarter of 2024 and $0.5 million higher than the second quarter. Dividend income for the third quarter increased by $1.2 million from a year ago, but decreased by $1.3 million from the second quarter. The increase in dividend income from the prior year was primarily due to an increase in dividends from lower middle market and private loan equity investments. The decrease in dividend income from the second quarter was primarily due to a decrease in dividends from lower middle market equity investments. As previously discussed, dividend income will fluctuate quarter-to-quarter based on the underlying performance, cash flows and capital allocation activities of the Fund's portfolio companies. Fee income for the third quarter increased by $0.8 million from a year ago and by $0.3 million from the second quarter. The increase in fee income from both the prior year and the second quarter was primarily due to the refinancing and prepayment of debt investments. Interest income was consistent with the third quarter of 2024, and increased by $0.8 million from the second quarter. The Fund's expenses, net of waivers for the third quarter decreased by $1 million from the prior year and were consistent with the second quarter. The decrease from prior year was primarily driven by a $1.7 million decrease in interest expense and a $0.5 million decrease in base management fees. Partially offset by a $1.2 million increase in incentive fees. The decrease in interest expense from a year ago was largely driven by decreases in weighted average interest rate on the Fund's credit facilities due to decreases in benchmark index rates and a decrease to the applicable spreads resulting from amendments of the credit facilities since the first quarter of 2024, partially offset by an increase in weighted average outstanding borrowings used to fund the growth of the Fund's investment portfolio. The increase in incentive fees, which is after a $0.2 million voluntary permanent waiver provided by the Fund's investment adviser in the third quarter of 2025 is primarily attributable to an increase in the pre-incentive fee, NII. The Fund's expense ratio calculated as the Fund's total operating expenses net of any waivers and excluding interest expense as a percentage of the Fund's average total assets was 3% on an annualized basis for the third quarter, consistent with both the prior year and the second quarter. Excluding incentive fees, the Fund's expense ratio was 2% on an annualized basis for the third quarter a decrease from 2.2% in the prior year and an increase from 1.9% in the second quarter. The Fund's NII before taxes in the third quarter was $17 million or $0.36 per share, increasing from $14.2 million or $0.35 per share from the prior year. The Fund's NII in the third quarter was $16.6 million or $0.35 per share, increasing from $12.9 million or $0.32 per share from the prior year. During the quarter, the Fund recorded a net increase in the fair value of its investments of $11.2 million, representing the impact of $21 million of net unrealized appreciation, partially offset by $9.9 million of net realized losses. The net fair value increase was attributable to increases of $9.4 million in the lower middle market portfolio and $4 million in the private loan portfolio, partially offset by a decrease of $2.6 million in the middle market portfolio. Overall, the Fund's operating results for the third quarter resulted in a net increase in net assets of $26.5 million and an NAV per share of $15.54, a $0.21 increase from the second quarter and $0.01 above the Fund's public offering -- public offering price per share in its public offering and listing on the New York Stock Exchange in January of this year. As of quarter end, the Fund had nonaccrual investments comprising 1.4% of the total investment portfolio at fair value and 4.6% at cost. As of quarter end, the Fund's regulatory asset coverage ratio was 2.39, and its net debt to NAV ratio was [ 0.7 ]. This remains below the Fund's targeted leverage levels. As Dwayne mentioned, the Fund's focus remains on achieving a fully invested portfolio within its current leverage limits through January 2026, at which point the Fund will benefit from expanded regulatory leverage capacity as previously approved by the Fund's Board in January 2025. With that, I will now turn the call back to the operator so we can take any questions. Operator: [Operator Instructions] Our first question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Congrats on the quarter and getting another one behind you. All of the private loan book slower this quarter, but looking like it's ramping up. I mean last quarter, I think you told us like you missed out on some deals because of pricing, because pricing has crept more and more aggressive in the private loan book. I mean can you give us an update there? Is that -- was that true again in the third quarter and you've moved a little bit on pricing in the fourth, and that's why the optimism in terms of activity is increased? Or can you give us some color on like what's created that transition to -- from slower to acceleration? Dwayne Hyzak: Sure, Robert. Thanks for the question, and I'll give a few comments, and I'll let Nick add on if he has anything that he wants to add. But I'd say that the biggest change for us is more the activity levels than it is the competitive nature. The market is definitely still competitive. I do think that the pricing today is inside of where it would have been a year ago and even 6 months ago. But I'd say that most of the improvement on our side is just pure volume at the front end and the later stages of the pipeline or the investment funnel on our side. You still do some -- see some transactions that are inside of where we are willing to go, but we probably moved a little bit and then just seeing a significant uptick or increase in the pipeline. But Nick, add any additional color that you would add. Nicholas Meserve: I'd say, overall, I don't think pricing has gotten tighter in the last 3 or 4 months. It really is just a deal volume pickup. And I think that really happened in early to mid-third quarter. And there was a few deals, I think, that we thought would close by quarter end that you got pushed in the fourth quarter. And so we'll see that flow through hopefully in the fourth quarter. Dwayne Hyzak: The other thing to add, Robert, I think we also hope to -- the only thing I would add, Robert, is I would think we would hope to see more of our existing borrowers continue to have add-ons, either new commitments or executing on the unfunded commitments we have with the DDTLs whether that's for acquisitions or other growth activities. I think we've had more conversations here recently with some of the borrowers about those activities. So hopefully, I don't know if it will be this quarter or next quarter, or if it's the next couple of quarters, but I'd say we're seeing continued good demand there as well, which we really find attractive. Robert Dodd: In terms of the activity rebound, I mean, I mean, you've talked obviously about consumer being a problem area for a while. What areas are really attractive in terms of sectors are attractive right now to you looking into '26, '27? Or is -- is there enough bad news in consumer that some of the opportunities are actually on much bad terms. I mean basically, what are the sectors you're particularly looking at the moment? Dwayne Hyzak: Sure, Robert. I would say that we continue to be risk off in general on the consumer side. It's not that we won't ever do a consumer deal. I think if it's a very, very attractive opportunity you'll still see us look at it. But in general, we continue to be risk off in that area. And I'd say we're probably even more risk off, if it's a loan-only opportunity, we've got something on the lower middle market side, and we find the management team and the -- the industry or the company attractive. You could see us do something there. I know that's less relevant for the fund going forward. But as a platform, I think that's the way we would look at the consumer side. I'd say most of what we're seeing broadly is kind of B2B type opportunities. But again, Nick, feel free to add additional color. Nicholas Meserve: Yes, our focus is on our traditional businesses, industrials, manufacturing, aerospace and defense, I would say it's everything outside of consumer. And like Dwayne says, we will still do consumer but it's got a higher bar and usually it doesn't have a direct exposure to just, I'd say, the ups and downs of a consumer more of a generic buy. Operator: Our next question comes from the line of Brian McKenna with Citizens. Brian Mckenna: So it's great to hear all the positive commentary around the outlook for originations. Assuming pipelines continue to build here into year-end, what kind of acceleration could we see in fundings into next year? And then is there a way to think about the base case or even the bull case for portfolio growth in 2026? And I guess what I'm getting at is how does this all play into the trajectory of earnings and really the dividend throughout next year? And then related to that, the $0.30 per share of expected realized gains, how should we think about the uses of those gains and proceeds from that investment and just kind of the redeployment opportunity or how much of that will get paid out in the dividend? Dwayne Hyzak: Sure, Brian. Thanks for the question. So there were a couple there that I'll hit on if I miss one of them, just ask a follow-up if I don't answer the question. But I'd say the way we're -- we're looking at the situation for the Fund broadly is we are very excited about the pipeline increasing. As you've heard us say for the last 2 quarters, we've been behind budget, behind expectations from an origination standpoint. Despite that, I think we've still been very pleased with both the top line investment income and more pleased with the net investment income. So we've been able to navigate what we think are really good returns for the shareholders despite being behind budget on the origination side. That being said, if we're going to grow the dividend in the future, we're going to do that by utilizing the underleveraged position. I'll let Cory correct me here, but we're probably -- in today's level, got about $100 million of leverage that we could utilize with our current regulatory limit. And then when we get to the end of January, that number increases by $250 million or so. So we've got a tremendous amount of dry powder. We just need the pipeline to come to fruition, which we're seeing come through as Nick and I both said there. So I'd say we're excited about where we sit. And we think there is a clear avenue to not only generate really attractive net investment income, but also be in a position to have an opportunity to have increased dividends at some point in 2026. The other benefit, just to remind everyone, as we execute the growth plans and execute growth of the investment portfolio, it's going to be highly concentrated in the private loan. And at some point, we'll get the added benefit, which is a contractual benefit that exists in the advisory agreement that the fee will drop from 1.5% to 1.25%. So we think we've got a number of catalysts that give us the path of the opportunity to have a really good outcome from a net investment income standpoint and then from a shareholder dividend standpoint. On the realized gains, we're very pleased with those. We gave some commentary to the amounts. We also -- we didn't give amounts on it because it hasn't executed yet, but we also have given reference to the fact that there's a number of lower middle market investments or portfolio companies that have seen significant inbound interest from third parties and where some of those companies are in discussions on activities that could lead to an exit. So we're excited about that for 2 reasons. One, we think those activities should generate additional fair value appreciation, both unrealized and then eventually realized, which is always good from an NAV standpoint and an ROE standpoint. But you hit on the fact that as we execute those exits for the benefit of the Fund, I mentioned the significant liquidity we have. That just gives us more dry powder to move out of an equity investment that may not have contractual investment income. It might be getting some dividends, but it may not have contractual investment income. We can then rotate that capital into more private loans that have the contractual interest income and give us additional liquidity to grow the interest income and eventually hopefully grow the net investment income and the dividend. So that's the way we're looking at it. As you know, we've got a structure that could allow us to retain some of those gains inside our blockers. So depending upon which company it is that we're exiting and where it sits inside of our legal structure or our corporate structure, there could be an opportunity to retain those gains and redeploy it. So we're looking at all those opportunities, but we're just very pleased that we have the opportunity to consider all those things given how well those portfolio companies are performing and the level of interest we're getting from third parties. So I think I hit on each of your questions, Brian, but if I missed one, just reask it or you can ask a follow-up. Brian Mckenna: Yes. No, that's perfect. I appreciate all the detail. There were a few questions in there, so I'll hop back into the queue, but congrats on the strong quarter. Dwayne Hyzak: Thanks, Brian. Operator: Our next question comes from the line of Kenneth Lee with RBC Capital Markets. Kenneth Lee: Just one on the above-average private loan pipeline you talked about. Any further color around that? Any particular drivers you're seeing within the segments that you're focusing in? Dwayne Hyzak: Thank you for the question. I wouldn't say there's anything specific. I think our view is it's just you've seen private equity sponsors, investors become more active. I think that's probably a combination of a couple of things. One is the environment. I think in general, most people are viewing it more positively than they would have 6 or 12 months ago. I think you also have a lot of private equity sponsors that are sitting on a lot of dry powder, and they have other investments that they're well into their investment period on, and they're likely getting some discussion or having some discussion with their private equity fund LPs about liquidity. So I think all those things are contributing factors to a better environment today than 12 months ago. But again, Nick, if there's something else you would add, feel free to add additional color. Nicholas Meserve: One thing I'd add on the pipeline is that it also just feels more real, if you will. And so I think some of the deals we worked on in the past year or 2, it never felt like it was going to transact. And I'd say everything in the pipeline today feels like that the business will actually transact versus just an efficient exercise on what value might be. Kenneth Lee: Very helpful there. And just one follow-up, if I may, just on the realized gain that you said. If I got it right, it sounds like it was -- it was a restructuring, and there was a -- it looks like a favorable exit there. Just curious as to what you believe help deliver such a favorable outcome there in those positions? Dwayne Hyzak: Sure, Ken. So I'd say the realized gains on the private loan side, there's 2 different portfolio companies, one of which has already been exited. The other has been announced is just going through the customary regulatory and other kind of closing approvals or processes. So those 2 investments, those 2 companies were very different. One of them, you performed extremely well or extremely strong performance from day one, continue to have growth and has a lot of future growth in front of it, and that led to a really good outcome for us, as an equity co-investor as well as for the other owners of that portfolio company. So that's just a company that from day one performed well. The second one, and it is not a massive investment for the Fund, but it's one that we think shows the opportunity we have, on some of these restructured investments if you have the ability to be patient, which we and the Fund clearly do, and then you have the wherewithal to work through the issues with that portfolio company with that management team. So it was a company that got restructured was very, very significantly impacted to the negative during COVID, but we and our co-investor, co-lender in that company took the steps to preserve the value allow that company post-COVID or when things started to rebound to have a really good recovery. That management team, as Nick said, in his comments, did a fantastic job, which we're very, very much appreciative of. And then on our side, our team do what we needed to do to give the company the opportunity to not only survive, but survive and then have the opportunity to perform really well post the restructuring. So all that stuff played out, it took a couple of years, but we ended up having a really nice exit here in the fourth quarter that led to that realized gain. Operator: Our next question comes from the line of Arren Cyganovich with Truist. Arren Cyganovich: The higher expected pipeline activity that's coming on oftentimes when activity picks up, the repayment activity picks up? Or what's your expectations in terms of repayments beyond the -- when you may potentially exit by sale? Dwayne Hyzak: Yes. I'd say, Arren, thanks for the question. I'd say that in the last 2 quarters, in addition to having our investment activity being a little bit slower on the outbound side. We also had some elevated repayments. I think -- there will be some repayments in the fourth quarter. But I think that, that level has returned more than normal. But Nick, if you have a different view, kind of add on here. Nicholas Meserve: Yes. I'd say I think you're right in general. And as the market for M&A picks up, usually, it also -- the originations will go up and the repayments will go up. To date, we have not seen that hand in hand right now, but I would expect that in the first half of '26 that, you will probably see that go back to the typical kind of 1/3 life of any random deal. Arren Cyganovich: And then could you just remind me of your expectations in terms of leverage target? And what you need to see to get there? I mean, I imagine it will rise with the private loan originations, but are you keeping leverage at a particular level until you do the exit element? Dwayne Hyzak: Yes. I would say that our plan for leverage is working at 2 ways. One is the current situation with the existing regulatory limits we have, which is the old BDC requirements than then come end of January of '26, the Board has already able to approve and the expanded leverage will become effective. So I'll let Cory kind of give color on both of those levels. Cory Gilbert: Yes. So currently, our leverage targets are at 0.85 to 0.95 debt to equity at the end of 09/30, we were running below that at 0.72, that's just due to the kind of the production and slower origination on the private loan pipeline and portfolio. As we look to this expanded leverage, regulatory leverage at the end of January, our leverage targets are going to increase to 1.15 to 1.25, but that's the range we plan to work within. Operator: Our next question comes from the line of Paul Johnson with KBW. Paul Johnson: You guys have been talking about the risk in the consumer part of the economy and potentially and just in the portfolio. I was wondering if there's any kind of specific goal there if there's an objective to cut the exposure in consumer names or potentially to try to exit or accelerate the exit of specific names in the portfolio? Or if it's just simply just kind of a higher level of monitoring in a higher bar, I guess, on new names going forward? Dwayne Hyzak: Sure, Paul. Thanks for the question. I'd say we've been having these calls here for a couple of quarters in this format. Obviously, on the Main Street Capital Corporation side, we've been doing this forever. So I'd say we have been signaling for the last couple of years. I can't remember now if it's 2.5 years or so, but we've been signaling for a while that we're seeing stress on some of the consumer names and that we were also generally risk off, not willing to do anything risk off, but just taking a more conservative view towards new consumer opportunities. So we've been in that stance or posture for a while. So as a result, we have not been aggressively or actively adding exposure and trying to minimize it to the extent we can. And in relation to the existing names we have that have had some level of underperformance. I think each situation is different, and we have to evaluate it with our co-investors, whether it's another co-lender or if it's the equity sponsor or both plus the management team to try and figure out what's the best answer. So I'd say each situation is a little bit different. But in general, the approach we're taking is to try not to add aggressively to the exposure from a new investment standpoint. And then for the existing names figure out whatever the best path is, whether that's a short-term path or a long-term path to maximize the opportunity, both for us, the management team and our co-investors. I know that's not a specific answer because every situation is going to be different. But I think that's the way we're looking at it broadly. Paul Johnson: Appreciate that's helpful. And would you say that, that exposure is primarily in the private loan portfolio are mainly in the -- out of the lower middle market, just roughly? Dwayne Hyzak: I would say it's a mix -- I'd say it's a mix of the 2. They both have some exposure and both have some exposure that also has underperformed have been restructured. So I'd say both of them have that exposure. Paul Johnson: And then last question was just -- I saw that you guys are ramping your second private fund under the Main Street, I was just wondering if you can maybe talk about what the investment mandate was for that fund, whether that overlaps at all with MSIF and whether or not that could potentially be something you would want to roll into the public BDC in the future? Dwayne Hyzak: Yes. I would say from a strategy standpoint, the strategy for everything we have today on the asset management side is focused on the private credit -- private loan strategy. So it -- both our first private fund and the second private fund that you're referring to their investment strategy is identical to the current strategy of MSC Income Fund. In terms of having a path or a plan to merge those funds, in the MSC Income Fund, I'd say we don't have that plan today. Obviously, we could look at some opportunities there, but the plan is those funds would just go to their traditional period of investment period and then getting past the investment period than just going through a normal kind of wind down or liquidation period. But that's the way we're looking at those funds today. Operator: Our next question comes from the line of Doug Harter with UBS. Douglas Harter: The adviser kind of waived some of the incentive fee this quarter. I guess how should we think about that going forward? And what would be the situations where that might happen again? Dwayne Hyzak: Doug, thanks for the question. I'd say the view is Main Street -- through the adviser that Main Street wholly owns, we're going to continue to be supportive of the Fund just like we have in the past. There's nothing contractual. But we look at the opportunity both on the equity investments that the Main Street has made into the Fund and then the small waiver we gave this quarter all being signs that we expect to be supportive, and we also think that the strategy, the existing investment portfolio, and the investment opportunity, are all positive. So I think that's the way we view it. Operator: Our next question comes from the line of Mickey Schleien with Clear Street. Mickey Schleien: We've generally heard that activity picked up in the third quarter, and it sounds like you're fairly optimistic on your deal flow outlook. So that could help balance the direct lending loan market. With that in mind, what is your sense of the market's supply and demand balance? And what's your outlook for spreads? Dwayne Hyzak: Yes, Mickey, thanks for joining us, and thanks for the question. I'd say that we have -- I'll let Nick add on here, but I think we have -- continue to have a favorable view of the outlook at least near term, the Q4 and Q1. Obviously, it's hard to say beyond that, but I do think we -- we view the environment to be productive or positive. So I think as we sit here today, we're hopeful that, that activity will extend not just through Q4 and Q1 of next year, but broader or longer into 2026. In terms of spreads, we had seen just like everybody has spreads have compressed over the last 12 months or so. But I think as we look at it today, I think we've seen a little bit more stability. It remains to be seen if that continues. But I think in general, the spread movement is less today than it would have been over the last 12 months. But again, Nick, can add on additional comments on your side. Nicholas Meserve: Yes, on the supply demand balance, I'd say one thing on the amount of fundraising in the private credit space, the vast majority has been on, I'd say, the upper middle market and larger deals. So on the smaller end, it's still a little bit too much in demand right now, but I think there's an opening there that allows us to continue to find the right size. And so I'd say our wind over there, we feel really good about the next 12 months, they expect volumes to pick up from there. On the spread side, I mean, obviously has tightened over the last 12 months. I do think we found a little bit of a floor here for a little while as there's a limit of how much pricing can go below that, I supposed, [ $500 ] on the smaller deal flows -- on the smaller deal sizes. Mickey Schleien: That's helpful. It's taken a couple of quarters, but I'm starting to see -- or we're starting to see the impact of tariffs on some companies at some BDCs that's a slow process. I'd like to understand how much of that risk do you see remaining in the portfolio in relation to tariffs? Dwayne Hyzak: Yes, Mickey, I would say it's been a while since we gave detailed commentary. I think it was the Q1 conference call, and we get pretty detailed commentary there, just given the nature of our businesses, they have some tariff exposure. I think we acknowledge that early on. But I'd say that when you look at the companies broadly, both the private loan and the lower middle market portfolios, the companies have been able to navigate that risk well, and we're not seeing broad-based kind of negative impacts there, that could change in the future, but I think we feel pretty good about how the portfolio companies and their management teams have been able to navigate that risk. Mickey Schleien: Dwayne, do you see any tail risks related to that issue? Dwayne Hyzak: I mean, not as we sit here today. I mean, that could change, obviously, but as we sit here today, I think we feel pretty good about it. Mickey Schleien: That's good to hear. My last question, given that you've operated in the lower middle market for a long time, I'm curious how long you think it will take for the Fund's lower middle market portfolio to run off? Dwayne Hyzak: That's a great question, Mickey. And I don't have a great answer for you. As you probably recall from all the time that you tracked Main Street Capital Corporation historically, it is a long term to permanent holding period. So we're not -- we're not like a traditional private equity firm that has a very defined exit time line and strategy. We're going to do what we think is right for the company. We're going to do what's right for what our partners in the business, which are the management teams of those companies what they want to do. Because of that, it can be a very, very long-term holding period. So we don't have a clear path on how quickly the lower middle market investments will exit. We do have a clearer path in terms of how we can grow the private loan portion of the portfolio through the liquidity that both Cory and I talked about earlier. And the pipeline that Nick and his team are executing to. We feel better about visibility to that. And I'd say when you look at driving down the lower middle market portfolio as a percentage of the total portfolio, growth of the private loan portfolio is going to be the bigger driver than exits of lower middle market, and that's what we're executing to. Mickey Schleien: That's helpful and really interesting. I just thought of one other question I'd like to ask, if I might. Besides reversals, how much of this quarter's unrealized gains were driven by underlying performance of portfolio companies versus comparable multiples? Dwayne Hyzak: Yes. So the gains, just to be clear, Mickey, those will be Q4 gains as opposed to Q3, if I get you. Mickey Schleien: No, no the one -- the Q3 that you've just reported. Dwayne Hyzak: I'm sorry, so you're talking about the unrealized fair value. I'd say it's a combination of the two. For the companies that are getting a lot of inbound interest as you probably would expect, we can't ignore inbound interest, particularly if it's something that is pretty well defined. So it would be a combination both of EBITDA multiple expansion, but also just fundamental EBITDA growth. So you can see in our footnotes, which you'll see it in the 10-Q, we give a schedule that shows the weighted average EBITDA multiples. And I think you will see those go up slightly, but it won't be a massive increase in the multiple when you look at it on a weighted average basis across the portfolio. Mickey Schleien: That's helpful. Those are all my questions this morning. Thank you for your time. Operator: Our next question is a follow-up from Brian McKenna with Citizens. Brian Mckenna: So just a few questions on the lower middle market portfolio. What was the fair value of the equity portfolio at quarter end? And then how much is that marked up relative to cost? What percent of equity investments have been held for over 5 years within the MSIF portfolio? And then when you look at the broader equity portfolio of Main Street, how much are equity investments typically marked up in a realization event versus the last unrealized market? Dwayne Hyzak: There's a lot there, Brian. So I probably won't recall others, and I may not have all those numbers at my fingertip. Cory is kind of pulling up some numbers here to give you the color on what the fair value is versus the cost basis. There is a fair amount of unrealized appreciation in those names. In general, in terms of the kind of the duration or the holding period of the existing investments, it is a long-term permanent holding period. So I would say when you look at the number of companies that are in there that have been in the Main Street, I'm saying broadly, Main Street Capital Corporation and MSC Income Fund portfolios together, it's about 25% to 1/3 have been there for longer than 10 years. You've got another group that have been in there for longer than 8 years. So these are intentionally mature, well-established companies. They are also well-established investments from a holding period standpoint. So you see the benefit of our patient approach and long-term approach to building value with the management team of those companies over a long period of time. But Cory, I don't know if you have the number, what's kind of fair value versus cost on. Cory Gilbert: Yes. Brian, on the lower middle market equity, the cost basis as of 09/30 was about $112 million, and the fair value of that is $220 million. So about $107 million appreciation between the two. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to management for closing comments. Zach Vaughan: We just want to say thank you again to everyone for joining us this morning. We appreciate the continued support of the fund shareholders, and we look forward to speaking to everyone again in February after the release of our results for the fourth quarter. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

148天前Insight Analytics约5分钟阅读

RENT3.SA 2025 Q3 财报电话会议

Operator: Good morning, and welcome to Localiza&Co.'s webinar on the third quarter 2025 results. Joining us today are Rodrigo Tavares, CFO; and Nora Lanari, Head of Investor Relations at the company. Please note that this webinar is being recorded and will be available at ri.localiza.com, where the full earnings release material are also available. The presentation is also available for download on the IR website. [Operator Instructions] Please note that the figures in this presentation are [ in millions of reals ] and follow IFRS standards. We emphasize that the information contained in this presentation and any statements made during the conference regarding business outlooks, projections and operation and financial targets of Localiza represents the beliefs and assumptions of the company's management as well as currently available information. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Now I will hand it over to Rodrigo Tavares, CFO of the company, to begin the presentation. Rodrigo Tavares Goncalves de Sousa: Good morning, everyone, and thank you for joining our third quarter 2025 webinar. In the third quarter of 2025, we maintained a consistent trajectory of executing our strategy -- our strategic priorities, focusing on restoring the ROIC spread and consolidating operational and financial efficiency gains. The results for this quarter adjusted for the effects of the IPI reduction reflect solid progress on this agenda. We reported net revenues of BRL 10.7 billion, EBITDA of BRL 3.5 billion, EBIT of BRL 2.3 billion and a net income of BRL 871 million. The annualized ROIC for this quarter reached 15.4% with a spread of 5.3 percentage points over the cost of debt. Guided by a long-term vision and a commitment to generating sustainable value, we continue to execute our strategy with discipline and focus on continuous transformation. Our investment in innovation drive improvements in customer experience and operational excellence across all divisions. In Car Rental, initiatives such as AI-powered virtual assistant Liza handled more than 4,000 daily interactions with NPS above 85, delivering agility and resolution in over 90% of cases without human intervention. Another highlight is FAST Digital Pickup, a benchmark in the industry innovation available in 252 branches, where 1 out of 3 individuals customer contracts in opened fully autonomously. This generates significant productivity gains and supports our trajectory towards reaching 1 million contracts in 2025. FAST customer report higher NPS scores for the pickup experience and indicate that this journey will influence their next rental decision. In Fleet Rental and Localiza Meoo, results are strengthened by initiatives that enhance our customer experience such as Localiza PitStop, which since 2019 has offered high-quality maintenance in private and comfortable environments. The process ensure excellence standards combined with cost efficiency, allowing customers to maintain their routine while their vehicle is serviced with convenience and agility. Additionally, the digital journey for this customer has evolved consistently, driven by vehicle connectivity, which improves management, enhance safety and delivers a smart solution for a more integrated experience. In Operations and Seminovos, we reaffirm our commitment to high standards of quality and trust through rigorous inspection carried out our 15 deactivation centers, where 360 items are evaluated by specialized professionals using cutting-edge technology, ensuring technical precision and operational excellence. These practices reinforce brand credibility and guarantee that every Seminovo delivered exceeds customer expectation. In the third quarter of 2025, we continue investing in the evolution of our technology stack, cloud solutions and artificial intelligence initiatives, positioning the company for the future. These advancements strengthen our competitive edge, elevate customer experience and increase the value delivered to all stakeholders. This quarter, we recognized the one-off effect of the IPI reduction in our results, totaling BRL 929 million in pretax impact, including BRL 137 million in impairment adjustments affecting EBITDA and BRL 792 million in additional depreciation. Unless otherwise indicated, year-over-year comparison, this representation will exclude these effects. To present the details of the third quarter of 2025, I'll hand over to our Head of Investment (sic) [ Investor ] Relations, Nora Lanari. Nora Lanari: Thank you, Rodrigo, and good morning, everyone. On Slide 2, we begin with the Car Rental division in Brazil. In the third quarter '25, net revenues for the Car Rental division reached BRL 2.6 billion, an increase of 6.2% compared to the third quarter '24, driven by the rise in the average daily rate despite of the strong comparison base and stable volumes. On Slide 3, we show the 5.7% increase in the average daily rate for the quarter, which ended at BRL 150. The utilization rate rose almost 1 percentage point, reaching 80.8% and reflecting efficient pricing and mix management. Moving to Slide 4. We present the Fleet Rental division, which posted net revenue of BRL 2.3 billion, 6% higher than the same period last year. We continued reducing exposure to severe usage vehicle contracts, which ended the period with around 20,000 cars versus 31,000 as of December 2024. The volume impact was more than offset by the increase in the average daily rate contributing to the recovery of return levels in this division. On Slide 5, we show the average daily rate of BRL 104, 8.5% higher than the third quarter '24. The utilization rate of 94.9% reflect the reduction in severe usage contracts, which require longer preparation and deactivation times. Moving on to Slide 6, we present the revenue evolution of Seminovos, which reached BRL 5.8 billion in the quarter, an increase of 14.6% compared to Q3 '24. Average selling price rose in both Car Rental and Fleet Rental divisions, mainly reflecting a better model/year mix. On Slide 7, we highlight the significant reduction in average mileage at sale. The company continues to reduce average mileage, especially in the wholesale, contributing to higher selling price and lower maintenance costs. The age and mileage of the sold cars continue to show a gradual downward trend over the coming quarters. On Slide 8, we present the car purchase and sale volumes. In the quarter, 77,344 cars were purchased, being 50,930 for the Car Rental division and 26,414 in the Fleet Rental. And 75,400 (sic) [ 75,473 ] cars were sold, a historical record for the company. After a second quarter impacted by the IPI reduction announcement, we saw a recovery in sales volumes in Q3, contributing to a slight reduction in the average age of the car sold in the Rent a Car division to 21.3 months. Following the decree that reduced the IPI tax for entry-level cars, we observed a gradual adjustment in Seminovos prices throughout the quarter. Despite the impact of the IPI reduction on the Seminovos price, we recorded an increase in the average ticket in Q3, mainly due to a better model/year mix. On Slide 9, we show the evolution of average purchase price and sales price. In the Car Rental, the average purchase price was BRL 82,500 and the average sale price reached BRL 73,600 in Q3, resulting in a fleet renewal investment of BRL 8,900 per car, significantly lower than the BRL 18,100 in Q3 '24, reflecting the gradual fleet rejuvenation. In Fleet Rental, the average purchase price was BRL 97,400 in Q3, while the average sale price was 83,100, resulting in a renewal CapEx of BRL 14,300 per car, lower than the 20,600 of Q3 '24, mainly reflecting the sale mix and the participation of trucks on the sale end. On Slide 10, we show the end of period fleet. The company ended the quarter with a fleet of 632,267 cars in Brazil, stable compared to Q3 '24. But in the Fleet Rental division, the reduction in the year of -- end of year period, fleet reflect portfolio optimization with reduced exposure to trucks to heavy use contracts. Moving on to Slide 11. The company posted consolidated revenues of BRL 10.7 billion, a 10.8% increase in Q3 '25 compared to the same period last year. Rental revenue grew 6.1%, totaling BRL 4.9 billion, while Seminovos revenue reached BRL 5.8 billion, a 15.1% increase year-over-year. On Slide 12, we present consolidated EBITDA. In the quarter, EBITDA was impacted by BRL 137 million due to the expected effects of the IPI tax reduction. Excluding these effects, adjusted consolidated EBITDA totaled BRL 3.5 billion, a 6.8% increase year-over-year. In the third quarter '25, the adjusted EBITDA margin of Car Rental division was 67.7%, a 3.5 percentage point increase year-over-year, reflecting rental pricing improvements, combined with efficient cost and productivity management. Rental revenues increased BRL 151 million, while costs and expenses decreased BRL 37 million. Maintenance and preparation costs saw a significant year-over-year reduction. On the other hand, SG&A increased due to the higher provision for doubtful accounts and increased technology spending, mainly related to artificial intelligence. In Fleet Rental, the adjusted margin was 73.4%, a 3.5 percentage point increase compared to Q3 '24. The margin was positively impacted by accelerating tax credits with a one-off effect of BRL 50.6 million. The SG&A increase reflects higher provision for doubtful accounts showing cautious regarding the macroeconomic scenario. Seminovos posted an adjusted margin of 2.6%. In Q3, we again saw increases in sales volume and average prices, contributing to the dilution of the selling expenses, which dropped from 5.6% of the net revenue in Q3 '24 to 4.8% in Q3 '25. This quarter, BRL 118 million was recognized as an adjustment of the book value of the cars available for sale whose selling prices were impacted by the IPI reduction, affecting the accounting margin of the quarter. On Slide 13, we show the evolution of the annualized average depreciation per car. In Q3, the average Car Rental division posted annualized average depreciation per car of BRL 7,652, excluding the effect of the IPI reduction, a slight sequential increase as expected by the company. Including the IPI effect, depreciation would have been BRL 15,177. In Fleet Rental, annualized depreciation per car was BRL 8,602, excluding the IPI effects, following the upward trend signaled by the company. Including the IPI effects, depreciation totaled BRL 12,298. On Slide 14, we show adjusted EBIT of BRL 2.3 billion, an 11.2% increase year-over-year. The impact of the IPI reduction in the quarter totaled BRL 929.2 million. To present net income, I will hand over to Rodrigo. Rodrigo Tavares Goncalves de Sousa: Thank you, Nora. On Slide 15, we present adjusted net income of BRL 871 million, excluding the effect of the IPI reduction. The 7.3% increase in adjusted net income in 3 quarter -- in the third quarter of 2025 compared to the third quarter of 2024 reflects the BRL 224 million increase in EBITDA, partially offset by BRL 175 million increase in net financial expenses due to higher CDI and debt balance during the period. On Slide 16, we present free cash flow before interest. In the 9 months of 2025, cash generated from rental activities were partially consumed by CapEx for cars and other fixed assets as well as reduction in accounts payable to automakers. Free cash flow before interest totaled BRL 4.5 billion. On Slide 17, we show net debt movement, which ended in the quarter in BRL 31.1 billion, a 3% increase compared to the debt of the same period of the end of last year. Moving to Slide 18, we present the debt profile. The company ended the quarter with BRL 12.3 billion in cash, enough to cover short-term debt and accounts payable to automakers. We continue active debt management to capture cost reduction and duration extension opportunities. On Slide 19, we present debt ratios, highlighting the net debt to fleet value at a comfortable level, even with a reduction in fleet value due to IPI tax cut. The net debt-to-EBITDA ratio continues to improve, reflecting our price recovery and cost efficiency agenda. Finally on the Slide 20, we present the ROIC spread. In the 9 months of 2025, the company posted an increase in adjusted ROIC, which closed the period at 14.3%, contributing to a spread of 4.5 percentage points over the cost of debt. It is important to highlight that the third quarter of 2025 brought an annualized ROIC of 15.4% and a spread of 5.3 percentage points, in line with the company's goal to restoring return levels. Before we start Q&A, I'd like to point here our view about this quarter. This was a very strong quarter in our view. The Rent a Car has strong performance, the all-time productivity here. Our utilization is also in one of the highest of our history, and we presented a sequential growth both in volume and prices. Fleet, we continue a consistent improve in our portfolio. The target segments are already at the right ROIC spread, and those segments are growing in double digits in terms of revenue. Depreciation in both Rental a Car and Fleet Rental are under control. Seminovos, we're posting record volumes. Gross margins are at healthy levels. SG&A are being diluted with focus on productivity. We see Seminovos margin stable going forward, even though there is [ IPVA ] discounts in the fourth quarter. Issuance and cash flow showed a very strong cash generation, and we are continuing to reduce the spreads and increase the duration of our debt here. On a final remark, yesterday, we issued a material fact informing about the selling of Voll, a travel tech that we invested in 2021. This was a very strong investment for Localiza. The return was 5.1x the invested capital in just 3 years. With us, the company grew its revenue sixfold and reached breakeven. We're going to maintain a partnership through the commercial agreements, and I also would like to highlight and thank the founders for this incredible journey and wish the best luck and success to Warburg Pincus and the founders going forward. Now we're going to be available for the Q&A session. Operator: [Operator Instructions] Our first live question is from Mr. Filipe Nielsen from Citi. Filipe Ferreira Nielsen: Congrats on the results. So my question is all regarding depreciation. So it's -- we saw that it is trending according to what you've been guiding in past quarters. It's gradually increasing, but I was wondering if you have any indications on how this is going to trend in the fourth quarter and into 2026. You mentioned that Seminovos is healthy, but just wondering if any -- maybe you're accelerating the pace of Seminovos sales and fleet turnover, this could enable some reductions in depreciation already next year? And maybe if the car market continues going stable or even improving, you should maybe prefer to see all those IPI adjustments in high-end depreciation going into a higher Seminovos margins or you would prefer to reduce depreciation faster and maintain a stable Seminovos margins? Rodrigo Tavares Goncalves de Sousa: Thank you, Filipe. First of all, like we see now as the market behaves, the depreciation is under control, both in Rent a Car and Fleet Rental. In regards of the movements of depreciation going forward, we would like to see the Seminovos margin going up first before we actually reduce depreciation. So what we should see in order to question if the depreciation should be reduced is first an upward trend in the Seminovos margin. Before we see consistent increase in the Seminovos margin quarter-over-quarter, I think it's premature to talk about reduction in the depreciation. Having said that, at least the way we're seeing the market, we see the depreciation under control in both our segments. Operator: Our next question comes from Mr. Guilherme Mendes from JPMorgan. Guilherme Mendes: I have 2, both on the Rent a Car segment. The first one is on tariffs. I just wanted to pick your brains on how much more room you see on tariff adjustments. We saw sequential -- a small sequential acceleration. So I wonder if you see much more room for increases in real terms going forward. And the second is on margins, something that we have been discussing for the past conference calls that you do expect margins to accelerate by the time you rejuvenize your fleet. And assuming the run rate once you fully renew your fleet to a younger age, what can we expect in terms of margins on the Rent a Car division? Rodrigo Tavares Goncalves de Sousa: Guilherme, thank you. First thing, it's very important that we look at the tariffs, but we cannot look at the tariffs alone. We have to look at utilization altogether, right? If you control for utilization, we see that we are gradually progressing our tariffs. If you do even more than that, if you look at the tariff divided by the total cars, that's the one that really matters, right? You're going to see that also we have been improving our efficiency consistently across quarters. If we look -- of course, the last quarter is a very strong quarter in terms of seasonality. So you have tariffs going up just because of that. What we just noticed, especially in the mid of September is a little bit of change in the behavior of some competitors, especially on the daily rentals that we saw some pressures on the daily rentals' tariffs here. This is not a segment that we are highly exposed. So the impact for us is not that relevant. But we're going to continue to price based on the willingness to pay of the customer, our return and, of course, the competitive dynamics. Once again, the last quarter will be a strong quarter in terms of tariffs because of seasonality, but specifically on the daily rentals, we're starting to see some competitive pressures here, okay? In terms of the more long-term trend, it is important to highlight that you're right, as we accelerate the sales of Seminovos, we are going to collect the benefits of the rejuvenation of that fleet, mostly in the cost of preparation of the car and the cost of maintenance, and there are some percentage points in EBITDA margin to be captured. Nora Lanari: Yes. A couple of points, if I may add, Guilherme, and thank you for your question. First, on the tariffs, I would like to point that with the level of tariffs, actually, we grew volumes on a quarter-over-quarter basis by more than 4%, and we added average rental rate with increasing utilization. So it was a very positive quarter on our view in that sense. But more important than that is the ROIC spread already in the band in the Car Rental division. So it points for a more mild need to increase prices. And we go for Q4 with appetite for daily rentals, okay? On the second part of the question, margins, more important than the margins per se is the ROIC spread. Why am I saying that? We do have some room to optimize the costs in the Car Rental division based on the renewal of the fleet. We do have, of course, some still pricing lever. But if the interest rates decline next year, we can adjust to that. So pretty much the major KPI for the company is the ROIC spread. And as I said, this quarter, we entered in the historical band of the company. Operator: Our next question comes from Mr. Andre Ferreira from Bradesco BBI. Andre Ferreira: A couple of questions from my end. So first, regarding the provision for bad debt in Rent a Car and Fleet Management, the worsening that you referred to in the release was year-over-year, but there was actually an improvement quarter-over-quarter. So if you can comment on what drove this in Rent a Car and GTF. In the case of GTF, if it's still more related to the heavy segments and if you're seeing improvements or deterioration in both segments at a marginal level? And my second question is related to the gap between the average purchase and selling price of cars closing quarter-over-quarter. If you can just break this down in what is mix and what is actual comparable improvement? And also if in the latest weeks, you see this gap closing or widening? That's it from my end. Nora Lanari: Thank you for the questions, Andre. And let me start with the first one. End of last year, Q4, we started raising the provisions for bad debt, considering the macro, the hike in the interest rates and so on. So we've been seeing some deceleration in economic activity. But since Q4, we increased the provision for bad debt. So it's a year-over-year comparison. I think Q4 will be an easier comp. Having said that, when we look to the evolution of the bad debt provision, it declined from BRL 100 million last quarter to roughly BRL 75 million. So we are seeing improvements in that sense, mostly explained by trucks. Remember that trucks increased the allocation of bad debt because of a couple of clients. We increased a bit the number of repossessions of trucks, and we are reselling those trucks now. But the trend is positive, and we are seeing improvement on a quarter-over-quarter basis, not only in Q3 but also in Q4, okay? Rodrigo Tavares Goncalves de Sousa: Most of it was in the first half. I think that now in the second half, we see a more positive scenario, okay? So as Nora said, the comp of the third quarter of last year was a strong one. But sequentially, we see that most of this happened in the first half. In the terms of the price gap between the acquisition and the sale. This trend is supposed to happen, right? As we renew our fleet, especially in Rent a Car here, we're going to see that gap closing, right? So this happens most because of a mix of a model year. Just to give you a sense, we started selling the 2024 cars last year in November. This year, we started in June. So this brings prices up and reduce that renewal cost, okay? So of course, there can be a quarter-over-quarter mix adjustment, but the majority here is the fact that we are starting to sell the cars at a younger age and in a model year that represents the model year of the current year. So this is an effect that was already expected and it's happening. Operator: Our next question comes from Lucas Esteves from Santander. Lucas Esteves: I have 2 questions. The first one regarding the recognition of tax credits on GTF, even though you mentioned a one-off effect of circa BRL 50 million in the period. I would like to understand what could we expect about the recurrence of this tax credit recognitions going forward since in my understanding, you were not accelerating depreciation in a share of your fleet related to Locamerica before the system integrations due to a matter of tax efficiency. And now you would recurrently recognize this accelerated depreciation for the whole fleet. So just to get the sense of this tax credit recognition going forward and the impact on GTF margins. And on a second matter, I would like to hear more about Seminovos margins since you recognized a one-off fleet depreciation in the period, also continued gradual increase in normal depreciation, while it seems from your current results that the scenario improved a bit more than you expected and as we can see margins. So could we expect a margin overshoot over the next quarters in your view? Rodrigo Tavares Goncalves de Sousa: Thank you, Lucas. I think you pointed correctly, the tax credits before the incorporation, we were not taking accelerated depreciation for a part of the fleet, the part that remained at Locamerica. Of course, this is -- reflects our owner mentality. It doesn't make sense for us to recognize the credit just for accounting purposes. And now we did that. Of course, then in the first quarter that you start to accelerate, you have a small, let's say, one-off effect here. But going forward, the tax recognition should be higher than it was before the incorporation for Fleet Rental, okay? So we should expect this to be a positive influence of the margin of Fleet Rental going forward. In the Seminovos, as I said, we have recognized the IPI. We see so far, the market is behaving well. We see so far at least stable margins going forward. We have to see more probably a positive scenario to see this margin overshoot. That's not our main expectation at least in the short term, okay? There is an impact in the fourth quarter that its commonly, companies tend to give the discount of the IPVA, right? This is relevant, 1% of the price. But even with this discount, we think that the margin should remain stable at least for the last quarter of this year. So it's a positive trend, but I wouldn't assume an overshoot at least in the short term. Operator: Our next question comes from Mr. Daniel Gasparete from IBBA. Daniel Gasparete: Can you hear me? Can you hear me? Nora Lanari: Yes. Yes, we can. Daniel Gasparete: So 2 questions also. The first one, I'd like to ask Rodrigo, his view regarding the size of the impairment. Looking right now after a couple of months since the first announcement, how conservative do you think that this impairment is? I mean you are on the -- close to the top of the range that you provided. And so far, we have seen [ FIPE ] and comments not only from you but from other peers in the industry that Seminovos are behaving well. So I would like to get your view about how conservative this is. And secondly, I would like to ask you a little bit more about how do you see the severe use going forward and how that could benefit margins as well, please? Rodrigo Tavares Goncalves de Sousa: Thank you, Gasparete. First of all, once again, the incremental depreciation is a technical adjustment here. We just replicated exactly what the IPI decree car by car here, and that was the effect that we booked. We really hope that this is conservative. I think only time will tell. Usually, the markets do not adjust everything at once. So of course, that the market is behaving well, but it is a bit too soon to judge if that was conservative or not. Once again, it was a technical decision with no judgment from the company just replicating what the decree had an impact on the new, assuming that all the impact of the new cars would be replicated in the used cars. So that was basically the methodology. Once again, I hope that this is conservative, but we have to wait to see if these prices will not be impacted going forward. The severe usage -- the main effect is not just in the EBITDA margin, I think, because usually, they tend to be priced higher, but the Seminovos and the depreciation are much higher. So the main benefit is actually in the ROIC and the ROIC spread here, right? Because not only you have a higher capital base, but the depreciation is much, much higher than the average. We started this year with roughly 31,000 cars. We're probably going to end up this year with half of that. And going forward, we're probably going to reduce another 50% next year. So gradually, this severe usage will not have a major impact in our balance sheet. I believe that in 2026, we're going to see a much cleaner results of fleet with just a remainder of those cars in our balance sheet. Daniel Gasparete: Rodrigo, if you allow me just to follow up something that you mentioned in the first part of your answer. How much time do you think we should take in order to see Seminovos prices reflecting the IPI reduction? You said that it usually takes a few months. How much time do you think that we should wait until we see stabilization? That will be the first follow-up. And the second follow-up would be -- first of all, please go on this first one and then if there's time, I make the second one, sorry. Rodrigo Tavares Goncalves de Sousa: I think it's hard to precise what we saw in 2023 that it took more than 6 months, right, to see that. So I think that at least in the beginning of this year, the next year, we have to wait to see if there are some evolution here. But it's hard to give you an exact date. But I think that by the beginning of next year, we should know clearly what was the effect, the total effect of the IPI tax on the used car market. Daniel Gasparete: Perfect. And if you allow me, just a second follow-up. Since you are buying cars cheaper, given they had their price reduced, but you're not seeing Seminovos prices coming down. Is it fair to assume that you're seeing that your purchase sales spread is improving? Rodrigo Tavares Goncalves de Sousa: We are not only buying it cheaper, but we're gaining additional discounts as well. Once again, that will depend -- okay. In the short term, we may see that an improvement in the gap of the price that we buy and the price that we sell. But as I mentioned before, a part of it actually comes from the fact that we are selling younger cars and the cars of the 2025 model rather than the 2026 -- 2024 model. Operator: Our next question comes from Alberto Valerio from UBS. Alberto Valerio: One question on my side here also on Seminovos. I remember that Localiza Day when you announced the impairment last year, you guys mentioned a spread to the car that you bought that you'll be selling this car for 2% and 4% -- between 2% and 4% negative. It used to run at positive space. And with the current depreciation that you are presenting after this impairment of this year, we estimate that this gap would be more close to the minus 4% than the minus 2%. Is that the correct -- is how we should think for the future for modeling for next year that the depreciation is at the correct level at this moment? Or we should see some difference in the future? Rodrigo Tavares Goncalves de Sousa: Thank you, Alberto. I think if you run the math the way that you do, okay, you can get to this minus 4% or minus 5%. But one thing that you have to consider is that today, we're not selling cars with 15 months old, right? It's cars that is 21, 20 months. So we have actually to consider the impact of not only the price of a younger car, but there is an impact on the channel that you sell the car. So not only to sell a younger car for a higher price, but you sell a proportion in retail that is much higher than you would sell otherwise, okay? So in order to run your math, you have to consider a little bit these adjustments. And if you consider that, you may reach a number that is below the minus 5% that you're reaching right now. But if we consider the 19, 20, 21 months, I think your numbers seems pretty reasonable. Alberto Valerio: Fantastic, if I may have a follow-up as well on tariff for next year. We see some competitors a little bit more optimistic about tariff for next year. Localiza has the same idea that is still some space for increased tariff for 2026? Rodrigo Tavares Goncalves de Sousa: Competitors are always optimistic. Having said that, we see that it will depend on several factors, right? First of all, is the interest rate, right? That is a major driver. We look at ROIC spread, right? We don't look at the tariff individually. We don't look at EBITDA margin individually here. We look at our ROIC spread. I think the company has been very ready for the next cycle here. Our efficiency, our utilization is very strong. As I said, we are ready to focus more on the daily rentals here, even if the competitive environment is a little bit tougher on that specific segment. So it will depend on all the sector -- on all these parameters here. But I think the macro will have a very strong implication here. Having said that, we, for the first quarter, in Rent a Car, we reached the band of ROIC spread. It's the lower end of the band, but it's the first time that we reached the band. The next quarter is a stronger quarter in terms of seasonality. So once again, I think the company has done its homework and it's ready for the next cycle. Operator: Our next question comes from Mr. Lucas Marquiori from BTG Pactual. Lucas Marquiori: Two questions as well. One is still a follow-up on this yield on Rent a Car trends overall. And I know we have been focusing on the tariffs' dynamics. But I mean, since that you guys are buying cheaper cars. So if I were to look to yield trends, right, and how much are you pricing on top of kind of a cheaper fleet cost overall, can we say that actually yields are on the margin better going forward, right? So I'm not looking to the nominal kind of a price, but actually looking to the yields assuming that you're buying cheaper cars. This is the first question. And of course, if you could kind of throw that trend for '26. And question number two is on the cost agenda, guys. And I know you have been kind of talking about that for a while now. And I mean, when should we start seeing the real benefits of the integration? And do you believe, for instance, a strong season like Q4 and maybe Q1 is maybe the time for us to start to see better margins on both Rent a Car and Fleet besides the tax credits and some kind of cost gains on that end as well? Just to kind of hear your thoughts on that. Rodrigo Tavares Goncalves de Sousa: Okay. I'll start and then Nora can complement here. First, Lucas, for me, especially in Rent a Car, yield is not the best metric that we can follow, right? I can give you several examples. If I rent a monthly rental of 5,000 kilometers a month, that will have a very high yield, very poor return. Usually, economic cars have a higher yield because, of course, the fixed costs are much higher for an economic car. So for the store, for the rent, for everything that I have, I need a higher yield. So yield is really not the best metric. If you have to look also, you should consider the whole fleet, not just the rented fleet or the operational fleet to check that. So I'd much rather see the returns than the yield. But having said that, as I said, we have been delivering a strong price increase if you adjust by utilization or even without adjusting for price utilization. You're talking about the benefits of this integration. The benefit mostly is on fleet, right, because you have some operational procedures that are simplified here. Of course, there are some challenges, too, when you change the system and you incorporate. But -- and the only thing is that we are already seeing a lot of these benefits, right? You see margins increasing. You see costs under control, right? We are allowing ourselves to do more investment, especially on technology. So I think it's going to be gradual. We're not going to see a one-off thing in the next quarter or the quarter after that, but it's going to be something gradual. But the main, main lever here is rejuvenating our fleet, is renewing our fleet in Rent a Car. I don't know if you want to point something, Nora. Nora Lanari: Yes. Just to add a couple of points here on the yield part and both in the integration. But let me start with the last one, Lucas. We just concluded the integration of the systems in the Fleet Rental. We should be able to see some additional synergies being captured in Q4. But having said that, we mentioned in the release that the ROIC spread of the targeted segment is already in our goal. So it means that we don't need to raise much more EBITDA margin because we are more or less on track. If we assume that the interest rates tend to decline, we can actually have the benefit of that. So that's why we say the ultimate metric is the ROIC spread, not the margin per se. Having said that, growing on the subscription is one of the segments that are growing faster, and this segment uses a little less the car, so the depreciation is lower, so we can adjust the margin based on that. So just to reinforce the point here. But we do have some margin gains going forward. We continue with a very strong cost and efficiency agenda that should help on the margin. But again, we'll follow up on the ROIC spread and pricing eventually. And that leads to the second point on the yield in the Car Rental. Conceptually, as little as possible impact on the pricing would be great to help on the demand front. So we are doing our homework on the cost side to be able to impact as little as possible the rate. So yield is definitely not the best metric for us. We have to consider the yield plus the cost, the productivity and by the end of the day, the capital invested so we can get the full picture of the ROIC spread. Operator: Our next question comes from [ João Frizo ] from Goldman Sachs. Unknown Analyst: I have 2 quick follow-ups. The first one relates to used car sales volumes. You guys are now running around 76,000 cars sold per quarter. Just wanted to get a sense from you what should be the level to get the age of the cars sold back to 14, 15 months? And how long should it take for you guys to get to this level of car sold per month? And the second question relates to the negotiations with the OEMs for 2026. Just wanted to get a sense from you guys on how are those going, if anything, you could comment? Rodrigo Tavares Goncalves de Sousa: So thank you, João, for your question. First of all, we're delivering, as you said, 75,000, 76,000. We continue to push to increase that number. This is something that probably will happen gradually. To get to the 15 months, we need something close to 85,000 per quarter, okay? This is the number that we need to reach to get to this 15 months. And we expect -- we have -- once again, this is a long journey. We are increasing. This quarter was the record in terms of sales for Localiza. We have been able to increase quarter-over-quarter and deliver good results, but this will be gradually. But once we reach this 85,000 mark, first, we have to surpass the 80,000 mark. We're going to get to the time that we can get to the fleet to the optimal level again. In terms of the OEMs, still a lot of the negotiations going forward. So it's a bit early to tell about the conditions, but we don't expect anything to change significantly going forward. Nora Lanari: João, just adding up to what Rodrigo just commented on the first question. We sold the record 75,500 cars this quarter. We are in a pace more or less at this level of 19 months, 19 to 20 months or so. So we are not yet in the pace of 15 months. For us to get that, we have to reach a bit over 80,000 cars. But I wanted to add the point that we are increasing the ROIC spread, and we will continue to increase the ROIC spread in spite of getting back to the 15 months. Once we get, we have even more room here to adjust pricing and eventually accelerate growth. Operator: Our next question is from Jens Spiess from Morgan Stanley. Rodrigo Tavares Goncalves de Sousa: Jens? Operator: Jens, you can talk now. Your audio is open. Jens Spiess: Sorry, I was on mute. Can you hear me now, right? I just wanted to make a question building up on the previous question on the amount of cars you've been selling. So first of all, congrats on improving the pace of cars sold and getting towards your target. I was just wondering, should we expect like for modeling purposes, that you will continue to be able to increase that pace in the next few quarters? Are you seeing favorable dynamics in October, November so that we can already assume slightly higher number? Or should it be relatively similar to the current number that you just reported? That's on the amount of cars sold. And my second question goes regarding the IPI tax impact on the used car market. Just to clarify, you mentioned that it still remains to be seen if the impairment was conservative or not. And I just wanted to ask, have you seen no impact whatsoever of the IPI tax? Because we did see several models depreciating at a higher rate to the typical monthly rate according to FIPE data. So just wondering how much of an impact you've already seen. And maybe if you could elaborate on how much like the monthly depreciation was in the past few quarters would be very much appreciated. Rodrigo Tavares Goncalves de Sousa: Thank you, Jens. First of all, it is -- we don't provide any type of guidance in terms of amount of cars that we're going to sell going forward. Seasonality -- the third quarters is usually a strong quarter in terms of seasonality, okay? October is a strong month. November and December, not so much. So it will really depend here. But having said that, we don't expect anything to happen to be gradual, okay? Nothing major, either up or down, we don't expect anything major to happen here, okay? In terms of the IPI tax, definitely, we're already seeing some impacts. If you consider that the regular depreciation should be these 50 bps, the 0.5%, any number that you look, you're going to see that the cars are depreciating more than that. This is already a reflection of the IPI. So the past 3 months after the IPI, the cars have been depreciating more than it's usually have. So -- but it is still not everything of the IPI impact. So that's why I said that we still have to wait going forward to see if this trend will continue or if the cars will come back to depreciate the average of 50 bps per month, okay? Nora Lanari: Sorry, Jens, just one quick comment before you follow up, if I may. On the Car Rental, we still have number of locations to open, okay? We will -- Q4 is a quarter that we usually concentrate some of the openings. So we are working on increasing capillarity, but more important than the capillarity per se is the productivity per salesperson and commercial efficiency here. So we do expect a gradual improve in the volumes of cars sold, but not necessarily in Q4. Q4 usually delivers a very strong October, but some deceleration in November and December as vacation and summer peak season hit. But sorry, I interrupt you. You're going to ask something else, right? Jens Spiess: Yes. So pace of cars sold basically should trend gradually higher, but there could be a bit of seasonality going on. Yes, that's fair. Now on the IPI tax. So of the impairment you did, like how much is already -- how much already happened? How much like cushion do you still have from the impairment? Like is it 80%? Is it 50%? Is it 90%? Just a sense of how much room there is still. Rodrigo Tavares Goncalves de Sousa: It's more like 3 quarters, we're already seeing. Nora Lanari: And there is one question here in the Q&A, if I may, Daniel Spilberg. Rodrigo, Nora, next year, the market is pricing an easing cycle starting in January. In a scenario of lower interest rates and ROIC spreads converging towards 7 or 8 percentage point, is there any reason that could prevent Localiza from applying the long-term strategy of volume growth and market consolidation? Great question, Daniel. I think in that sense, if ROIC -- if interest rates decline and the ROIC spread follow to the right pattern, soon, we can resume the growth mode of the company going forward. Rodrigo Tavares Goncalves de Sousa: We look forward to having this strategic dilemma, right, that when we reach the 7 and 8, and then we're really going to have here, maybe you can resume to grow to another cycle of growth here in market consolidation. We have a strong balance sheet that will allow us to do whatever strategic optionality that we want. But if really the interest rates converge, it's a matter of a decision if the company would like maybe to overearn a bit or to increase growth, passing through part of this interest rate efficiency through tariffs unlocking additional growth. Operator: Our next question comes from Rogério Araújo from Bank of America. Rogério Araújo: One follow-up here on the ROIC spread subject. As I understood, the idea is not that Localiza is going to pass through interest rate reduction to consumers before the company reach 7, 8 percentage points. Is that correct? Or if the interest rates start to drop, we could already see some kind of fare reduction or fare increase below inflation or some sort like that? That's the first one. And the second, if you could elaborate on your expectations for new car prices. And there was a [ 5% ] currency appreciation recently in Brazil. There are some Chinese brands coming to Brazil and producing locally. So if you could talk a little bit about your expectations for car prices and also any change in mix for OEMs that Localiza usually buys vehicles from because the market is changing, right? I want to know if Localiza is going to follow somewhere closer to the mix of the market within brands or not in the foreseeable future? Rodrigo Tavares Goncalves de Sousa: Okay. Thank you, Rogério. In the first question, like we have first to reach our target in terms of profitability first before discussing actually passing through efficiency of interest rates through the tariff, okay, in a scenario that, of course, the rates fall sharply. And now we are surpassing our goals here of profitability, then we can discuss eventually to reduce or to increase the tariffs lower than inflation to unlock a new growth cycle, okay? In terms of the OEMs, of course, that there are some changes here, but we don't see the dollar is depreciating [ in the real ]. So we don't believe that car prices will go up more than inflation, but it's difficult to see at least the public or the transactional prices going down. OEMs are not making a robust profit in Brazil. Of course, they are healthy, but it's not that they have a lot of margin to burn here in Brazil. So we expect here a dynamic that's somewhat stable. Of course, there are new entrants. In the terms of our portfolio, we're always assessing based on expected profitability. If we understand that we can have a return better by switching or adjusting our portfolio, we will do so. But all the decisions in terms of the adjustment of our portfolio will be based on our expected profitability on those buys. Operator: Thank you. Now to close, I will hand back to Rodrigo Tavares. Please go ahead. Rodrigo Tavares Goncalves de Sousa: Okay. I would like to thank you all, and we remain available if you have any other questions. Thank you very much.

148天前Insight Analytics约5分钟阅读

EC 2025 Q3 财报电话会议

Operator: Good morning. My name is Natalia, and I will be your operator today. Welcome to Ecopetrol's earnings conference call, in which we will discuss the main financial and operating results of the second quarter of 2025. [Operator Instructions] Before we begin, it is important to mention that the comments in this call by Ecopetrol's senior management include projections of the company's future performance. These projections do not constitute any commitment as to future results, nor do they take into account risks or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call. The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol; Rafael Guzman, Executive Vice President of Hydrocarbons; Camilo Barco, CFO; and Bayron Triana, Executive Vice President of Transition Energies. Thank you for your attention. Mr. Roa, you may begin your conference. Ricardo Barragan: Welcome to Ecopetrol Group's Third Quarter 2025 Earnings Call. Over the last 9 months, we have been focusing our efforts on reinforcing our core business operation, maintaining a strict financial discipline, and advising profitable on strategic projects, driven by energy transition and security for the country. These pillars have enabled us to effectively navigate and successfully face volatility in crude oil market, the sites, exchange rates fluctuations, mitigating external pressures, remaining strongly aligned toward achieving our 2025 strategy objectives. Let's move on the next slide, please. From the operations side, we continue to demonstrate robust operational performance across all business segments, sustaining elevated production levels, consolidating the recovery in refining following first half maintenance, as well as delivering outstanding results in transportation. Over the last 9 months, the average production was 751,000 barrels per day, placing us near to the top up of our annual guidance range. This was driven by the strong contribution from strategic actions in Colombia, such as Cano Sur and CPO-09, as well as the Permian Basin in the U.S. and targeted actions to mitigate different production in Cano Limon oil fields. Exploration activity exceeded expectations with 10 oils drilled and 3 currently underway for the remaining of 2025 reinforcing Colombia's natural gas potential. In transportation, we have achieved an average throughput of 1,098,000 barrels per day as of September, supported by a cutting-edge operational solutions to effectively mitigate external disruptions. Key strategic milestones include the Covenas-Barrancabermeja connection via the reversal of the Covenas-Ayacucho system and regulatory approvals from the Environmental Authority for LNG reception and regasification infrastructure in Covenas, hence advancing the country's energy security agenda as well as enabling profitable system adaptation. Refining operations rebounded strongly, reaching 413,000 barrels per day over the 9-month period following the completion of major maintenance programs. Finally, we launched a multi-model logistics initiative between Barrancabermeja and Cartagena to export solid asphalt monthly with projected annual benefits ranging from $1 million to $2 million. Let's move on to the next slide, please. Our solid operating performance and a disciplined cost management strategy drove a clear recovery versus the previous quarter with an 11% increase in EBITDA to a margin of 41% and a 42% growth in terms of net income. On the commercial term, we have sustained a highly competitive crude differential, enabled by a productive marketing strategy that captures value in a low price environment. Ecopetrol continues executing its efficiency and profitability agenda, which contributed with COP 4.1 trillion by the end of the third quarter. These results reflect our ability to reduce and control costs, generate revenue and ensure disciplined CapEx execution. Year-to-date, investment reached nearly $4.2 billion, representing 72% of our annual target, fully aligned with the strategy growth map communicated to the market. Let's move on to the next slide, please. We are making consistent progress on our sustainability agenda while positioning Ecopetrol as 1 of the best companies to work for in the energy sector. As part of our decarbonization strategy, we have successfully reduced greenhouse gas emission by 379,000 tons of Tier 2 equivalent as of September, an impact comparable to the annual energy consumption of 300,000 Colombian households. Our renewable energy capacity has reached 234 megawatts, driven by commissioning of the La Iguana Solar Farm at the Barrancabermeja refinery. This milestone strengthens much the competitiveness and sustainability of our energy supply. To deliver these initiatives, we have invested over COP 321 billion in our sustainable territorial development portfolio, generating inclusive economic and social growth in the regions where we operate. Our commitment with sustainability has been recognized by the Global Compact Network Colombia, which highlights our best practice and sustainable development. Additionally, we obtained the ISO 37001 certification, reflecting Ecopetrol's dedication to ethical business conduct and compliance with international anti-bribery standards. We are also proud of the progress made in strengthening our organizational culture. The Great Place to Work, institute rate us at the very satisfactory level, with our Workplace Environment Index improving from 60 to 68, reflecting our focus on employee wellbeing, sustainable growth and long-term value creation. These achievements confirmed our strategic commitment to energy transition, operational excellence and value generation for our shareholders and stakeholders. Now I give the floor to Rafael, who will talk to us about the Hydrocarbons line. Note without first, thanking him for his results during the 2 years as Executive Hydrocarbon Vice President. His contributions to reaching these achievements were fundamental for the consolidation of our strategy. We wish you success in your new role within the Ecopetrol Group. Rafael Guzmán: Thank you, Ricardo. During the third quarter, we achieved key milestones in exploration and production that strengthened the competitiveness of our portfolio. Among the main developments we find, the drilling of 10 exploratory wells, 8 funded by the Ecopetrol Group, 2 drilled under a sole risk scheme by our partners and 3 currently in progress. The declaration of commerciality of Toritos and Saltador discoveries in Llanos 123 block, enabling the incorporation of proved reserves and continued resources, achieving 4 commerciality declarations so far this year. The ANH approved a 4-year extension of the Piedemonte exploration and production agreement, allowing the drilling of a new exploratory well and opening opportunities in areas nearby existing infrastructure. Throughout the current year, the business case, the limitation phase of the discovery was successfully completed, marking a key milestone in the projects development. Regarding feasibility activities, the prior consultation process is underway with the 120 certified communities for the submarine, pipeline and beach crossing. This process, led by the National Authority for Prior Consultations, DANCP, has reached 52% progress. On the production front, we reached a total accumulated production of 751,000 barrels of oil equivalent per day, in line with the target range of 740,000 to 750,000. This result reflects the strength of our diversified production portfolio with the highest levels of domestic crude production since 2021, and a record international production. Domestic crude production contributed with 519,000 barrels of oil per day, driven mainly by Caño Sur and CPO-09, which together added 24,000 additional barrels per day compared to the previous year. International production was supported by operations in the Permian, which reported an average annual net production of 106,000 barrels of oil equivalent per day before royalties. This represents 14% of the Ecopetrol Group's total production. Additionally, we achieved an accumulated EBITDA of $691 million, with a margin of 78% and capital savings of approximately 17% compared to the annual investment plan. Thanks to mitigation strategies for deferred production in the Cano Limon field. We achieved an incremental production of 4,400 barrels of oil per day compared to the previous quarter. On the cash front, the Florena UP16 development well began production on October '19, reaching an estimated sales volume of 12 million cubic feet per day. Enhanced recovery continues to be a key component of Ecopetrol Group's current and future production, representing 41% of total output as of September with 308,000 barrels of oil equivalent per day. Technologies such as tertiary recovery through air injection in the Chichimene field have enabled the addition of approximately 915 million barrels of oil equivalent in gross contingent resources. Let's move to the next slide. For the third quarter of 2025, the midstream segment reaffirmed its operational recovery, supported by increased transported volumes and financial stability. We transported an average of 1,118,000 barrels per day, representing a 1% increase compared to the third quarter of 2024 and a 3% increase versus the second quarter of 2025. This performance reflects 2 key drivers: First, the normalization of operations in Llanos Norte; and second, the recovery of the deliveries from refineries following the first half maintenance. Financially, the business remains robust with a growing EBITDA trend and a stable net income throughout the year. Key achievements during this quarter include the strategic advances that maximize infrastructure utilization and enhanced system efficiency and flexibility, such as the commissioning of the connection between Covenas and Barrancabermeja refinery through the reversal of the Covenas-Ayacucho system. This initial phase enables the import of 6,000 barrels of oil per day at a competitive tariff, expanding the crude basket available for refining and generating additional transported volumes for the segment. We record historic utilization levels in the Vasconia-Barrancabermeja refinery system and the Colombian oil pipeline, ODC. Finally, in the area of diversification and sustainability, the segment received environmental approval from ANLA to develop LNG receiving and reclassification infrastructure in Covenas. Continuing with the refining segment results, performance was strengthened by the successful completion of the scheduled maintenances, increased unit throughput, strong margins and sustained improvements in operational efficiency. Consolidated throughput reached approximately 429,000 barrels of oil per day, making this the second highest quarterly level in the segment's history. This result reflects the positive impact of completed maintenances, efforts to increase throughput, profitability and a reduction in fuel oil production. From January to September, the integrated gross refining margin grew by 22% compared to 2024, driven by an increased throughput in a favorable price and demand environment. This performance also reflects a strategic focus on maximizing high-value products. EBITDA continued its upward track, reflecting cost efficiency and a greater operational stability. Notable achievements include the recovery of electric reliability in Cartagena with completion of 30% on key milestones, solid asphalt exports and the launch of marine fuel blended with biodiesel, aligned with our sustainability strategy. Let's move to the next slide. The efficiency program has strengthened its role as a key driver of value creation in the Hydrocarbons business line. We have executed targeted actions that have been crucial in maintaining a competitive unit cost. As of September 2025, the total unit cost in the Hydrocarbons business line stood at $45.5 per barrel, reflecting a reduction of $1.8 compared to the same period last year. Lifting costs reached $11.8 per barrel. That is $0.44 lower than in 2024, successfully meeting the target announced to the market. Despite the impact of exchange rate fluctuations on dollar denominated cost, the trend in local currency confirms our operational control, financial discipline and commitment to driving a structural shift in key performance indicators. In refining, the conversion index at the Barrancabermeja refinery continues its trend upward, demonstrating that operational efficiencies also contribute positive to business profitability. This progress has been enabled by initiatives such as reducing fuel oil output through diversification into products like asphalt and [ artar ], which have allowed us to redirect streams toward higher-value products such as diesel. Let's move to the next slide. The Exploration and Production segment indicators show tangible progress in key operational efficiency. In the upper left corner, the energy management chart illustrates a gradual and structural reduction in energy intensity per barrels of fluids produced, partially offsetting the increased demand associated with higher fluid volumes. Another key area has been the efficient cost management in subsurface operations, where over the past 3 years we have reduced both the number of maintenance required and the cost per intervention. In dilution, we have identified more cost-effective substitutes for naphtha such as LPG and other additives. Additionally, even Brent prices levels, the value of naphtha decreased by 13% compared to the same period last year. Regarding investment maximization, we have improved key drilling metrics, including cost per foot drilled and average execution times. Furthermore, synergies in infrastructure have allowed us to fully leverage existing facilities, optimizing resources and generating greater value. Now I will turn it over to Bayron, who will share the main milestones from the energy transition business line. Bayron Triana Arias: Thank you, Rafael. Good morning, everyone. For the Ecopetrol Group, securing a reliable energy supply is critical to ensuring uninterrupted operations across our value chain. In the third quarter of 2025, our electricity demand increased by 11% compared to the same period in 2023, and by 6% versus 2024. Currently, we account for approximately 10% of the national electricity demand, and this figure is expected to continue growing over the coming years, particularly in the upstream segment. Our strategic focus is not only on warranting energy availability, but also on doing so in a cost-effective and sustainable manner. This is essential to optimize production costs and accelerate progress toward our decarbonization targets. From a competitiveness standpoint, our demand coverage through self-generation and contracts from the electricity market reached 91% between January and September 2025, up from 80% in the same period of 2024. This higher coverage has contributed to stabilizing our unit cost of electricity supply, enhancing predictability for investment planning and operational decision-making. Notably, the cumulative unit cost of electricity supply as of September decreased by 5% compared to 2024. In terms of renewable self-generation, we commenced energization of the La Iguana solar project in September, adding 26 megawatts of installed capacity. This asset will support cost emission reductions at the Barrancabermeja refinery and thereby upstream periods. With this addition, Ecopetrol's total operation of renewable self-generation capacity now stands at 254 megawatts, delivering cumulative savings of approximately COP 42 billion year-to-date. Regarding the Windpeshi wind farm, we shared territorial engagement in July in collaboration with different institutional stakeholders towards strengthened community relations and monitor compliance with the commitments established during the prior consultations. To date, we have completed the follow-up and received more than 50% of the agreements associated with the formalized prior consultations with the communities located in the project area of influence. Additionally, Ecopetrol has fully closed the acquisition of a portfolio of solar projects from Statkraft European Wind and Solar Holding. With this transaction, Ecopetrol becomes the sole owner of the acquired companies. This milestone reaffirms the group's commitment to the energy transition and the development of renewable solutions to strengthen its operations. Moving to the next slide. First, I'd like to highlight the announcement of the commercialization of natural gas from the offshore Sirius field by Ecopetrol and Petrobras, with volumes of up to 249 million cubic feet per day and an estimated production start in 2030. Sales contracts are scheduled to be signed no later than December 12, 2025. We're also advancing the gas supply optionality strategy in the Caribbean region through the Covenas LNG regasification project. This initiative includes the development of a natural gas hub featuring a flooring storage and regasification unit to receive and process imported LNG. Our midstream subsidiary, CENIT, will adapt existing infrastructure to enable efficient gas transportation to inland markets. The tender process for logistics and regasification services was launched on October 14, and is expected to conclude in January 2026. In October, we implemented a contingency plan to safeguard the national gas supply during scheduled maintenance at the SPEC regasification terminal located in the Caribbean. Measures included strategic demand side management across upstream assets and refineries, as well as substitution with thermal energy sources. This enabled the release of 71 GBTUD to the market with average deliveries or 37 GBTUD between October 10 to 14 and 43 between October 15 and 16. We continue to strengthen Colombia's gas supply through commercialization of natural gas from the Florena field and LPG sourced from our refineries and production sites. Lastly, in August, we broke ground on the Coral hydrogen project, a key component of our low carbon strategy. As of today, the project has reached 55% completion. The green hydrogen produced will be integrated into the Cartagena refinery and will be used in the production of sustainable fuels. Commissioning is expected in Q2 2026. I now hand over to Camilo Barco, who will walk us through the financial performance for the period. Alfonso Camilo Munoz: Thank you, Bayron. This third quarter reaffirms our resilience and discipline in a challenging environment, marked by a nearly 15% decline in Brent prices year-to-date. The Ecopetrol Group demonstrated its ability to adapt, seize opportunities and maintain operational and financial stability. The quarter closed with an EBITDA of COP 12.3 trillion, an EBITDA margin of 41% and a net income of COP 2.6 trillion, surpassing the performance of the previous quarter. This was driven by the recovery in the refining segment, strict OpEx control and improved results from ISA, which offset the impact of exchange rate fluctuations and a low price environment. As of September 2025, cumulative EBITDA reached COP 36.7 trillion, reflecting our strong adaptability through a commercial strategy that leverage favorable product and crude differentials, solid productions and a rigorous efficiency program. These strategies partially offset the material impact of price declines, inflationary pressures and OpEx and major refinery maintenance and nonrecurring tariffs adjustment in ISA Brazil. The Exploration and Production segment, which is highly sensitive to crude prices, accounted for 53% of EBITDA. Meanwhile, the Transportation, Transmission and Toll Road segment naturally hedged against market volatility, contributed 42%. The remaining 5% came from the Refining segment, which began a recovery path, capturing improved margins in recent quarters. Transmission and Toll Roads contributed COP 2.5 trillion in EBITDA during the third quarter and COP 6.6 trillion year-to-date through September 2025. This was supported by the commissioning of new transmission projects generating revenue, the positive impact of contractual escalators, indexing contract income and stronger performance in the road construction business. However, nonrecurring events affected year-over-year comparisons, mainly due to the tariff reviews in ISA Brazil during 2024 and 2025, as well as provisions related to [ IDEs ] account receivable. Regarding our efficiency program, we have focused on 4 key levers throughout the year. First, crosscutting cost, where the optimized procurement of goods and services control demand and advance digitalization. Second, maintenance through material reuse, reliability improvements and reductions in operating costs. Third, energy costs, where we promoted energy efficiency, substitute fuels, utilized gases and incorporated self-generated renewable energy to reduce exposure to spot market energy prices. And fourth, the logistics team, optimizing crude lending, liquefied transport and operations. Thanks to these efforts, we have achieved COP 4.1 trillion in efficiencies this year, 40% above our target for this period. Additionally, the measures announced in the first quarter show 84% progress in cost and expense reduction actions and 77% progress in investment optimization. These measures have a positive effect on lifting cost, cash flow, debt and CapEx and will be an integral part of our 2026 strategic plan. Let's move on the next slide. We continue to maintain healthy liquidity. As of the end of September, Ecopetrol Group's cash position stood at COP 14.1 trillion, reflecting an increase of COP 1 trillion compared to the previous quarter. This result was driven by operational activity and the sale of short-term debt securities, which enabled us to reduce short term debt, meet debt service obligations and finance investment plans. In this regard, the group's liquidity is secured until the year-end. On the tax front, it is worth noting that between January and September, Ecopetrol SA and the Cartagena refinery accumulated tax credits totaling COP 12.2 trillion. In parallel, COP 5.2 trillion of these credits have been offset against tax obligations through the year. From a cash perspective, the company is actively managing the working capital impact to mitigate their effects. Additionally, we can now affirm that the FEPC fuel price stabilization fund no longer represents a material impact on our working capital. Accumulations during the second and third quarters were below COP 1 trillion, reflecting the government's effort to reduce this account as well as the influence of international prices and exchange rate on the balance. We have also made 80% progress toward our internal working capital management goal set in March, thanks to coordination with subsidiaries, optimization of financial expenses and the gradual unwinding of repos on securities received as payment from FEPC. Regarding exchange rate management, we continued executing FX hedging strategies that protected between 11% and 15% of dollar-denominated revenues during the third quarter. We also initiated coverage for the period from May to December 2026. This active management allows us to partially mitigate market risk associated with the Colombian peso's appreciation. Now let's move on the next slide. Our financing strategy is built on 3 basic pillars. First, the prepayment of short-term obligations, including treasury loans and repos with a commitment to close the year without incremental debt associated with the organic plan. Second, the renegotiation of all bank debt currently underway, aiming to reduce dollar-denominated debt cost by up to 105 basis points and local debt cost by 85 basis points. This operation has been already approved by the Ministry of Finance and Public Credit, reaffirming the financial system confidence in Ecopetrol's strength. Third, new facilities such as the committed COP 700 billion credit line announced with Davivienda, which will serve as a liquidity backstop in challenging environment. We are also advancing the restructuring of financial schemes for the inorganic opportunities in renewable energy, aiming to reduce the group's energy cost. This comprehensive management allows us to maintain healthy debt levels. As of September, the gross debt-to-EBITDA ratio stood at 2.4x. Excluding ISA's debt and the debt related to its acquisition, the ratio was 1.7x below the industry median. A key highlight is the reaffirmation of our credit rating by Fitch Ratings, which emphasizes Ecopetrol's strategic importance to the country, our financial strength and operational stability. The global credit rating was maintained at BB+ and the stand-alone credit profile at BBB-. Let's now move on the next slide. The third quarter showed strong investment momentum, with cumulative CapEx reaching $4.179 billion, representing 72% of the annual plan. Investments were distributed as follows: 62% in Hydrocarbons, primarily in Exploration and Production met, strategic refinery projects such as emissions control and fuel quality improvements and ensuring continuity of refinery and transportation network operations; 13% in Energies for the Transition, focused on strengthening the gas value chain in the Caribbean and Piedemonte regions; and 25% in Transmission and Toll Roads, with over $1 billion invested. Of this, 91% went to energy transmission in Brazil, Peru and Colombia, 8% to road infrastructure in Panama and Chile and 1% to the telecommunications sector in Colombia. 62% of investments were executed in Colombia, followed by Brazil with 21%, the United States with 12%, and other countries with 5%. Growth investments accounted for 75% of the total, with the remainder allocated to maintenance needs. In terms of capital discipline, we have achieved 77% progress on measures aimed at capturing CapEx flexibility with a target of $500 million to safeguard production for the remainder of the year. It is important to highlight that our investment plans is designed around the price range that allows us to adapt to various scenarios, maintaining capital discipline and ensuring competitive return. Looking ahead to 2026, we anticipate a more challenging price environment. Our focus will be on strengthening the group's resilience and competitiveness. We are committed to keeping the lifting cost low $12 per barrel, ensuring an efficient and sustainable cost structure. We will maintain a strict capital discipline and healthy debt metrics, prioritizing cash preservation to ensure liquidity in adverse scenarios. Additionally, we will incorporate through efficiency initiatives to maximize value and deliver attractive returns to our shareholders. The Ecopetrol Group continues to demonstrate that even amid volatility, it is possible to maintain solid operations, disciplined financial management and clear strategic vision. Now I will turn it over to the President, who will present the conclusions. Ricardo Barragan: Thank you, Camilo. The results delivered this quarter put us in a strong position to meet our operational and financial objectives for 2025. Finally, we are advancing in the transformation of our infrastructure to support new energy sources and the ongoing integration of nonconventional renewable energy, reinforcing our ability to contribute profitably to Colombians' energy security. We will continue to prioritize cost optimization, business enhancement, operational agility and monitoring of market dynamics and global developments. These actions have enabled us to reverse adverse trends across all key performance indicators while aligning the growth work for our 2026 financial plan, which will be announced shortly. We appreciate your participation and invite you to continue with the Q&A session. Operator: [Interpreted] [Operator Instructions] Daniel Guardiola from BTG is online with a question. Daniel Guardiola: [Interpreted] I have a couple of questions. One has to do with Permian. Given the public discussion there is about a possible sale of this asset, could the administration please clarify if there is a formal instruction or a political request or a government expectation to sell this asset? And if so, are you considering to sell and is management agreeing to sell it? Could you please give us the rationale behind this? And if there is an analysis made that reviews the creation or destruction of the value if this Permian is sold? And my second question is, on the chance that a member of senior management of Ecopetrol will be on the OFAC list, given the recent political setting, has the company evaluated the risk to have a management member on this list? And what do you think would be the impact it would have on Ecopetrol when it comes to financing, accessing markets and defaults, relationships with vendors? Those are my two questions. Julian Lemos Valero: [Interpreted] Daniel, this is Julian Lemos. I am the VP of Strategy and New Businesses. Let me answer the first question. As we said recently, with regards to the requirements made by local governments, Ecopetrol and its shareholders are not interested in the divestment of Permian. However, any decision that has to do with the portfolio of Ecopetrol will be analyzed with rigor and discussed within the Board of Directors, which is the body in charge of these decisions. Rodolfo García Paredes: [Interpreted] Daniel, good morning. This is Rodolfo Garcia, the Chief Compliance Officer. Ecopetrol has a corporate governance system and a compliance that's sound and robust. Within that framework, we make an ongoing monitoring of our setting, and we evaluate this and other scenarios based on risk. So we identify different scenarios and mitigations that can ensure the operation of the company and the compliance of the norms. That's why in an event like the one you asked about, we have to analyze the specific program in which we have the task to ensure and keeping in mind that within it, we have the motivation, scope and measures. Alfonso Camilo Munoz: [Interpreted] Camilo Barco. Just to complement the answer given by Rodolfo regarding the [ FAC ]. Well, it's worth mentioning that aligned with the analysis of scenarios and depending on the program magnitude and scope of eventual sanctions, we have foreseen a mitigation plan. And within it, there are specific measures to reduce or eliminate any risk related to access to capital markets and with a strict compliance of all of our financial obligations. Operator: [Interpreted] The next question is from Andres Duarte from Corficolombiana. Andres Duarte: [Interpreted] My first question has to do with the exchange rate. Could you give us more details about the impact it has on the revaluation which you had not foreseen in your recent plans? I have a sensibility of COP 0.7 billion in the devaluation or revaluation in the operating earnings. So how does it affect really the exchange rate? And the other question has to do -- yes. The other question has to do with Permian. No, I'm sorry, with Sirius. And then specifically, I'd like to know what assistance is the national government providing to facilitate the advancement of this project? Are you giving priority to this strategic project for the country? Or are you acting as any other company would of large size? I'd like to know how much help and facilitation have we received from the government to expect that by 2026, you have concluded all the consultations needed? Alfonso Camilo Munoz: [Interpreted] This is Camilo Barco again. To answer your first question on the exchange rate. Well, as you've said in your question, it's well known that our revenue are basically in dollars, and that makes us have an important impact from the exchange rate. When it comes to the sensibility analysis, you're right that sensibility for every COP 100 of variation in the exchange rate can have an effect of COP 700 billion on the net profit for the entire period of the year. So I would like to refer to the 9 month period we have so far. Compared to that of last year, it does have a positive effect last year. We had an average rate of COP 4,000 -- COP 3,970, I believe. But today, the rate is at COP 4,132 and average in the same period. So for this year and in this specific period, the contribution is positive, and it adds to the net profit, COP 600 billion specifically related with the EBITDA. It has a positive contribution of COP 1.1 trillion. The comment that you made related to the last quarter has made us take additional measures, and our financial plan for 2025 was built with the rate projected at COP 4,150. But today, the level is lower, closer to COP 3,950. That would imply to have to take additional measures to compensate this external factor. It's worth highlighting that we have a coverage program, which has had positive effects related to the compensation of the exchange rate effect. And very important, in terms -- in accounting terms, what we've seen is a very good effect from the coverages or the hedge accounts that will allow us to have this exchange to our equity and neutralize the effect on our income statement. And with this, I would respond, everything has to do with your question with the exchange rate. And again, sorry, I said your name wrong. Rafael Guzmán: [Interpreted] I am Rafael Guzman, the Corporate VP of Hydrocarbons, and I'd like to answer your question regarding Sirius. Firstly, I'd like to remind you that the operator is Petrobras, and Petrobras leads all the activities for this development. Still, from Ecopetrol, we make an assistance in a close follow-up to help, of course, to meet the program as planned. When it comes to the government, we have ongoing desk with the ACP with the timetable that's very specific. And we continuously work with them. I'd like to take this opportunity and your question to thank the DANCP. The efforts in collaboration made to carry out this project with a program that has been established. Today, within the plan that we -- in which we are ending the consultations of flow by July 2026, and then we will begin the consultations for the connection to the Ballena station in La Guajira. Again, with these activities made, we clearly have established how to act and meet the timetable and the gas delivered as mentioned. Operator: [Interpreted] We also have Ricardo Sandoval from Bancolombia. Ricardo Andres Sandoval Carrera: [Interpreted] I have a question on the process with the DIAN. I'd like to know if you have an embargo beyond everything you have, would it cause a default of the bonds? Is there -- are there clauses as well in the prospects of the bonds and the effects of this embargo? Could you please clarify this in this call? Alfonso Camilo Munoz: [Interpreted] Camilo Barco again. And thank you for your question. First, I'd like to highlight here that recently, the DIAN or the Tax Authority of Colombia stated officially and specifically, this discards any embargo in this controversy on the -- that for Ecopetrol. So this is first. And in addition to that statement within the stage of co-active charges, Ecopetrol Reficar have taken all the measures to protect the rights of Ecopetrol and of its refinery that at Cartagena. And within the order of ideas, we have seen tutelas presented that allow to avoid at all costs the possibility of a measure which, for us, in our opinion, has no application in this case. In addition to this tutela, we requested an anticipated intervention to the control agencies, which today are supervising constantly the activities and give us the peace of mind and security that as a measure like this could affect the normal operation of Ecopetrol. The control entities will be assisting in the protection of this operation. With that said, I'd like to underscore that so far, Ecopetrol has been meeting very timely, all of its financial obligations. We are aware and careful to protect with all of our capabilities, the capacity to serve and meet our financial obligations. And therefore, we still meet our timetable in time and amount. And simply, I'd like to say that anyway, an event or a situation different to what I mentioned, Ecopetrol has also taken measures its projection of its cash flow to serve any contingencies. Of course, any situation like this will depend on the amount determined. We are not aware one we trust that according to the statement by DIAN, this will not proceed. But depending on the amount of these measures, different protections and decisions will be made to ensure the compliance -- timely compliance of our obligations with the financial market. Operator: [Interpreted] The questions next will be made in English. [Operator Instructions] Luisa Belin from Morgan Stanley. Luisa Belin: So my first question is regarding production. That remains sort of flat both year-on-year and quarter-on-quarter basis. So what would be the perspective in terms of 4Q '25 production? And how do you envision the production growth profile for 2026 amid the oil price volatility scenario, even if results so far are within the guidance from the company? And my second question is regarding refining margins, which posted a sequential improvement. But what would you believe -- it is a normalized level of refining EBITDA per barrel and what would be the steps going forward to reach these levels? Rafael Guzmán: [Interpreted] Luisa, good morning. This is Rafael Guzman, Corporate VP of Hydrocarbons. Let me take your first question on production. And the second, Felipe Trujillo will be answering. He's the VP of Refining of Ecopetrol. As you say well, we have a production to date of 751 barrels a day -- equivalent per day. And we hope that by the end of the year, we will be within the range that we've given to the market of 740 to 750. Surely, we'll be on the higher part of that range. By 2026, we are currently working on the plan, the investment plan. So we have not estimated the production we will have for next year. Undoubtedly, as you've mentioned, we have to keep in mind the fall of the oil price, which -- that we've seen this quarter, and we expect it will happen also next year. But we're also hoping to be close to the production range that we're giving for 2025 to keep a similar one for 2026. Felipe Lopez: This is Felipe Trujillo, the VP of Refining and Production. After a lot of overhauls and stops programmed and scheduled, we have focused on 5 elements that have allowed us to improve the EBITDA and the yields of the refineries. These 5 elements are operating availability, utilization factor, sustained, increase of loads of each refinery, maximization of valuable products. And last but not least, assurance of the decrease of costs. This is the goal for the rest of the year. And for 2026, this should assure in a scenario of good differentials like the ones we've seen in the second semester and even for the first semester of 2026 to have good yields when it comes to the refineries. Operator: [Interpreted] The next question comes from Nicolas Barros of Bank of America. Nicolas Barros: [Foreign Language] Rafael Guzmán: [Interpreted] Nicolas, this is Rafael Guzman, Corporate VP of Hydrocarbons, again. As you know well, currently, we have a JV up to mid next year with an investment activity that has been predetermined. Eventually, this JV can be extended or otherwise, we'll continue working in Permian and specifically in Texas with the JOA we have signed, meaning we can have investments in JV with extension or investments that can be made under the JOA. Currently, we are considering and setting what is more convenient for Ecopetrol and propose this to Oxy at the proper time. When it comes to the expected production for Permian next year, we expect production to be close to what we planned for this year, meaning close to 90,000 barrels per day. But as you've said, it will depend on what's agreed with our partner, Oxy, either -- JV or JOA after the first semester of next year. And I believe that, that answers your second question related to the levels of investment. We are working on them right now, and we don't have the figures yet. But our interest is to maintain production in the assets of Permian. Operator: [Interpreted] [Operator Instructions] We continue with Guilherme Costa from Goldman Sachs. Guilherme Costa Martins: I have two quick ones. The first one on capital allocation, right? We have been seeing some news flow indicating that Ecopetrol could be seeking to divest from specific assets like the Permian. While on the other hand, we saw yesterday the announcement of acquisition of solar plant, right? I just would like to pick your thoughts here on what main assets the company would be seeking to divest from next year? And conversely, which assets do you think would make sense to acquire a stake on? And my second question is on EBITDA, right, specifically for the upstream segment, which came in above what we were expecting, right? EBITDA increase, although oil price remains seasonally stable and the quarter production also came in flat quarter-over-quarter. Could you please help us better understand what were the main drivers for the enhancement in profitability for the upstream segment? Rafael Guzmán: [Interpreted] Guilherme, this is Rafael Guzman, Corporate VP of Hydrocarbons. I'd like to answer the part of CapEx allocation, and then I'll ask Julian Lemos to talk about these investments. The distribution of capital is always made by investing in assets of higher profitability. And that's the exercise that we are undergoing for next year. But in addition, we have other options like the ones we've made with partners to provide capital to Ecopetrol's assets that are not prioritized in our portfolio. You are well aware we have an alliance made with Parex in Putumayo to invest from projects COP 350 million in that area where we do not plan to make investments. We expect this year also to complete another negotiation like this with another partner to give capital to other assets of Ecopetrol. This way, we maximize the value of our portfolio either with our own capital directly in the assets and more profitability and investments made with partners. Julian Lemos Valero: [Interpreted] Guilherme, this is Julian Lemos, VP of Strategy and New Businesses. Aligned with what Rafael just said, we are analyzing different options in Colombia, in which through different partners, we can together have activities in fields where there is a potential. However, in those fields, we do not have capital assigned to carry out that activity. This is a process that we've been working on for the entire year. It's -- they're plural. While the agreements are made, we will be announcing them to the market. And it's something that we will continue to do next year. Provided, as Rafael said, we can maximize the profit and production through the incorporation of partners in specific assets. Operator: [Interpreted] We continue with Joao Barichello. Alfonso Camilo Munoz: [Interpreted] No, let's answer the question on margins. How have we managed to keep margins in our assets? I think that there are 3 things. First, efficiency and costs, and you have seen the work we've done, for instance, lifting costs. So this year, in 2025, we could have an inflection point. We have stopped increasing cost. We're -- we have more cost -- lifting costs despite external pressures like a decrease of the exchange rate compared to the dollar. The other point is the maximization of the utilization of infrastructure. You heard Felipe recently talk about the operating availability, the factor of utilization of refineries. But we're also doing this in the midstream, as we mentioned, reversing 1 of the lines that we had before to export crude oil. We reversed this to import it, and that way, improve the utilization in midstream and the arrival of crude oil necessary for the refinery. And third is in the upstream area. And perhaps linked to the other question you made, the optimization of the portfolio of the upstream that I've mentioned as well as Julian. Operator: [Interpreted] Let's continue with Joao Barichello from UBS. Joao Barichello: Regarding dividends, year-to-date net income is down by 32% year-over-year, which implies in a lower dividend considering the current policy. That said, do you expect payout to remain at the higher bound of guidance? And given lower oil prices, is there any discussion on potential changes to the policy? And my second one, do you see room for a reduction of lifting costs looking forward? Could we see a return to the $11 per barrel level at some point? And what will be the main triggers for that? That's it. Alfonso Camilo Munoz: [Interpreted] This is Camilo Barco. When it comes to the dividends, it's important to highlight, as you mentioned in your question, that within Ecopetrol, we have a clear policy to distribute dividends that range between 40% and 60% of distributable profit. What we expect for next year and what we've been able to see that has been included in the fiscal medium-term policy is that the expectation of our majority shareholder is again to be as it was this year in the range of the dividend distribution policy. So it is possible that this will happen. Our proposal for the distribution of dividends for next year will be within that range, closer to the medium range. But as we have said, the shareholders' meeting will take the final decision on the dividend to be distributed. Rafael Guzmán: [Interpreted] Joao, this is Rafael Guzman. And let me answer your second question. And yes, we are committed to have additional reductions of the lifting cost. And we have several activities for this. We'll continue with our efficiency plan, as you have seen in recent years and this year. But also, we want to take measures with the assets with lower profitability that have high lifting costs. And the activities are turnover of portfolio, which makes -- which has to do with the disinvestments of these assets, but also increasing the production of other assets, as we mentioned before, including partners that place the capital and help us also to reduce the lifting costs. So we have these two activities and costs and increasing production of these assets of high lifting costs. Operator: [Interpreted] Thank you. We have no other questions live. Now we will be reading others. Hernan Goicochea of LatinFinance asks, regarding your financing plans, what do you have to issue bonds in the global and local market of bonds? Alfonso Camilo Munoz: [Interpreted] Again, this is Camilo Barco. It's important to repeat, as we've said before that Ecopetrol is working right now on its financial plan for 2026. But within this and with the projections and expectations we have regarding the performance of market prices and the efficiencies and savings that we're focusing on. There, we will know what's the flow -- the cash flow will have available to make investments. And also, we'll know which are the need to requirements for financing. When it comes to financing, specifically, our goal is to reduce financial costs that we have today. And for that, we're working on different opportunities when it comes to management to improve the profile, the conditions and specifically the financial cost of these opportunities to finance. And with this in mind, systematically we monitor the market to see what are the best alternatives. In the capital markets, there are conditions of liquidity and rates that seem to be convenient still. It's not a decision made yet. And on the short term, it's not an option when it comes to the capital market. Now we're working on different alternatives, especially with the financial system, with the banking system. And structuring the financing of projects that will be underway in 2026. Operator: [Interpreted] Juan Pablo Ramirez from Banco Davivienda asks, could you tell us developments of the possible acquisition of Camacol? Julian Lemos Valero: Juan Pablo, Julian Lemos, VP of Strategy and New Businesses. We cannot talk about this potential topic because of a confidentiality nature. Operator: [Interpreted] [indiscernible] asks, could you provide more details on the new 5-year loan facility, what's the rate? Is it a credit line that's revolving RCF? Or is it a loan? For this facility, are you profiling an agreement on specific assets or the entire company? Unknown Executive: [Interpreted] Give me a second, please. I don't have the name. [ Teo ]. With regards to the line committed, it's a committed line with a revolving credit at 700 -- COP 700 billion. It's at a rate of IBR plus 2.65. And those are the conditions of that line. As the committed line, we will only use it as far as it is required. But what's important is that it is available as of now. Operator: [Interpreted] Jose Ortiz from Bancolombia asks, with regards to the suspension of operations in Tibu, what -- how can it be affecting the gas service, and until when this operation will be suspended? Unknown Executive: [Interpreted] Jose, indeed, we have suspended the operation of the northern part of the field of Tibu, not the entire field. The gas production of this part is less than 1% of the total production of gas we have throughout Colombia. But it is an important source for Norte de Santander. As you've mentioned, we are working hard with the authorities of Norte de Santander, the Army, the police, and other authorities to try to reestablish that operation as soon as possible today. The gas has been replaced from other sources. But of course, we're working to reestablish this operation as soon as possible. Operator: [Interpreted] Thank you. We have no more questions. Let's hear Mr. Ricardo Roa, the President of Ecopetrol, for final remarks. Ricardo Barragan: [Interpreted] Okay. It seems that we have technical issues, but we'd like to give you all special thanks for joining us today and for providing us such interesting questions. We will continue working for the strategic goals of Ecopetrol to guarantee the energy safety of Colombia and to continue advancing in the energy transition of the country. Thank you again. We wish you a very good day. Operator: [Interpreted] Thank you, all. With this we end our talk of the Third Quarter of 2025. Thank you for attending. You may hang up. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

148天前Insight Analytics约5分钟阅读

KEY.TO 2025 Q3 财报电话会议

Operator: Good morning. My name is Eena, and I will be your conference operator today. At this time, I would like to welcome everyone to Keyera's 2025 Third Quarter Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Dan Cuthbertson, General Manager of Investor Relations. You may begin. Dan Cuthbertson: Thank you, and good morning. Joining me today will be Dean Setoguchi, President and CEO; Eileen Marikar, Senior Vice President and CFO; Jamie Urquhart, Senior Vice President and Chief Commercial Officer; and Jarrod Beztilny, Senior Vice President, Operations and Engineering. We will begin with some prepared remarks from Dean and Eileen, after which we will open the call to questions. I'd like to remind listeners that some of the comments and answers that we will give today relate to future events. These forward-looking statements are given as of today's date and reflect events or outcomes that management currently expects. In addition, we will refer to some non-GAAP financial measures. For additional information on non-GAAP measures and forward-looking statements, please refer to Keyera's public filings available on SEDAR and on our website. With that, I'll turn the call over to the Dean. C. Setoguchi: Thanks, Dan, and good morning, everyone. This quarter again demonstrated the strength of our fee-for-service business, where realized margin grew by more than 10% year-over-year. This continued increase in stable cash flow reflects higher utilization across our integrated system and supports ongoing dividend growth. 2025 has been a defining year for Keyera, built on several years of disciplined execution of our strategy to extend and strengthen our value chain. We built a highly competitive integrated platform that continues to attract customer volumes and support long-term growth. This year alone, we secured more than 100,000 barrels per day of new contracting on KAPS and our existing in-plant fractionation capacity is now substantially contracted. Those wins demonstrated the value customers place on our services. We're also making solid progress on our major growth projects. The KFS frac 2 debottleneck, frac 3 expansion and KAPS Zone 4 are each advancing on time and on budget. Together, they will further strengthen our integrated system and provide stable long-term fee-for-service cash flow supported with a significant portion of take-or-pay contracts. Pending acquisition of Plains Canadian NGL business will build on that foundation. It adds meaningful scale, expands our reach to key demand hubs in the East and allows us to offer customers more flexibility and connectivity across the value chain. The transaction remains on track, and we expect to close in the first quarter of 2026. Turning to the Marketing segment. While the quarterly results and full year outlook came in below expectations, the segment remains strategically important to our business. It provides strong cash flow and, in some years, delivers exceptional contributions. That cash has helped us strengthen the balance sheet and accelerate growth in our fee-for-service business, further compounding value for shareholders. I want to briefly touch on our sustainability progress. We met our 2025 GHG intensity reduction target of 25%, a full year ahead of schedule. This has been accomplished through economic investments that improve efficiency and meet our return threshold. More importantly, our sustainability program focuses on managing long-term risks and positioning the company for lasting value creation. We published our 2024 sustainability performance summary on our website. Overall, 2025 has been a year of strong execution. We continue to build a more efficient and competitive platform that creates meaningful value for our customers and shareholders while positioning Keyera for long-term growth. With that, I'll turn the call over to Eileen to review our financial results and outlook. Eileen Marikar: Thanks, Dean, and good morning, everyone. Keyera's third quarter results reflected stable performance and continued strength in our fee-for-service businesses. Not including deal and integration costs associated with the Plains acquisition, adjusted EBITDA was $286 million, distributable cash flow was $186 million or $0.81 per share, and net earnings were $85 million. As Dean mentioned, we continue to see strong year-over-year growth in our fee-for-service segment, driven by higher utilization across the value chain. In gathering and processing, realized margin was $112 million, up from $99 million last year. The increase reflects higher throughput and growing contributions from our Wapiti and Simonette plants, as contracted volumes continue to grow. In liquid infrastructure, realized margin was $147 million compared to $135 million last year, supported by higher storage and utilization of our condensate system as well as the steady ramp-up of KAPS volumes. Now turning to the Marketing segment. Realized margin was $73 million for the quarter compared to $135 million last year. The lower results reflect reduced condensate import volumes as domestic production displaced U.S. imports. While this shift benefits our fee-for-service business, it reduced marketing opportunities. Liquids blending activity and iso-octane premiums were also lower. For the full year, we now expect marketing realized margin to range between $280 million and $300 million. Results would have been within our long-term base guidance range without the approximate $50 million impact from the unplanned AEF outage earlier in the year. We are reaffirming our long-term annual base marketing guidance of $310 million to $350 million. This is based on certain commodity price assumptions and AEF operating at nameplate capacity. During the quarter, we issued $2.3 billion of senior notes and $500 million of hybrid notes, which completed the financing requirements for the Plains acquisition. Now I'll touch on our capital outlook and guidance update. For 2025, we've made a few adjustments. Growth capital is now expected to range between $220 million and $240 million, down from our previous estimate of $275 million to $300 million. The change reflects the deferral of some spending to 2026. This does not impact the expected in-service dates of our major projects. Maintenance capital is now expected to be $60 million to $70 million, slightly lower than before, again, reflecting some timing shifts. And cash taxes are expected to come in between $90 million and $100 million primarily due to lower marketing contributions. Looking ahead to 2026, we're providing stand-alone guidance until the Plains transaction closes. We remain on track to deliver our 7% to 8% compound annual growth rate in fee-based adjusted EBITDA from 2024 through 2027. Growth capital for 2026 is expected to range between $400 million and $475 million, mainly directed toward our sanctioned growth projects. Maintenance capital for 2026 is expected to range between $130 million and $150 million, which includes about $60 million for the planned 6-week turnaround at AEF starting in September. Following closing of the Plains acquisition, we'll provide pro forma guidance and a comprehensive business outlook for the combined platform, reflecting enhanced scale and long-term growing profile. With that, I'll turn it back to Dean for closing remarks. C. Setoguchi: Thanks, Eileen. 2025 has been a transformative year for Keyera. We've executed on our strategy, strengthened our value chain and continue to build a competitive and efficient platform that creates value for customers and shareholders. With a fully financed plan and self-funded growth ahead, we're well positioned to support the continued growth of the basin and deliver strong fee-for-service margin growth for years to come. On behalf of our Board and management team, I want to thank our employees, customers, shareholders, indigenous rights holders and other stakeholders for their continued support. With that, we'll turn -- we'll open the line for questions. Operator, please go ahead. Operator: [Operator Instructions] Your first question comes from the line of Robert Hope from Scotiabank. Robert Hope: Good to see the continued growth in gathering and processing cash flows, even with the weakness in AECO. As you look at your northern footprint and the increasing volumes there, how are you thinking about further optimizations or expansions? C. Setoguchi: Rob, yes, thank you very much for the question. We see our Northern footprint as being really in the most economic fairway of the Montney -- the liquids-rich fairway of the Montney. So we do see continued growth in demand for our services in that area, and that's exactly why you're seeing continued volume growth even with weak natural gas prices because, again, the values in the liquids, we think that we're going to have opportunities to continue to not only fill the remaining capacity that we have up there, but also to expand and build new capacity. So it's something that we're extremely excited about. And again, a lot of that development is going to continue with the continued announcements of new LNG capacity off the West Coast of Canada. But I'll also turn it over to Jamie to add any other comments. K. Urquhart: Yes, Dean, thanks for the opportunity. Robert, I think the one thing I'd point out is that we have really strong gathering interconnectivity between the 3 facilities that we have in the North. So as we look at the opportunity to debottleneck and expand specifically Wapiti and Simonette, what we're finding is the demand by the customers in that area for both short-term and long-term processing solutions, and we think we're going to be able to do some capital-efficient debottlenecks at those facilities to enable them both to continue to grow in the short term and then potentially have line of sight to be able to pursue a new facility in that area as well. Robert Hope: All right. That's helpful. Maybe more broadly on the liquids contracting strategy. You were quite active securing contracts, we'll call it, in the first half of the year, less so with this update. Has the pending acquisition of Plains added some complexity to the contracting strategy, just given you're going to have more optionality? And I guess another question there would be, how would the addition of Plains impact the contracting strategy moving forward? C. Setoguchi: Yes. No, that's a great question. I mean, first of all, the Plains acquisition is proceeding and we certainly believe that we'll be closing some time in Q1. But right now, we're operating Keyera as a totally separate entity. And as you would have seen in our -- look, we don't provide every quarter an update on what we've contracted. But I can tell you that there's continued momentum to the contracting on our asset base beyond what we've announced previously this year. So again, it just tells you how competitive our services are and the demand there is very strong. So we're going to continue to do that. I think with the combination of Keyera -- sorry with Plains, we're going to be able to provide an even more diversified service in terms of market access, but also with the size and the scale and the synergies between our asset bases, we're going to be able to provide a more competitive service for our customers, and that's going to obviously lead to more contracting on the combined platform. Jamie, anything else you want to add? K. Urquhart: No, I think you hit it perfectly, Dean. Operator: Your next question comes from the line of Aaron MacNeil from TD Cowen. Aaron MacNeil: I fully appreciate that this may be front-running some of the disclosures you plan to provide post Plains. But as we think about a refreshed 3-year guide with 2025 as the base year, should we think about 2028 as a consequential year for growth for Keyera on a stand-alone basis, just given the timing of contracts associated with KAPS Zone 4 and KFS 3? And can you give us a sense of the potential magnitude, all other things being equal? C. Setoguchi: Yes, you are front-running us. But I think it's a very good question. I mean we've guided out to 2027, and that's the 7% to 8% fee-for-service base growth. And again, a lot of that is investments that we've already made, and we're just filling that capacity. I'd say on top of that, obviously, as we've announced the KAPS Zone 4 and our 2 frac projects are highly contracted with high take-or-pays, so you're going to see a lot of cash flow growth in 2027 and beyond as those projects come into service and volumes ramp up. So yes, that's going to be very good for our fee-for-service business. We haven't provided guidance on that yet, but that will come in the future. And then on the Plains side, we've announced that our plan is to deliver, I'll say, at least $100 million of synergies. And we have a clear line of sight to that. Based on where we are, and we've put some positions -- we have an arrangement in place where we have very good certainty on the frac spread for the first year of acquisition when we close the Plains. So we're very confident on our mid-teens DCF accretion. And beyond that, like I say, we see a lot of opportunity to create further synergies beyond the $100 million. So when you add all that up, what it boils down to is that I think it's going to be very exciting for Keyera with our -- both our internally -- internal projects, but also the combination of Plains and creating a more efficient platform that's going to translate to better service and more profitability for our shareholders. So I'm not trying to dodge your question. I think at the end of the day, we will be providing more guidance in the future. We have to get, obviously, the closing with Plains first before we can disclose that type of information. Aaron MacNeil: Okay. Fair enough. I had to try. You reiterated the long-term base marketing guide. How does the planned turnaround at AEF fit into that next year? Eileen Marikar: Thanks, Aaron, it's Eileen here. Thanks for the question. Just maybe stepping back, looking at this year. Historically, our iso-octane margins have made up more than 50% of the marketing. And based on fundamentals that we see for iso-octane, we expect it to remain strong. And if not for the 7-week unplanned outage of AEF, the impact of $50 million, we would have been well within our base guide, if not near the top end of it. So all that to say, we feel very confident in that long-term base guidance. So you're right, based when we look at the assumptions that underpin the, one of the key assumptions is that AEF operates near capacity and certain other commodity price type of assumptions, especially around WTI. So next year, you're absolutely right that there is a 6-week planned turnaround that would certainly play into that guidance. And so we -- again, next year, we will provide guidance as we normally would, as we close out our supply season. C. Setoguchi: Yes. I'd just maybe add to that. I mean when you look at the big picture, we feel pretty good about our marketing business. And again, it's a physical business. So when you think about our frac expansions, what it means is that we're going to be catching and marketing more barrels and making margin off those incremental barrels. So I think that's a bit of a tailwind. When you think about our iso-octane business, we think that's pretty strong. And again, the demand for premium grades of gasoline are increasing. And certainly, with some of the policy changes in the United States, the demand for gasoline and the demand for our internal combustion engine vehicles is much higher than what anyone would have expected even a couple of years ago. So I think that bodes pretty well there. And thirdly, I think with the Plains acquisition, we're going to really enhance our market access and especially out to the East, which is really going to complement the markets that we can serve already in the West and also locally, especially with our condensate system, our iso-octane business. Our propane access is going to be much stronger with the Plains business. So again, that's going to be another positive tailwind for our marketing business. Operator: Your next question comes from the line of Robert Catellier from CIBC. Robert Catellier: I wanted to follow up on Rob Hope's first question and just the practical implication of the timing on the Plains transaction. So my question is, what is the likelihood that the transaction closes in time for Keyera to go to market for the '26 contracting year on a more integrated basis? C. Setoguchi: Well, that's a good question. At the end of the day, we are certainly -- the bureau process is that review is proceeding as we would have expected. This is a large acquisition. So with any large acquisition, it takes time and that timing isn't always certain. So we believe that we're still on track to get through that process in the first quarter and close. It would be nice if we could have a close before contracting season, but that still remains to be seen. That's, obviously, not 100% within our control. Robert Catellier: Yes, it would be great for the customers as well. C. Setoguchi: Absolutely. Robert Catellier: And just bigger picture here, just looking at KAPS, and we don't know the ultimate size of the pipeline, but my question is, given your view of basin growth, which is similar to ours and pretty strong, what is possible in terms of an expansion of KAPS in terms of the time line? And is that possible without a material gathering and processing expansion by Keyera? C. Setoguchi: I love the question. It wasn't just like 2 quarters ago when you guys were asking us how we're going to fill KAPS. Now you're asking us how we're going to expand it. But I mean, hey, with the contracts that we've signed, yes, I mean, KAPS by the end of the decade is going to get -- start to get pretty full, which is very exciting and tells how competitive our system is and the demand for that service. But maybe I'll turn that question over to Jarrod. Jarrod Beztilny: Yes. Robert, I think that's really been always part of the plan is to add particularly pump station capacity as the volumes warranted. And that's really what we're doing. So there's some of that coming along with Zone 4, and we expect that will continue out through the end of the decade. So we still have some runway there to do some very capital-efficient expansions through additional pumping before we'd have a step change in capital beyond that. Robert Catellier: Okay. And last one for me, just on the bigger picture, Dean. What are you seeing in terms of how the basin is changing? We've had some more producer consolidation recently, but we're also seeing maybe a different approach towards LNG with the major projects office, putting another project on there. So just when you look at those things together, how was the customer interaction and maybe the growth outlook changing? C. Setoguchi: Yes. I mean it's -- I feel a lot more optimistic today than I have in a long, long time. And it's encouraging to hear some positive comments come from our Prime Minister and some actions in the right direction. I think it's great for Canada if we can continue to develop more LNG off the West Coast. And certainly, hey, we'll benefit from that because we have critical infrastructure that helps enable that basin growth. I think there still needs to be some -- still some progress on key policies that would, again, just give everyone a lot of confidence that we can do this in a competitive manner. When you think about -- so I think the basin is going to grow. And I should also mention, too, it's exciting that Enbridge is finding ways to add more capacity on their system. We know that TMX, Trans Mountain has ability to also debottleneck too. So I think this bodes well for our industry and for Canada, which is great and help us boost our economy. We think about consolidation. The way I think about it is that as an industry, we should be working together to create the most competitive low-cost and environmentally friendly energy to serve the world. And some of the consolidations that we're seeing, I think it's good because it creates more size and scale and efficiency to help accomplish that. And for Keyera as a midstream service provider, we're doing the same thing. And that's what Plains is all about. We're consolidating, and we're going to be more efficient, we're going to provide a more competitive service, and that's going to make our basin more competitive, and that should help us export more products with additional market access that we're going to be getting in the future. So I think it's a good thing overall. Operator: Your next question comes from the line of Theresa Chen from Barclays. Theresa Chen: Just a quick follow-up one from me on the marketing segment. Octane premiums seem to be improving so far in fourth quarter 2025 despite what should be a seasonally soft period. What are some of the factors contributing to this dynamic in your view? Is it octane demand-related alluding to some of the long-term trends you mentioned earlier or have there been supply disruptions in octane observed in the market? C. Setoguchi: Theresa, you're very astute to be about watching that market. But I'll turn that over to Jamie to provide more color on. K. Urquhart: Yes, Theresa, so as being said, yes, you're bang on. Q4 premiums are actually trading above historical levels. Our view is that it's really attributed to both the supply and the demand side. On the supply side, we're seeing some significant refinery outages, also some closures of refineries, specifically on the West Coast, which is an area where a lot of our products in the Western U.S. is sold. So -- but also demand has been strong. Certainly, RBOB cracks as well have really had some tailwinds over the last period of time. And it's interesting with respect to gasoline pricing and octanes are not necessarily always limited to North America and what's going on in North America. But long term, we have a really strong view that both RBOB cracks and iso-octane premiums, octane premiums are going to be robust. They're going to continue to be above historic levels. Not to the levels that we would have seen in 2022 or through '24 based on some very unique geopolitical events on the planet. But we expect the strength in iso-octane premiums will persist into 2026. Operator: Your next question comes from the line of AJ O'Donnell from TPH. Andrew John O'Donnell: I was hoping to maybe just start on the macro and just kind of what's going on right now in Q4. Wondering if you could talk to maybe some of the activity levels you're seeing across the North and South in light of LNG Canada starting to ramp up that second train and AECO prices starting to improve? C. Setoguchi: Yes, AJ, thanks for the question. I think from a big picture standpoint, I mean, most of the growth in the basin has been and will continue to happen up in the Montney. And a lot of value is derived from the liquids. So even though -- so they're up in that area is not really that sensitive to natural gas prices, it's probably more sensitive to crude oil prices. And even at $60 WTI for condensate, roughly, you multiply that by the FX rate, in Canadian dollar terms, it's still a pretty good price, which is still a good price incentive for producers to continue to drill and grow. I think up in that area, too, that there's not as much infrastructure capacity and that's from gas plants and all the way through that value chain. And so whenever you have scarcity of supply, the producers want to make sure they have -- they secure that in order to fill their growth plans in the future. So what we can say is that demand has been very high for the remaining capacity that we have. So we expect to continue to add volumes and grow, even in the price environment that we're in and obviously, adding the second train at LNG Canada it's going to help. But we're going to look beyond that, and we think that there's going to be more LNG developed off the West Coast, which is going to, again, create further demand for more processing capacity and KAPS service in our downstream business. So overall, we think that demand will remain strong in the South. I think that's where it's a little bit more sensitive to natural gas prices. Our volumes have been relatively steady, especially when you consider what AECO prices have been. And I think that if we catch a little bit of a period with stronger gas prices, I'm sure the producers down there are probably hedging forward too with some of the curves that you can see. And there's a lot of gas still in place down in the South. And over time, we expect that to get drilled up and see some more volume growth there as well. Anything you want to add, Jamie? K. Urquhart: Yes. So the only thing I'd add is everything -- I agree with everything being said on the North. In the South, I think we're seeing some really positive tailwinds there. As a result, there was a bunch of consolidation 2, 3 years ago, and it takes the company a period of time to understand the resource that they're inheriting and ultimately putting drilling programs together. And what we've seen is those companies then really starting to get after what they purchased 2, 3 years ago and seen some very, very good results as a result of applying their technology, their competency, frankly, one of the reasons why they would have bought those assets because they believe they could do bigger things with the land base and the prospectivity of those assets. So we are seeing some really positive results in the South as well. Andrew John O'Donnell: Okay. Great. Then maybe just one more kind of on the medium or longer term. We've seen a handful of refined products pipelines being announced in the U.S. pulling from pad 2 and then going into some of those refinery closure markets that you talked about into pad 5. I'm just curious, as you kind of think about your iso-octane business, how you anticipate either 1 or multiple of these projects impacting those margins or having an impact on that business? C. Setoguchi: Yes, that's a good question. Jamie? K. Urquhart: Yes. So I love the fact that you guys are on top of our business because, yes, there's two pipelines that are being proposed, refined pipelines that are being proposed to serve the sort of the Nevada, Arizona, but primarily the California market and the California market has seen some refinery closures happening. And that's really drawing -- creating a pull for those refined products out of -- likely out of Texas and even further to the East. So those two projects, we think, have a lot of merit. And we currently serve a bunch of the refineries that would have connectivity, and we would expect to supply into the markets that they're being built into. So we have relationships. Net-net, we see that as a very positive development for our business on the iso-octane front. C. Setoguchi: We like the markets that are served, the continental markets that aren't served off the water because we're advantaged. We're moving our railcars down south. And so we can certainly save on the transportation cost, if we don't have to take it all the way to the U.S. Gulf Coast and we can hit one of those inland refiners or places where they blend gasoline. So we like the developments of what's happening with the closures in California of refiners. And also the gasoline demand growth that we're seeing, as Jamie discussed, in Arizona and Nevada, Salt Lake City, that area and also in the Denver area as well. Operator: [Operator Instructions] Your next question comes from the line of Maurice Choy from RBC Capital Markets. Maurice Choy: Just wanted to think about the world beyond the Plains transaction and then more big picture about how you view partnerships. Can you talk to what's worked well, what you'll be looking for when establishing a new partnership? Or alternatively, maybe you don't see that many new partnerships being formed over the coming years. C. Setoguchi: Yes. Maurice, that's a really good question. And I think one thing that we have reputation for is that we're a good partner. We work well with others. We understand the need for a win-win if we want to have a successful partnership that's sustainable. When we look at our business in the long term, I think that we really believe in the value of partnering with indigenous groups and recognizing that they have unique needs and investment criteria. But when I think about future partnerships and if there's an opportunity that, again, would work for us and work for them, it's something that I think that we should definitely be exploring. Maurice Choy: Understood. And if I could just finish off on the marketing side of the business. I think you touched on the AEF turnaround, you touched on the strengthening cracks as well as iso-octane premiums. Anything in terms of the market dynamics that you highlighted today for marketing that you think will continue negatively into the new year or do you think most of that will unwind? C. Setoguchi: Yes. I'll turn that over to Jamie. K. Urquhart: Yes. So sorry, Maurice, I understand your question, is there any negative market dynamics that we expect to persist? C. Setoguchi: Like to carry on, yes. K. Urquhart: So we did highlight the fact that we've seen a reduction in condensate imports and into Western Canada. And that's something that we think is likely short-lived based on the oil sands growth and the demand for diluent. But other than that, we're very bullish with respect to the demand for spec, propane in particular and excited on both the export deals that we put in place with AltaGas, and as Dean said, getting the assets from Plains to access to markets in Eastern Canada and the U.S. So yes, no, I -- we don't see any major headwinds on the commodities that we touch for our marketing business going forward. C. Setoguchi: Yes. I'd just say, though, that I think everything is all relative. And if you compare it to 2023 and 2024, those were outsized years. I mean we delivered $480 million, $485 million in those years. And we certainly don't want anyone to think that, that's the norm. But I think we have a business that there will be years where we have outsized performance. And I just want to make sure that everyone understands that we have the discipline when we have those outsized years, we take those extra marketing dollars and we pay down our debt. And that afforded us -- that and our free cash flow affords us ability to sanction our KAPS Zone 4, our 2 frac projects. And also pursue Plains, the Plains' Canadian NGL business, which really is a big game-changer for our company. So I think we have to think about marketing in our business in a more holistic macro manner and what it does for our overall business. And it's been a very successful model from day 1, and I think it will be in the future as well. Operator: Your next question comes from the line of Patrick Kenny from National Bank Capital Markets. Patrick Kenny: Maybe just on the CapEx budget here through '26 and looking at the balance sheet still in really good shape heading into the Plains acquisition. But just given the slippage in commodity prices and some near-term marketing contributions, any thoughts on how much you'd be willing to flex your growth capital program over the near term, if new opportunities arise? Or on the flip side, any thoughts around building any further cushion over the near term just until commodity prices normalize? C. Setoguchi: Pat, Thanks for the question. I'll turn that over to Eileen. Eileen Marikar: Sure. Thanks, Pat. Just as a general comment, I'd say, kind of reiterating what Dean said earlier, is like the strength of our balance sheet and the low leverage has been a competitive advantage for us. And we intend to maintain that advantage. So it's because of this philosophy that we were able to pursue Plains this year, which, again, Dean touched on. And when we planned our future capital allocation, whether it's growth capital or dividends, et cetera, we always assume a more normalized marketing. We never plan for exceptional results. So the lower contribution this year or a more muted contribution would not impact what we put out in terms of our leverage, which is still once we close Plains within the first 12 months, to be still within our target range, that 2.5x to 3x, albeit at the higher end. And the only other thing maybe I'd add is that when we did the funding plan for Plains, it contemplated that we remain within those bands and then we quickly deleverage really by once we're through this growth capital so that we are keeping our options open for other opportunities, especially with the basin growth that we see, we absolutely are able to still continue to grow and leverage those options that as they come along -- opportunity. C. Setoguchi: And Pat, just to add to that. I mean, certainly, the frac projects and KAPS Zone 4, I mean that's already built into our central forecast, and we still remain within our guidance range or our goalpost of 2.5x to 3x debt to EBITDA. And so -- and I also point out that the 2.5x to 3x where we like to be is more conservative than sort of the industry infrastructure peers. So if we get to the higher end of that range, I don't think that's the end of the world because we're still in a very good range relative to our peers. But again, we always like the ability to pay it back down, restore flexibility and enables us to be more opportunistic. Patrick Kenny: Okay. I appreciate that. And -- but Dean, maybe just back on the 3.5 Bcf a day of LNG projects being of national interest. Would you be able to help us just to distill what opportunities, say, over and above filling your existing assets you might be looking at from a brownfield or even a greenfield perspective, just to take advantage of this long overdue window in political support? C. Setoguchi: Yes. No, I think it's tremendously exciting. And first of all, a lot of it is, is that there's not enough gas gathering processing capacity to process that gas. And when you think about where the bulk of that growth is going to come from, it's that Montney fairway in the most economic parts of the fairway where we're located is going to get developed disproportionately. And so we see an opportunity to provide that integrated service right from the gas plants. So we're going to look at debottlenecks, we're going to look at potential greenfield expansions up there or we also consider like a tuck-in acquisition that could also support our network up in the North, and again, provide that full integrated service to our customers to offer them the best economic netback for the product. Patrick Kenny: Okay. And last one for me, just a housekeeping item. You touched on your confidence in the normalized marketing guidance range. And Eileen, you mentioned this is based on, I guess, a return to a more normalized commodity price environment of looks like $65 to $75 per barrel. Just wondering, as we look at the strip, having a hard time breaking through a $60 a year or at least for the next couple of years, [indiscernible] or walk us through what other positive margin tailwinds you could point to, whether it's butane feedstock costs or perhaps other products that you market that might help offset some of these existing headwinds for now and firm up that confidence in the $3.10 to $3.50 range for at least '26 and '27? K. Urquhart: Pat, it's Jamie. Well, you hit on one of the big ones is butane as an input into iso-octane and also in a complement to our blending business. We do look at butane being in an oversupplied. Our market in Western Canada is oversupplied in butane and it's forecast to be. So as we've talked about as there's more development in our basin, it's good to know that all those developments have -- are fairly rich in natural gas liquids and ultimately, with all the frac expansions that are happening with ourselves and some of our peers, we expect that there's going to be additional butane that we'll continue to have -- see that market oversupplied. So we expect that butane prices will be relatively soft relative to historic levels, and that will be a positive for our business. We touched on it, I think based on fundamentals worldwide with respect to the pull for -- sorry, for propane and ultimately, with the assets that we're inheriting with the Plains acquisition, we see some opportunities to create value for our customer and also our shareholders on the propane side. So those would be the 2 big ones. Other than what we talked about, which is the strength in our view around RBOB cracks and iso-octane premiums. C. Setoguchi: Yes. And ultimately, we'll provide an update like we usually do in the second quarter of next year. Operator: There are no further questions at this time. I will now hand the call back to Mr. Dan Cuthbertson for any closing remarks. Dan Cuthbertson: Thank you all again for joining us today. And please feel free to reach out to our Investor Relations team if you have any additional questions. Have a good weekend, everybody. Operator: This concludes today's call. Thank you for participating. You may all disconnect.

148天前Insight Analytics约5分钟阅读

MRL.MC 2025 Q3 财报电话会议

Inés Arellano: Good evening, everyone. Thank you for joining MERLIN's 9M25 trading update. As we always do on quarterly results, our CEO, Ismael Clemente, will briefly walk you through the main highlights of the period, and we will then open the line for Q&A. [Operator Instructions] With no further delay, I pass the floor to Ismael. Thank you. Ismael Orrego: Thank you, Ines. Welcome to the 9 months 2025 results presentation by MERLIN Properties. The quarter from 30th of June to 30th of September has been pretty productive for the company. Company has performed like a Swiss clock, particularly in the traditional asset classes. The evolution of gross rents like-for-like has been plus 3.4% with relatively neutral variation in occupancy. In fact, we have lost approximately 10 basis points. 6.4% FFO per share year-on-year as a result of a better contribution to the margins of the data center division and a 5.7% increase in the NTA per share year-on-year, which together with the dividend takes the theoretical TSR to plus 8.4% in the period. The activity in Offices, Logistics and Shopping Centers has been strong, as commented, with more than 700,000 square meters transactions during the first 9 months of the year. The FFO increased 6.4%. This is despite higher financial expenses. Please take into account that the bond issuance in our budget was forecast for the end of October, and we ended up doing it in the last week of August. That means an excess of cash, not so well remunerated in cash at banks, but slightly higher financial costs, which, of course, erode part of our margins. The occupancy remains very, very high, 95.5%, and what is important, remarkably stable. I mean there are ups and downs, of course. Now Logistics is going a little bit down, but Shopping Centers are going a little bit up. But the end result is that the overall occupancy of the company is very, very stable. In terms of Data Centers, the Mega Plan continue deploying very successfully. The European Union is playing its usual role. So the firm-up submission that was originally earmarked for the end of October has been postponed to December. And the decision-making, which initially was end of December, is now going to be end of April. So the European Union is approximately 4 months delayed for now. And that has wiped out part of the competitive advantage of participating in the EU Gigafactory program that was basically to bring forward approximately 1 year the execution of Phase 3. I mean we have wasted a little bit of time. I mean we have netted off 4 months out of the 12 that we had in mind that would eventually benefit the company in terms of bringing forward Phase 3. The good thing, I mean, the positive of the Gigafactory program is that, if selected, 180 megawatts of Phase 2 will be let at once. That is, of course, super important for the company because it will significantly derisk Phase 2. Out of 246, 180 will be gone in 1 second. However, with the delays, we have decided to start sounding the market for firm-ups. I mean we don't want to depend on the EU Gigafactory program because it's a little bit too complicated. It's not probably our ecosystem. I mean we are a private company, and it's complicated to swim in that ocean full of sharks. And so we are targeting only 48 megawatts by end of April pre-commercialized for Phase 2, which is more than we anticipated. 20 of those are now already in an advanced phase of documentation. And the other 28 for the moment is on ROFO that we will try to document between now and April that will correspond to the full capacity of the Bilbao-Arasur building #2. And then we will move into Bilbao-Arasur building #1. And we have just started also due diligencing the lease loan facilities for just another client. The pros and cons of the European Union program is that, as a clear con, we have restricted commercialization to only European names. So the final, let's say, client of computing has to be European. And as you can imagine, this is narrowing a little bit the scope of our commercialization efforts. So the good thing is that if everything goes well, part of the offtake will be done by the European Union. However, we are starting to feel that if we simply lift the restriction, we will be able to commercialize without the help of the European Union. It's probably too complicated for us. The very important because I know some of you believe that the CapEx plan for this year was stringent. The CapEx commitments for 2025 are not only well on track, will probably be exceeded. I mean, depending on just one thing that we need to do during the month of December, we believe we will exceed the CapEx commitments that were scheduled for 2025. So the deployment of the Phase 2 of Data Centers is well on track. We haven't valued the assets in the period. So the NTA per share is virtually the same we used to have with the generation of cash in the period. And in terms of business performance, Offices have achieved a like-for-like year-on-year of 3.8%, which is very, very interesting. The release spread cosmetically looks like 0.2% owing to the Tecnicas Reunidas deal we did at the beginning of the year. But in the absence of that deal, it is 5.0%. So the thesis that we have commented with all of you in some occasions about the acceleration of rents in Madrid as a consequence of the restructuring of stock owing to the resi reconversion, let's say, wave, it's clearly proving to be right. In logistics, the like-for-like is only 1.7%, but you might notice that the release spread is 5.7%. So the only reason why the like-for-like is lower is because we have lost 200 bps of occupancy. But if and when we start recovering occupancy, the like-for-like will start recovering because the prospective increase of rents, which is evidenced on the release spread is -- continues to be very, very sound. And Shopping Centers, it's been a surprising quarter with a very interesting evolution of sales and footfall figures. The like-for-like is 3.5%, but the lease spread is 4.2%, which is remarkable, given also that we have recently increased a little bit the stock as a consequence of the inauguration of the extension of Marineda in La Coruna. So overall occupancy is 95.5%, slightly worse than 30th of June, but better than the same period last year. And basically, the performance in all asset classes is immaculate. I mean the company is really, really doing a very good job in all the asset classes. And without further extension of the explanation, I will open the floor for Q&A because I'm sure given what has happened today in the market, you will have lots of questions regarding many aspects of the life of the company, including very probably Data Centers, which, by the way, is one of the things in which the company is not having any problems. But okay, let's open the floor for Q&A and happy to take your questions. And Ines and Fran will be today a little bit more active than in other calls because I am not physically with them in the Madrid office. I am at my hometown, at my little village, but we -- I have had a personal circumstance, sad one, that keeps me here. So I am attending the call on a remote basis. So eventually, Ines and Fran will take today a little bit more protagonism on the answer to your questions, but I will be here, and you can also address questions, particularly to me if you so wish. Inés Arellano: Thank you very much, Ismael. So we have the first question coming from the line of Callum Marley from Kolytics. Callum Marley: I've got a few. Just to begin with, can you clarify that the comments you made now on Phase 3 being delayed for 4 months and stating that it's time wasted, what's the strategy here going forward? Are you going to try and pre-lease those 180 megawatts of the 426 in the upsizing pipeline? Just to get better clarity there. Ismael Orrego: Okay. Look, the waste of time is a little bit that we have devoted too much time to the European Union Gigafactory program. We are now still trying to build consensus around the creation of a single Iberian consortium, which basically will be the result of us plus another private consortium in Spain plus the public consortium of Spain plus the public consortium of Portugal. So we are trying to put together four consortiums in one. And this is proving to be extremely stressful, very complicated, strong interest, lots of politics, and we are not very good at that. So we are a little bit losing our patience, because at the end, if we lift the restriction on European Union commercialization, eventually, we can achieve the same result with much less stress. So this is simply what I meant when I said wasting our time, no more than that. Because if you look at the CapEx execution, we are not delayed. We are well on track. The only other delay that we are commenting in this call today is the prospective delay we are fearing in two of the Madrid projects, Tres Cantos and Getafe, as a consequence of the fact that we have been requested a double environmental assessment in Getafe, one for demolition, one for construction, however stupid it looks. And in Tres Cantos, one for urbanization works, one for construction. So that duplicity of environmental assessments creates a time lag that results in a time delay in the execution of the project, which is between 6 months and 1 year. And that means it moves the tail end of the cash flows of Phase 2, 1 year further, from 2029 to 2030 to attain 100% of the cash flow of Phase 2. However, you might notice that we have been doing some preparation works for Phase 3. We will proceed to a definition of the scope of Phase 3 that will be communicated to market in the February conference call pertaining to full year 2025 results, okay? And in that definition of Phase 3, you will see that some of the most immediate projects of Phase 3 will eventually overlap with the tail end of Phase 2. So paradoxically enough, some of the early projects of Phase 3 will start kicking in terms of cash flow before we finish with the last tail end of projects of Phase 2. It's part of life. I mean we are developing and developing is always complex, particularly in Western European societies, which are full of administrative rules and bulls***. So it's complicated. You have to understand that it is complicated sometimes to deal with the public administration, okay? So this is what I meant, okay? Callum Marley: That's clear. Can I just confirm if there's any more environmental reviews for the other data centers under construction in Phase 2? Or is it just those two Madrid sites? Ismael Orrego: In Phase 2, we are clear on all environmental studies, including the latest one we have received is Arasur building #1. So we are clear in Portugal in full. We are clear in the Basque Country for Arasur 2 and Arasur 1, which is the next two buildings we are doing. So it's only in Getafe and Tres Cantos where we are clear in the first environmental assessment, but we need to do a second because it's like that in the legislation. It's however stupid it might look to you because you are a private person and you try to do things in life with common sense that however stupid it might look, it is how it is. So we need to abide by the rules and do everything by the book, okay? So that is for Phase 2. And what we are doing regarding, let's say, the nonmoney-related activities of Phase 3, what we are trying to do now is advancing some of the red tape -- administrative red tape of Phase 3, things which do not require cash flow or do not require a lot of cash flow. We are already advancing that trying to anticipate the possibility of further delays when we start executing Phase 3. So it's part of life, okay? Callum Marley: That's clear. Two more questions. One on the Gigafactory and one big picture. On the initiative, there doesn't seem to be anything concrete from the EU about how the public partnerships might work. Just hypothetically, could you clarify if you were to be successful on your submission, how the partnership might work? So let's say, the partnership covers the 180 megawatts that you submit. And if we assume that costs, I don't know, EUR 1.8 billion to build, how much would the EU contribute to this? Ismael Orrego: Very good question. Look, the modality that we have chosen in the EU submission, I mean, after talking to the EU, there are two ways of obtaining the help of the European Union. One is via CapEx and the other is via offtaking, and we have chosen via offtaking. That means that 35% of the offtaking is guaranteed by the European Union in JV with the local government. So what this means basically is that out of the 180, okay, 60 megawatts will be offtaken by the European Union and the local government, be it Spain, be it Portugal, depending on which data center we are talking about. And the rest, it is our responsibility to commercialize with final clients, for which we have already lined up two GPU operators together with their corresponding end clients, which in all cases are European. So if the EU Gigafactory program goes forward or if we are selected, the 180 megawatts are commercialized, 60 as a consequence of the intervention of the EU, the other 120 as a consequence of our own bilateral agreements with our own clients, okay? The only nuance is that this is subject to being selected. What we are trying to do now is obtaining the same back-to-back agreements with the same clients irrespective of EU, okay? And in that regard, we expect to have 48 megawatts at least committed for April. So out of the 120 that we are doing on our side, a little less than 50% of that. And we will continue working. Remember, we are in the initial phases of construction. So our perspective of having pre-lets at this moment in construction was zero, okay? So we are trying to celebrate, to enter into pre-lets to cover that capacity irrespective of the outcome of the EU Gigafactory program because it might well be that the EU Gigafactory program is delayed again to the summer or to end of the year or it might also happen that the EU Gigafactory program ends up modified. For example, moving 1 year further the termination of the facilities, which is at present our main competitive advantage. It is very clear that we are not the poster child of any member state, but our competitive advantage is that we do have the IT capacity, which no one else has at present. So if the contest rules are modified by European Union, we might all of a sudden lose that competitive advantage because if instead of deciding that the gigafactories have to be ready by '27, '28, they decide that they can be ready by '29, '30, eventually, many other people will be able to, let's say, comply with that prerequisite. And as a consequence, we will lose our main competitive advantage because clearly, our competitive advantage is not lobby capacity, is not, let's say, soft influence capacity in -- with political powers. Callum Marley: That's clear. And just one more big picture and to get your thoughts. In the U.S., we see Sam Altman and his big tech peers investing trillions of dollars into data centers and AI on the basis that maybe in 10 years' time, there's a significantly more demand for compute than there is today. Just be interesting to hear what your thoughts are on this strategy, whether European countries should be potentially following suit at a faster rate than what we are or whether you think that there's potentially an excess supply risk there later on down the road? Ismael Orrego: Well, the U.S. and Europe are completely different realities. Despite all the noise, in Spain at present, as we speak, there are 70, 12 and 48 megawatts being built at present to which we will add 60 of Arasur #1. So less than 200 at present and less than 250 in 1 year time. This is what is being built in Spain, which is virtually nothing. However, the U.S. wave is already reaching Europe in the sense that we are seeing a lot of interest from a lot of very significant accounts to commit into very large projects. Hence why we are trying to secure power for all the remainder of Arasur, okay? Remember in Arasur, we have one building, #3, which is already operating; building #2, which is built that we are starting equipment and will be ready for service at the end of '26; and building #1, which we should start building at the end of this year, should be ready by end of '27. But we have land reserved for another 3 buildings, building 4, 5 and 6. And we are now fighting to get the electrification for those three plots so that we can take the total capacity of the Arasur campus to something between 300 and 350 megawatts. This is what we want to achieve. And why we want that kind of scale because scale matters. We are seeing that some of the clients really want big scale. They want to have what they call power visibility. So we need to be able to give them power visibility because Spain and Portugal, for argument's sake, is one of the few corners in Europe where you can do that. I mean, in many other countries in Europe, you have either generation problems in many, distribution problems in some, or generation and distribution in many others. In Spain, we have a distribution problem because nobody has put one penny on the distribution network for many years, on the grid. But we have no problem of generation. We have a clear excess generation as compared to consumption. And as a consequence, in theory, there are pockets of electricity, of power that you can find still if you are local and you can dig deep into the current grid organization. There are places where you can find abundant electricity. So this is what we are trying to do at present. Likewise, in Portugal, where we have received 250 megawatts from both EDP and the National Grid Authority, REN. And those 250 megawatts correspond to 180 megawatts of IT power, which is building #1 and 2, which are the ones we are already building. And this is the reason we have -- why we have started preparing the ground for building 3, 4 and 5. because, first, we cannot do it later because we cannot do micro-piloting when two data centers are already working on the site because we will create vibrations that will not be good for the machinery of those two data centers. As a consequence, we have started preparing the compaction and the micro-piloting of that land in order to be able to host the three next phases of that campus, which are already electrified. But on top of that, we have also started moving with the Portuguese authorities, which are smarter, and they are offering you electricity rather than denying electricity to you. And we are -- we have started moving to obtain electricity for buildings 6 and 7, okay, for which we will have the next year to -- in order to try to close some sort of agreement with that. And then regarding our star project, which is Navalmoral de la Mata, in that one, of course, having 1 gigawatt today in Europe is a luxury. So we have now very, very strong interest that we are trying to document in the corresponding HOTs. And if we can get the electricity from the Spanish authorities, the electricity is there, we know, that if we can get the electricity from the Spanish authorities with a very high degree of probability, that is a project that will be born already, let's say, committed, booked or pre-let eventually as you, like all investors, probably wish, okay? So this is what we are doing in terms of preparation of Phase 3. But as aforesaid, we will -- I mean, it's been a very fast movement in the last months. We are a little bit digesting our own success. Sometimes we feel like sitting a little bit, taking a rest and enjoying. But of course, this is not a real possibility. And between now and February, we will prepare a definition of what we consider Phase 3, including a funding plan, okay, which in this occasion might entail particular agreements in some mammoth projects with external partners in order to develop because otherwise, they are a little bit too big for the size of our company at present. Inés Arellano: Okay. Thank you, Callum. So the next question comes from the line of Thomas Rothaeusler from Deutsche Bank. Thomas Rothaeusler: Yes, also I have a question on Data Centers. I mean you say your competitive advantage is that you have ready-to-use product while there is hardly any competitive product available in the market currently. By when do you expect this situation to change? So by when do you expect more product from competitors? So it sounds like well beyond 2028. And how could that impact your Phase 3? Ismael Orrego: Very good question, Thomas. I mean, I believe not earlier than 2030 because at present, there is a lot of noise, but very few people really putting a shovel in the ground. You only have a construction yard in Alcala with ACS. There is some construction in the site of Iron Mountain in San Fernando de Henares. And then it's us in Barcelona, at the end, in Cerdanyola del Valles, they haven't put a shovel in the ground and Goodman has not put a shovel in the ground in Parc Logistic de La Zona Franca. So in reality, this is what we have -- I mean Aragon, despite all the noise, nothing which basically is 0.0 new construction at present. okay? Although we believe that the QTS project, for example, is for real, and it will be done that probably ready for service 2030 with luck. So as commented in some occasions, we have commercialized Phase 1 on a clear market basis. Phase 2, we were pointing or thinking that we will also be in clear market basis. It's probably now confirmed we are going to be in clear market. And it looks like the vast majority of Phase 3 will also be commercialized on a clear market basis because the first ready for services of Phase 3 could start not later than 2028 and will expand to 2030, '31 maybe for stabilization in '33 -- end of '32. So this is what we are expecting for Phase 3. And as a consequence, the market will not be very, very active. And this is Spain. But also, if you look at the rest of the European panorama, leaving aside what is built as a consequence of the EU Gigafactory program, very little activity is observable in the rest of the core European markets. I mean it's very hard to get power in Europe these days, and there is not a lot of activity. And contrary to the stance of the U.S. government, except for the Nordics, which have abundant generation capacity at very small grids, very, very small grids, the most significant competitors for the future, I believe, are going to be the U.K. and France because their governments are smarter. And they will -- they are already moving into extra nuclear generation capacity, and they are already entering into grid reinforcement regulations. They are now trying to reinforce and make better their existing grids. So I believe long term, they are going to be competitors, but it will take many years because Europe is very complicated from a red tape standpoint. We have shot our foot in terms of environmental regulations. Many of our regulations have probably been designed in China. And we have -- as a consequence, we have curtailed completely our economic activity. And as a consequence, it takes many, many years to do or to convert in real a project which entails some sort of construction or, let's say, CapEx activity. So this is the competitive panorama we see for the coming years. Inés Arellano: Thank you, Thomas. So the next question comes from the line of Florent Laroche-Joubert from ODDO. Florent Laroche-Joubert: I would have a first question. So you seem that you have taken into account significantly the program from European Union in your plans. I would like to understand so why European Union should select an operator, a player operating in Spain and Portugal. So why do you think that you can be selected with a high probability? Francisco Rivas: Yes. Thank you for the question. What we are hearing first is that the number of people presenting options to the European Union has been massive, about 75 options possible over the European countries. So what they are appreciating is that if there are certain regions that they can offer a combined projects, of course, there need to be some linked to the two options. In our case, not only from a connectivity point of view, not only from a client perspective point of view, not only about -- from an ownership of infrastructure point of view, but also on the energy side, as you know, basically both Spain and Portugal, they have a unique grid system, although, of course, managed by different entities, but it's the same structure. All of that is basically helping us to propose a combined option with more capacity, with more size, with more companies that could use our facilities, and this is something that European Commission appreciates and sees a positive advantage as compared to isolated request or isolated offers from other countries. This trend that we presented at the very beginning is being followed. So we are not the only ones that are putting together different consortiums, different countries to get a more powerful offer. And as you know, the objective for European Union with this project is to incentivize that there is capacity available out there and also with this offtaking, offer companies, not big large model companies and software companies that normally take that space anyway, but also all the institutions, governments and finally European entities and in the U.S. that can work with capacity within the European region. So that's basically what we see. As Ismael was commenting before, and commission has been very clear about that, there is two ingredients to be considered from the assignments. One is from a technical point of view. So in a way, like 50% of the decision is based on technical reasons, technical reasons meaning, as Ismael explained before, ready for service dates, capacity from a technical point of view, how efficient you are, renewable sources from the power, et cetera. And the other 50%, let's call it, is not right percent, but you understand what I mean is from a political decision, which means that what they also try to do is to incentivize penetration of this AI, not only in the region, but also in certain areas within the European Union. So this is, as Ismael was pointing out before, out of our control. So we know that we -- our grade from a technical point of view is pretty high, if not the best, mainly because not only all the assets are new, but also because our ready for service is '26, '27, which is pretty immediate, and this basically are our advantage. So far -- if, of course, the project is being delayed or the rules are changed, of course, then we are losing a bit of grip there. But right now, from a technical point of view, we can say we are top in the list. But then this is a political decision, not only from the local government, but also from the commission to decide whether they want to implement this type of services and offering in which regions they want to help there. And that is basically what explains why from a technical point of view, we are pretty confident we can get it, but there are elements which are out of our control and it's complex how we can influence on them. Florent Laroche-Joubert: Okay. And maybe a second question. So we understand that you work a lot on this program for the European Union. So do you consider it as a central scenario? And do you work also maybe on an alternative scenario where you're not selected at the end? Ismael Orrego: Yes, Florent, this is clearly something that we planned from the very beginning. Probably it's not even the plan B, it's the plan A. So this is why now we are concentrating in obtaining firm-ups from the clients irrespective of the European Union because European Union is like a Monte Carlo option, is binary, is 0, 1, and there are elements beyond our control. I mean, we are a relatively young company. We are a very operational, very active company. We are not the typical public contractor. So we have zero experience in dealing with public authorities. Lobbying them, influencing them is not our cup of tea. So technically speaking, we were ranked the first out of the five options that existed in Spain. But that is only part of the equation, as Fran was commenting. So from the very beginning, we prepared for a life without European Union because it is beyond our control. And eventually, imagine they say, well, it's no longer December. It's going to be now -- the firm-up submission is going to be May. And then final decision moved from April to December next year. So by the time the whole thing unfolds, we might be completely commercialized on Phase 2. So if that is the case, why continue spending or wasting more time with the European Union if we can do our things on a completely autonomous basis. Inés Arellano: The next question comes from the line of Celine from Barclays. Celine Huynh: I just have one question on the EU project. So we've heard you mentioning how frustrating the whole process is, which I can understand. So what is the cutoff date for you to move on from the project and the consortium? Are you willing to wait until end of April? Ismael Orrego: It is a very good question, Celine. And to be absolutely frank, we haven't yet made an internal decision. Probably we are going to wait till April. But if in April, we see that the submission is delayed to December or if we see that there is even more administrative red tape or more lobbying capacity or more bulls*** that we cannot control, eventually, we will pull out. But Fran may have different thoughts on that. Francisco Rivas: Yes. It's -- I mean, for us as well, it's a little bit commitment to the country in the sense that we believe that in addition to the fact that we could have some offtaking from that project, yes, we are pushing this because we believe that this decision, if it comes to vis-a-vis the construction will create -- will basically push ecosystem from an NII perspective. And we believe this is good. As Ismael said, any delay that we are suffering is in a way reducing the value of that option because if we are fully commercialized, if we don't need money for the CapEx, if we are -- if there is any help that could, let's say, accelerate our implementation because we are -- we'll be done. In that case, of course, it's losing how attractive the program is. And by the way, the Europe Union has already achieved the objectives without even putting a dollar on us, which is good. But also it's interesting for us to continue trying to bring that ecosystem into Spain and Portugal. And that's the reason why we will continue pushing. As said, there are other decisions that are not on our control and if it is decided that the offer is not selected and they decide another country or another alternative, then we have done from a Spanish/Portuguese point of view, wherever we can, what was in our hand, trying to bring that capacity and that help and ecosystem into our region. Celine Huynh: I have a second question on Phase 3. So you're going to talk about it more in February, but are you going to mention how you are planning to finance it as well? Ismael Orrego: Yes. This is objective #1 for February. We will present the definition, the scope of Phase 3 together with the funding plan because the Phase 3 might be significant in terms of size. And particularly, it might signal the start of one of our really, really big projects, which is Navalmoral de la Mata. And that project alone eventually warrants a separate analysis on how are we going to fund that because it's a very, very big project. And eventually, we will need to check how we can do that, whether we continue simply running through the mother company from MERLIN or eventually for this particular case, we take a partner, which brings some other value eventually in the form of offtaking and/or financial capacity, which helps us in reaching an end in that very, very important project for the company. So you will have all the details in February. Inés Arellano: Okay. So there are no more questions. We thank you all for being with us during this 9-month '25 trading update call. And as always, we remain at your disposal for any questions that may arise. Have a nice weekend. Thank you very much for being here. Bye-bye.

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MRPRF 2025 Q3 财报电话会议

Inés Arellano: Good evening, everyone. Thank you for joining MERLIN's 9M25 trading update. As we always do on quarterly results, our CEO, Ismael Clemente, will briefly walk you through the main highlights of the period, and we will then open the line for Q&A. [Operator Instructions] With no further delay, I pass the floor to Ismael. Thank you. Ismael Orrego: Thank you, Ines. Welcome to the 9 months 2025 results presentation by MERLIN Properties. The quarter from 30th of June to 30th of September has been pretty productive for the company. Company has performed like a Swiss clock, particularly in the traditional asset classes. The evolution of gross rents like-for-like has been plus 3.4% with relatively neutral variation in occupancy. In fact, we have lost approximately 10 basis points. 6.4% FFO per share year-on-year as a result of a better contribution to the margins of the data center division and a 5.7% increase in the NTA per share year-on-year, which together with the dividend takes the theoretical TSR to plus 8.4% in the period. The activity in Offices, Logistics and Shopping Centers has been strong, as commented, with more than 700,000 square meters transactions during the first 9 months of the year. The FFO increased 6.4%. This is despite higher financial expenses. Please take into account that the bond issuance in our budget was forecast for the end of October, and we ended up doing it in the last week of August. That means an excess of cash, not so well remunerated in cash at banks, but slightly higher financial costs, which, of course, erode part of our margins. The occupancy remains very, very high, 95.5%, and what is important, remarkably stable. I mean there are ups and downs, of course. Now Logistics is going a little bit down, but Shopping Centers are going a little bit up. But the end result is that the overall occupancy of the company is very, very stable. In terms of Data Centers, the Mega Plan continue deploying very successfully. The European Union is playing its usual role. So the firm-up submission that was originally earmarked for the end of October has been postponed to December. And the decision-making, which initially was end of December, is now going to be end of April. So the European Union is approximately 4 months delayed for now. And that has wiped out part of the competitive advantage of participating in the EU Gigafactory program that was basically to bring forward approximately 1 year the execution of Phase 3. I mean we have wasted a little bit of time. I mean we have netted off 4 months out of the 12 that we had in mind that would eventually benefit the company in terms of bringing forward Phase 3. The good thing, I mean, the positive of the Gigafactory program is that, if selected, 180 megawatts of Phase 2 will be let at once. That is, of course, super important for the company because it will significantly derisk Phase 2. Out of 246, 180 will be gone in 1 second. However, with the delays, we have decided to start sounding the market for firm-ups. I mean we don't want to depend on the EU Gigafactory program because it's a little bit too complicated. It's not probably our ecosystem. I mean we are a private company, and it's complicated to swim in that ocean full of sharks. And so we are targeting only 48 megawatts by end of April pre-commercialized for Phase 2, which is more than we anticipated. 20 of those are now already in an advanced phase of documentation. And the other 28 for the moment is on ROFO that we will try to document between now and April that will correspond to the full capacity of the Bilbao-Arasur building #2. And then we will move into Bilbao-Arasur building #1. And we have just started also due diligencing the lease loan facilities for just another client. The pros and cons of the European Union program is that, as a clear con, we have restricted commercialization to only European names. So the final, let's say, client of computing has to be European. And as you can imagine, this is narrowing a little bit the scope of our commercialization efforts. So the good thing is that if everything goes well, part of the offtake will be done by the European Union. However, we are starting to feel that if we simply lift the restriction, we will be able to commercialize without the help of the European Union. It's probably too complicated for us. The very important because I know some of you believe that the CapEx plan for this year was stringent. The CapEx commitments for 2025 are not only well on track, will probably be exceeded. I mean, depending on just one thing that we need to do during the month of December, we believe we will exceed the CapEx commitments that were scheduled for 2025. So the deployment of the Phase 2 of Data Centers is well on track. We haven't valued the assets in the period. So the NTA per share is virtually the same we used to have with the generation of cash in the period. And in terms of business performance, Offices have achieved a like-for-like year-on-year of 3.8%, which is very, very interesting. The release spread cosmetically looks like 0.2% owing to the Tecnicas Reunidas deal we did at the beginning of the year. But in the absence of that deal, it is 5.0%. So the thesis that we have commented with all of you in some occasions about the acceleration of rents in Madrid as a consequence of the restructuring of stock owing to the resi reconversion, let's say, wave, it's clearly proving to be right. In logistics, the like-for-like is only 1.7%, but you might notice that the release spread is 5.7%. So the only reason why the like-for-like is lower is because we have lost 200 bps of occupancy. But if and when we start recovering occupancy, the like-for-like will start recovering because the prospective increase of rents, which is evidenced on the release spread is -- continues to be very, very sound. And Shopping Centers, it's been a surprising quarter with a very interesting evolution of sales and footfall figures. The like-for-like is 3.5%, but the lease spread is 4.2%, which is remarkable, given also that we have recently increased a little bit the stock as a consequence of the inauguration of the extension of Marineda in La Coruna. So overall occupancy is 95.5%, slightly worse than 30th of June, but better than the same period last year. And basically, the performance in all asset classes is immaculate. I mean the company is really, really doing a very good job in all the asset classes. And without further extension of the explanation, I will open the floor for Q&A because I'm sure given what has happened today in the market, you will have lots of questions regarding many aspects of the life of the company, including very probably Data Centers, which, by the way, is one of the things in which the company is not having any problems. But okay, let's open the floor for Q&A and happy to take your questions. And Ines and Fran will be today a little bit more active than in other calls because I am not physically with them in the Madrid office. I am at my hometown, at my little village, but we -- I have had a personal circumstance, sad one, that keeps me here. So I am attending the call on a remote basis. So eventually, Ines and Fran will take today a little bit more protagonism on the answer to your questions, but I will be here, and you can also address questions, particularly to me if you so wish. Inés Arellano: Thank you very much, Ismael. So we have the first question coming from the line of Callum Marley from Kolytics. Callum Marley: I've got a few. Just to begin with, can you clarify that the comments you made now on Phase 3 being delayed for 4 months and stating that it's time wasted, what's the strategy here going forward? Are you going to try and pre-lease those 180 megawatts of the 426 in the upsizing pipeline? Just to get better clarity there. Ismael Orrego: Okay. Look, the waste of time is a little bit that we have devoted too much time to the European Union Gigafactory program. We are now still trying to build consensus around the creation of a single Iberian consortium, which basically will be the result of us plus another private consortium in Spain plus the public consortium of Spain plus the public consortium of Portugal. So we are trying to put together four consortiums in one. And this is proving to be extremely stressful, very complicated, strong interest, lots of politics, and we are not very good at that. So we are a little bit losing our patience, because at the end, if we lift the restriction on European Union commercialization, eventually, we can achieve the same result with much less stress. So this is simply what I meant when I said wasting our time, no more than that. Because if you look at the CapEx execution, we are not delayed. We are well on track. The only other delay that we are commenting in this call today is the prospective delay we are fearing in two of the Madrid projects, Tres Cantos and Getafe, as a consequence of the fact that we have been requested a double environmental assessment in Getafe, one for demolition, one for construction, however stupid it looks. And in Tres Cantos, one for urbanization works, one for construction. So that duplicity of environmental assessments creates a time lag that results in a time delay in the execution of the project, which is between 6 months and 1 year. And that means it moves the tail end of the cash flows of Phase 2, 1 year further, from 2029 to 2030 to attain 100% of the cash flow of Phase 2. However, you might notice that we have been doing some preparation works for Phase 3. We will proceed to a definition of the scope of Phase 3 that will be communicated to market in the February conference call pertaining to full year 2025 results, okay? And in that definition of Phase 3, you will see that some of the most immediate projects of Phase 3 will eventually overlap with the tail end of Phase 2. So paradoxically enough, some of the early projects of Phase 3 will start kicking in terms of cash flow before we finish with the last tail end of projects of Phase 2. It's part of life. I mean we are developing and developing is always complex, particularly in Western European societies, which are full of administrative rules and bulls***. So it's complicated. You have to understand that it is complicated sometimes to deal with the public administration, okay? So this is what I meant, okay? Callum Marley: That's clear. Can I just confirm if there's any more environmental reviews for the other data centers under construction in Phase 2? Or is it just those two Madrid sites? Ismael Orrego: In Phase 2, we are clear on all environmental studies, including the latest one we have received is Arasur building #1. So we are clear in Portugal in full. We are clear in the Basque Country for Arasur 2 and Arasur 1, which is the next two buildings we are doing. So it's only in Getafe and Tres Cantos where we are clear in the first environmental assessment, but we need to do a second because it's like that in the legislation. It's however stupid it might look to you because you are a private person and you try to do things in life with common sense that however stupid it might look, it is how it is. So we need to abide by the rules and do everything by the book, okay? So that is for Phase 2. And what we are doing regarding, let's say, the nonmoney-related activities of Phase 3, what we are trying to do now is advancing some of the red tape -- administrative red tape of Phase 3, things which do not require cash flow or do not require a lot of cash flow. We are already advancing that trying to anticipate the possibility of further delays when we start executing Phase 3. So it's part of life, okay? Callum Marley: That's clear. Two more questions. One on the Gigafactory and one big picture. On the initiative, there doesn't seem to be anything concrete from the EU about how the public partnerships might work. Just hypothetically, could you clarify if you were to be successful on your submission, how the partnership might work? So let's say, the partnership covers the 180 megawatts that you submit. And if we assume that costs, I don't know, EUR 1.8 billion to build, how much would the EU contribute to this? Ismael Orrego: Very good question. Look, the modality that we have chosen in the EU submission, I mean, after talking to the EU, there are two ways of obtaining the help of the European Union. One is via CapEx and the other is via offtaking, and we have chosen via offtaking. That means that 35% of the offtaking is guaranteed by the European Union in JV with the local government. So what this means basically is that out of the 180, okay, 60 megawatts will be offtaken by the European Union and the local government, be it Spain, be it Portugal, depending on which data center we are talking about. And the rest, it is our responsibility to commercialize with final clients, for which we have already lined up two GPU operators together with their corresponding end clients, which in all cases are European. So if the EU Gigafactory program goes forward or if we are selected, the 180 megawatts are commercialized, 60 as a consequence of the intervention of the EU, the other 120 as a consequence of our own bilateral agreements with our own clients, okay? The only nuance is that this is subject to being selected. What we are trying to do now is obtaining the same back-to-back agreements with the same clients irrespective of EU, okay? And in that regard, we expect to have 48 megawatts at least committed for April. So out of the 120 that we are doing on our side, a little less than 50% of that. And we will continue working. Remember, we are in the initial phases of construction. So our perspective of having pre-lets at this moment in construction was zero, okay? So we are trying to celebrate, to enter into pre-lets to cover that capacity irrespective of the outcome of the EU Gigafactory program because it might well be that the EU Gigafactory program is delayed again to the summer or to end of the year or it might also happen that the EU Gigafactory program ends up modified. For example, moving 1 year further the termination of the facilities, which is at present our main competitive advantage. It is very clear that we are not the poster child of any member state, but our competitive advantage is that we do have the IT capacity, which no one else has at present. So if the contest rules are modified by European Union, we might all of a sudden lose that competitive advantage because if instead of deciding that the gigafactories have to be ready by '27, '28, they decide that they can be ready by '29, '30, eventually, many other people will be able to, let's say, comply with that prerequisite. And as a consequence, we will lose our main competitive advantage because clearly, our competitive advantage is not lobby capacity, is not, let's say, soft influence capacity in -- with political powers. Callum Marley: That's clear. And just one more big picture and to get your thoughts. In the U.S., we see Sam Altman and his big tech peers investing trillions of dollars into data centers and AI on the basis that maybe in 10 years' time, there's a significantly more demand for compute than there is today. Just be interesting to hear what your thoughts are on this strategy, whether European countries should be potentially following suit at a faster rate than what we are or whether you think that there's potentially an excess supply risk there later on down the road? Ismael Orrego: Well, the U.S. and Europe are completely different realities. Despite all the noise, in Spain at present, as we speak, there are 70, 12 and 48 megawatts being built at present to which we will add 60 of Arasur #1. So less than 200 at present and less than 250 in 1 year time. This is what is being built in Spain, which is virtually nothing. However, the U.S. wave is already reaching Europe in the sense that we are seeing a lot of interest from a lot of very significant accounts to commit into very large projects. Hence why we are trying to secure power for all the remainder of Arasur, okay? Remember in Arasur, we have one building, #3, which is already operating; building #2, which is built that we are starting equipment and will be ready for service at the end of '26; and building #1, which we should start building at the end of this year, should be ready by end of '27. But we have land reserved for another 3 buildings, building 4, 5 and 6. And we are now fighting to get the electrification for those three plots so that we can take the total capacity of the Arasur campus to something between 300 and 350 megawatts. This is what we want to achieve. And why we want that kind of scale because scale matters. We are seeing that some of the clients really want big scale. They want to have what they call power visibility. So we need to be able to give them power visibility because Spain and Portugal, for argument's sake, is one of the few corners in Europe where you can do that. I mean, in many other countries in Europe, you have either generation problems in many, distribution problems in some, or generation and distribution in many others. In Spain, we have a distribution problem because nobody has put one penny on the distribution network for many years, on the grid. But we have no problem of generation. We have a clear excess generation as compared to consumption. And as a consequence, in theory, there are pockets of electricity, of power that you can find still if you are local and you can dig deep into the current grid organization. There are places where you can find abundant electricity. So this is what we are trying to do at present. Likewise, in Portugal, where we have received 250 megawatts from both EDP and the National Grid Authority, REN. And those 250 megawatts correspond to 180 megawatts of IT power, which is building #1 and 2, which are the ones we are already building. And this is the reason we have -- why we have started preparing the ground for building 3, 4 and 5. because, first, we cannot do it later because we cannot do micro-piloting when two data centers are already working on the site because we will create vibrations that will not be good for the machinery of those two data centers. As a consequence, we have started preparing the compaction and the micro-piloting of that land in order to be able to host the three next phases of that campus, which are already electrified. But on top of that, we have also started moving with the Portuguese authorities, which are smarter, and they are offering you electricity rather than denying electricity to you. And we are -- we have started moving to obtain electricity for buildings 6 and 7, okay, for which we will have the next year to -- in order to try to close some sort of agreement with that. And then regarding our star project, which is Navalmoral de la Mata, in that one, of course, having 1 gigawatt today in Europe is a luxury. So we have now very, very strong interest that we are trying to document in the corresponding HOTs. And if we can get the electricity from the Spanish authorities, the electricity is there, we know, that if we can get the electricity from the Spanish authorities with a very high degree of probability, that is a project that will be born already, let's say, committed, booked or pre-let eventually as you, like all investors, probably wish, okay? So this is what we are doing in terms of preparation of Phase 3. But as aforesaid, we will -- I mean, it's been a very fast movement in the last months. We are a little bit digesting our own success. Sometimes we feel like sitting a little bit, taking a rest and enjoying. But of course, this is not a real possibility. And between now and February, we will prepare a definition of what we consider Phase 3, including a funding plan, okay, which in this occasion might entail particular agreements in some mammoth projects with external partners in order to develop because otherwise, they are a little bit too big for the size of our company at present. Inés Arellano: Okay. Thank you, Callum. So the next question comes from the line of Thomas Rothaeusler from Deutsche Bank. Thomas Rothaeusler: Yes, also I have a question on Data Centers. I mean you say your competitive advantage is that you have ready-to-use product while there is hardly any competitive product available in the market currently. By when do you expect this situation to change? So by when do you expect more product from competitors? So it sounds like well beyond 2028. And how could that impact your Phase 3? Ismael Orrego: Very good question, Thomas. I mean, I believe not earlier than 2030 because at present, there is a lot of noise, but very few people really putting a shovel in the ground. You only have a construction yard in Alcala with ACS. There is some construction in the site of Iron Mountain in San Fernando de Henares. And then it's us in Barcelona, at the end, in Cerdanyola del Valles, they haven't put a shovel in the ground and Goodman has not put a shovel in the ground in Parc Logistic de La Zona Franca. So in reality, this is what we have -- I mean Aragon, despite all the noise, nothing which basically is 0.0 new construction at present. okay? Although we believe that the QTS project, for example, is for real, and it will be done that probably ready for service 2030 with luck. So as commented in some occasions, we have commercialized Phase 1 on a clear market basis. Phase 2, we were pointing or thinking that we will also be in clear market basis. It's probably now confirmed we are going to be in clear market. And it looks like the vast majority of Phase 3 will also be commercialized on a clear market basis because the first ready for services of Phase 3 could start not later than 2028 and will expand to 2030, '31 maybe for stabilization in '33 -- end of '32. So this is what we are expecting for Phase 3. And as a consequence, the market will not be very, very active. And this is Spain. But also, if you look at the rest of the European panorama, leaving aside what is built as a consequence of the EU Gigafactory program, very little activity is observable in the rest of the core European markets. I mean it's very hard to get power in Europe these days, and there is not a lot of activity. And contrary to the stance of the U.S. government, except for the Nordics, which have abundant generation capacity at very small grids, very, very small grids, the most significant competitors for the future, I believe, are going to be the U.K. and France because their governments are smarter. And they will -- they are already moving into extra nuclear generation capacity, and they are already entering into grid reinforcement regulations. They are now trying to reinforce and make better their existing grids. So I believe long term, they are going to be competitors, but it will take many years because Europe is very complicated from a red tape standpoint. We have shot our foot in terms of environmental regulations. Many of our regulations have probably been designed in China. And we have -- as a consequence, we have curtailed completely our economic activity. And as a consequence, it takes many, many years to do or to convert in real a project which entails some sort of construction or, let's say, CapEx activity. So this is the competitive panorama we see for the coming years. Inés Arellano: Thank you, Thomas. So the next question comes from the line of Florent Laroche-Joubert from ODDO. Florent Laroche-Joubert: I would have a first question. So you seem that you have taken into account significantly the program from European Union in your plans. I would like to understand so why European Union should select an operator, a player operating in Spain and Portugal. So why do you think that you can be selected with a high probability? Francisco Rivas: Yes. Thank you for the question. What we are hearing first is that the number of people presenting options to the European Union has been massive, about 75 options possible over the European countries. So what they are appreciating is that if there are certain regions that they can offer a combined projects, of course, there need to be some linked to the two options. In our case, not only from a connectivity point of view, not only from a client perspective point of view, not only about -- from an ownership of infrastructure point of view, but also on the energy side, as you know, basically both Spain and Portugal, they have a unique grid system, although, of course, managed by different entities, but it's the same structure. All of that is basically helping us to propose a combined option with more capacity, with more size, with more companies that could use our facilities, and this is something that European Commission appreciates and sees a positive advantage as compared to isolated request or isolated offers from other countries. This trend that we presented at the very beginning is being followed. So we are not the only ones that are putting together different consortiums, different countries to get a more powerful offer. And as you know, the objective for European Union with this project is to incentivize that there is capacity available out there and also with this offtaking, offer companies, not big large model companies and software companies that normally take that space anyway, but also all the institutions, governments and finally European entities and in the U.S. that can work with capacity within the European region. So that's basically what we see. As Ismael was commenting before, and commission has been very clear about that, there is two ingredients to be considered from the assignments. One is from a technical point of view. So in a way, like 50% of the decision is based on technical reasons, technical reasons meaning, as Ismael explained before, ready for service dates, capacity from a technical point of view, how efficient you are, renewable sources from the power, et cetera. And the other 50%, let's call it, is not right percent, but you understand what I mean is from a political decision, which means that what they also try to do is to incentivize penetration of this AI, not only in the region, but also in certain areas within the European Union. So this is, as Ismael was pointing out before, out of our control. So we know that we -- our grade from a technical point of view is pretty high, if not the best, mainly because not only all the assets are new, but also because our ready for service is '26, '27, which is pretty immediate, and this basically are our advantage. So far -- if, of course, the project is being delayed or the rules are changed, of course, then we are losing a bit of grip there. But right now, from a technical point of view, we can say we are top in the list. But then this is a political decision, not only from the local government, but also from the commission to decide whether they want to implement this type of services and offering in which regions they want to help there. And that is basically what explains why from a technical point of view, we are pretty confident we can get it, but there are elements which are out of our control and it's complex how we can influence on them. Florent Laroche-Joubert: Okay. And maybe a second question. So we understand that you work a lot on this program for the European Union. So do you consider it as a central scenario? And do you work also maybe on an alternative scenario where you're not selected at the end? Ismael Orrego: Yes, Florent, this is clearly something that we planned from the very beginning. Probably it's not even the plan B, it's the plan A. So this is why now we are concentrating in obtaining firm-ups from the clients irrespective of the European Union because European Union is like a Monte Carlo option, is binary, is 0, 1, and there are elements beyond our control. I mean, we are a relatively young company. We are a very operational, very active company. We are not the typical public contractor. So we have zero experience in dealing with public authorities. Lobbying them, influencing them is not our cup of tea. So technically speaking, we were ranked the first out of the five options that existed in Spain. But that is only part of the equation, as Fran was commenting. So from the very beginning, we prepared for a life without European Union because it is beyond our control. And eventually, imagine they say, well, it's no longer December. It's going to be now -- the firm-up submission is going to be May. And then final decision moved from April to December next year. So by the time the whole thing unfolds, we might be completely commercialized on Phase 2. So if that is the case, why continue spending or wasting more time with the European Union if we can do our things on a completely autonomous basis. Inés Arellano: The next question comes from the line of Celine from Barclays. Celine Huynh: I just have one question on the EU project. So we've heard you mentioning how frustrating the whole process is, which I can understand. So what is the cutoff date for you to move on from the project and the consortium? Are you willing to wait until end of April? Ismael Orrego: It is a very good question, Celine. And to be absolutely frank, we haven't yet made an internal decision. Probably we are going to wait till April. But if in April, we see that the submission is delayed to December or if we see that there is even more administrative red tape or more lobbying capacity or more bulls*** that we cannot control, eventually, we will pull out. But Fran may have different thoughts on that. Francisco Rivas: Yes. It's -- I mean, for us as well, it's a little bit commitment to the country in the sense that we believe that in addition to the fact that we could have some offtaking from that project, yes, we are pushing this because we believe that this decision, if it comes to vis-a-vis the construction will create -- will basically push ecosystem from an NII perspective. And we believe this is good. As Ismael said, any delay that we are suffering is in a way reducing the value of that option because if we are fully commercialized, if we don't need money for the CapEx, if we are -- if there is any help that could, let's say, accelerate our implementation because we are -- we'll be done. In that case, of course, it's losing how attractive the program is. And by the way, the Europe Union has already achieved the objectives without even putting a dollar on us, which is good. But also it's interesting for us to continue trying to bring that ecosystem into Spain and Portugal. And that's the reason why we will continue pushing. As said, there are other decisions that are not on our control and if it is decided that the offer is not selected and they decide another country or another alternative, then we have done from a Spanish/Portuguese point of view, wherever we can, what was in our hand, trying to bring that capacity and that help and ecosystem into our region. Celine Huynh: I have a second question on Phase 3. So you're going to talk about it more in February, but are you going to mention how you are planning to finance it as well? Ismael Orrego: Yes. This is objective #1 for February. We will present the definition, the scope of Phase 3 together with the funding plan because the Phase 3 might be significant in terms of size. And particularly, it might signal the start of one of our really, really big projects, which is Navalmoral de la Mata. And that project alone eventually warrants a separate analysis on how are we going to fund that because it's a very, very big project. And eventually, we will need to check how we can do that, whether we continue simply running through the mother company from MERLIN or eventually for this particular case, we take a partner, which brings some other value eventually in the form of offtaking and/or financial capacity, which helps us in reaching an end in that very, very important project for the company. So you will have all the details in February. Inés Arellano: Okay. So there are no more questions. We thank you all for being with us during this 9-month '25 trading update call. And as always, we remain at your disposal for any questions that may arise. Have a nice weekend. Thank you very much for being here. Bye-bye.

148天前Insight Analytics约5分钟阅读

SOON.SW 2026 Q2 财报电话会议

Operator: Ladies and gentlemen, welcome to the Sonova Half Year Results 2025-2026 Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Bernhardsgrutter, Senior Director, Investor Relations. Please go ahead, sir. Thomas Bernhardsgruetter: Yes. Welcome, everyone, to our half year 2025-'26 results presentation. The slides for this call are available on our website. With me in the room are Eric Bernard, CEO; and Elodie Carr, CFO of Sonova. During the call, Eric will take you through the performance across our four businesses and give you a quick recap of all the new innovations we recently presented at the EUHA Congress in Germany. He will then hand over to Elodie, who will take you through the financials in more detail and present the outlook for the current financial year. We will then move to Q&A, where those of you who have dialed in over the phone have an opportunity to ask questions. Before we dive into the presentation, please take note of the disclaimer. In short, this presentation contains forward-looking statements and serves for marketing purposes. It constitutes neither an offer to sell nor solicitation to buy any securities. And with this, I pass the word on to Eric Bernard. Eric Bernard: Thank you very much, Thomas, and a warm welcome also from my side. And let's start the business review with the key highlights of the first half. A strong performance in our two larger businesses, Hearing Instruments and Audiological Care, resulted in a combined sales growth of 7% in local currencies in the first half. And this is around twice the estimated market growth and resulted in significant market share gains. Growth in the HI business was driven by the success of the Phonak Infinio and Infinio Sphere platforms that we launched in August 2024. The AC business benefited from continued investments in targeted lead generation, resulting in above-market growth. On the other hand, our two smaller businesses, Consumer Hearing and Cochlear Implants, both faced headwinds. The Consumer Hearing business struggled with weak markets and the lack of significant product launches. In the Cochlear Implants business, robust growth in system sales outside of China was offset by disruptions stemming from the introduction of volume-based procurement in China, so-called VBP, and lower upgrade sales. In terms of profitability, we have made significant progress. The strong growth resulted in substantial operating leverage and margin expansion in local currencies. Unfortunately, the strength of the Swiss franc continues to be a major headwind. Looking ahead, we are excited about our latest recent launches, and we are confident that they will contribute to a continued positive momentum in the second half. And I'll talk more about the new products a bit later. In summary, we remain confident for the remainder of the year and maintain our outlook for the full year 2025-'26. And before we move to the group highlights, I'd like to address the changes to the organizational structure we announced in conjunction with our half year results. As outlined in the release, we will retire the current business unit structure for Hearing Instruments and Audiological Care, shifting to a four-region model to strengthen customer proximity and regional responsiveness. It's all about customer centricity. And the heads of the four regions will report directly to me. Cochlear Implants and Consumer Hearing will remain distinct entities. Now looking at the highlights for the group. Sales reached CHF 1.8 billion, up 4.9% in local currencies. Normalized EBITA reached a solid CHF 316 million, up 16% in local currencies, which translates into a strong margin expansion of 180 basis points, again in local currencies. And we confirm our outlook for the '25-'26 financial year, targeting 5% to 9% growth in sales and 14% to 18% growth in normalized EBITA, both measured at constant exchange rate. Last but not least, we further built on our innovation and AI leadership with the recent launch of Ultra and entered the growing segment of ITE rechargeable hearings with Virto R, which so far is receiving a very strong market response, and I'll provide more details on this later. Let's take a closer look at the Hearing Instruments segment now. Total segment sales were up 5.7% in local currencies to EUR 1.7 billion. This was largely driven by organic growth, while acquisitions contributed around 40 basis points. The key driver was the impressive growth of 7% in combined sales in our HI and AC business. Based on market statistics and recent competitor results, we estimate that this represents around twice the market growth. This strong development clearly demonstrates that our innovative portfolio helps to drive growth, not just in our HI business, but also supports the momentum in AC or retail. On the other hand, growth in the segment was dampened somewhat by lower sales in the Consumer Hearing business. Normalized EBITA rose by 16.9% in local currencies to EUR 305 million. And this corresponds to a margin of 18.1%, representing a strong margin increase of 190 basis points in local currency. You will hear more details about the drivers for margin development later from Elodie, our Group CFO. Let's move on to the individual businesses, starting with Hearing Instruments. Building on the momentum from the second half of last year, sales increased 7.9% in local currencies to EUR 880 million, with positive contributions from both volume and ASP. Growth was driven by the ongoing success of the Phonak Infinio and Infinio Sphere platforms. And our innovation leadership can clearly be seen in the VA channel where Infinio Sphere sales alone are about 35% higher than the hearing aid sales of our largest competitors across the entire portfolio. Virto R now. Although this rechargeable ITE had only a limited initial impact as it was launched towards the end of the first half, it contributed to growth in the period's final weeks, reflecting a very positive market reception. Growth was further supported by expanding commercial relationships with large U.S. customers. I am truly convinced that Virto R, together with the recently launched Infinio Ultra and Infinio Ultra Sphere will contribute to continued momentum in the second half. So let's have a look a bit more in detail at these latest innovations. So what you see here, it's an overview of our latest innovations launched in the past months and presented during the EUHA Congress in Germany. In August, Phonak introduced Virto R Infinio, the company's first rechargeable In-The-Ear device. By combining Infinio's speech performance with a compact, custom-made design and universal connectivity, it no longer requires trade-offs from consumers in terms of performance, size or connectivity. It blends the look and feel of a traditional hearing aid with the styling of a modern consumer earbud, and it has received a very strong initial market response. And this device positions Sonova to capitalize on rising demand in this CHF 400 million market segment where we previously had no presence. A detail, more than 20% of our sales are in black. So people choose the black color. It means that this product is tackling the stigma. People are proud to show it, and that's a shift from what we've seen before. And then just over a year after the launch of Infinio and Infinio Sphere, we introduced Infinio Ultra, expanding our innovation and AI leadership. And in a benchmark study, Infinio Ultra outperformed competitors in the most challenging listening environment, speech in loud noise. And this is even without taking advantage of the unique Spheric Speech Clarity functionality of Sphere, which uses the power of our proprietary DEEPSONIC Chip, that mimics the human brain to extract and enhance voices instantly from all directions. Here, thanks to the continuous training of the deep neural network, we improved efficiency by 30%. Which means that with Infinio Ultra Sphere, now this powerful feature can be used all day and not just 3 hours. Virto R, Infinio Ultra and Infinio Ultra Sphere, all run the AI trends AutoSense OS 7.0 operating system for better automatic adaptation to different listening environments and offer a simplified one-step pairing process with phones and other Bluetooth devices. Our innovation extends beyond devices. We also introduced the patented EasyGuard wax management system, which helps protect the receiver with a sound transmitting membrane, simplifying cleaning and reducing service visits by up to 38%. That may sound -- may not sound as exciting as talking about AI, but this solution removes a very significant pain point from both the HCP and the user. So as you can see, we continue to innovate with a high cadence, and we expect these launches to be a key contributor to growth in the second half. Moving on to our Audiological Care business. Sales reached CHF 707 million, up 5.8% in local currencies; clearly outpacing the estimated market growth. And this was largely driven by organic growth. The contribution from acquisitions, including the full year effect of prior year acquisitions was around 1% and somewhat lower than in past periods. The strongest contributions came from bolt-on acquisitions in Germany, France, Canada and Australia. Our recent product launches, as mentioned before, were a major driver of healthy growth. And in addition, the business benefited from consistent and targeted lead generation. You may remember that when we published our full year results, we also discussed structural cost initiatives, including the streamlining of global and local headquarter functions and the optimization of our store network. The savings from these initiatives clearly materialized, delivering strong operating leverage and providing flexibility to reinvest in growth. Then a brief word on our Consumer Hearing business. Sales were held back by continued weak consumer demand across key geographies and the lack of major product launches in the first half. As a reminder, last year, we introduced the MOMENTUM True Wireless 4 earbuds, which were a significant growth contributor. In summary, sales declined by about 12% in local currencies to CHF 97 million. To address the growth challenge, we are sharpening our focus, concentrating on categories where we have a natural right to play, which includes audiophile and premium headphones and sound bars. One good example of this is the October launch of the HDB 630, our first wireless audiophile headphones. Great reviews, you can find them online. They deliver high-resolution digital audio with or without cable and 60-hour battery life on a single charge. This means that consumers no longer have to compromise between high-fidelity sound and wireless convenience. While it's early days, consumer and expert reviews really have been positive. I strongly recommend you look online, and you'll see it's really great. Sennheiser remains the market leader in audiophile headphones with an approximate 22% share, and this category accounts for around 1/4 of our Consumer Hearing sales. So promising beginnings for the HDB 630. Moving on to the Cochlear Implants segment. Sales totaled EUR 132 million, down 5% in local currencies. The development was hampered by tariffs and uncertainties around the introduction of volume-based procurement, so-called VBP in China. However, excluding China, sales were up 3% in local currencies. We had solid momentum in system sales in developed markets, supported by very strong commercial execution and improved D2C lead generation through our HI and AC businesses. As a result, system sales were up 7% in local currencies, excluding China, but declined by 6% overall due to the previously mentioned headwinds in China. Upgrade sales modestly down by 1.5% in local currencies, expected as we have previously flagged that during this financial year, we expect continued pressure ahead of the next processor launch as many recipients have already adopted the Marvel technology, which was introduced in 2021. Normalized EBITA reached CHF 11 million, representing a margin of 8.2%, and this was fairly stable versus the prior year period, supported by strict cost control and benefits from the weaker U.S. dollar, helping to offset the negative operating leverage in the segment. And with that, let me hand over to our CFO, Elodie Carr, who will provide more details on the financials and the outlook, and I will, of course, come back for the Q&A. Thank you very much. Elodie? Elodie Carr-Cingari: Thank you, Eric. And also a warm welcome from my side to everyone on the call. So let's take a closer look at the financials, and starting with the sales development. Eric has already discussed the growth dynamic by business, so I'm going to focus on regional performance. I'm pleased to report that all regions achieved solid positive growth in the first half. Sales in the EMEA region rose 4.5% in local currencies. This was driven by success of new products and a limited contribution from bolt-on acquisitions in Germany and France. Growth in the hearing aid market was strong in France and the U.K. private market, while Germany and Italy experienced some weaknesses. The U.S. posted the strongest growth, up 7% in local currencies, driven by double-digit growth in our HI business, indicating substantial market share gains. Growth was further supported by expanded commercial relationships with major customers and positive growth in the VA. The Americas region, excluding the United States, rose 4.3% in local currencies with solid growth across our Hearing Instruments segment. Standout countries were Canada and Brazil. Sales in the APAC region grew 0.5% in local currencies. As mentioned by Eric, CI sales in China were held back by the VBP introduction. However, our hearing instruments and Audiological Care business posted double-digit growth in China and solid gains in Australia and Japan. Excluding CI, APAC grew by 4.7% in local currencies. As you know, Sonova generates almost all of its revenue in currencies other than the Swiss franc. With a strong appreciation of the Swiss franc against all major currencies and in particular, the U.S. dollar, reported sales were reduced by CHF 107 million or 5.8% due to FX translation. Now let's look at our gross profit margin development. In local currencies, the gross profit margin fell by 80 basis points. Higher volume and ASPs in the HI and AC businesses had a positive impact on our gross profit margin. In H1, we incurred temporary costs related to regionalizing our manufacturing and logistics footprint as we further ramped up activities in our plant in Mexico and in our distribution center in Germany. In addition, lower operating leverage in our Consumer Hearing business contributed negatively to the development. Here, the FX impact on gross margin was 40 basis points. We have a better balance between U.S. dollar revenue and cost due to regionalized production and sourcing, moderating some of the impact of currency. Moving on to operating expenses. Normalized operating expenses declined by 0.2% in local currency despite strong sales growth, and that resulted in significant operating leverage. R&D expenses were up 2.4% as we continue to invest in innovation to advance our product portfolio. You heard from Eric about the results of these efforts with the launches in recent months. Sales and marketing expenses were effectively stable in local currencies. Launch investments were lower as we had our big Infinio and Sphere Infinio launches in the prior year period. On the other hand, we continue to invest in growth through ongoing lead generation efforts in the Audiological Care business. G&A expenses declined by 2.7% in local currencies through disciplined cost control and also the benefit from last year's structural cost initiatives. Whilst FX reduced operating expenses in Swiss francs by 3.8%, the impact was less pronounced than on sales as key functions such as R&D and headquarters are largely located in Switzerland. So when we bring it all together, let's look now at EBITA components, looking from left to right. In local currencies, normalized EBITA rose by 180 basis points or 16% year-over-year, driven by operational improvements in our two largest businesses, Hearing Instruments and Audiological Care. Acquisitions had no material impact. Normalization totaled CHF 29 million, mainly related to legal costs from patent litigation fees and settlement. As you may remember, we incurred significant legal costs in recent years related to a patent dispute in the Cochlear Implants business and were temporarily prevented from selling some products in Germany back in 2022. With this settlement, pending litigation in all jurisdictions worldwide is now resolved. Moving on to FX. I talked about the translation impact on sales, gross profit and operating costs already. And in sum, adverse currency developments reduced the reported EBITA margin by 150 basis points. Let me now quickly summarize the key P&L figures. Sonova delivered strong profitability growth in local currencies across all metrics. All regions contributed to higher sales. And all in all, normalized EBITA grew 16% in local currencies. Moving on to normalized EPS. We achieved a strong growth of 20% in local currencies. Including FX movement, this resulted in a stable EPS versus the prior year period in Swiss franc. Now a note on our cash flow. Cash flow from operating activities rose 12%, primarily driven by lower cash outflows from changes in working capital with positive effect from lower receivables and inventories, partly offset by lower payables. Moving on to operating free cash flow. The lower CapEx was more than offset by net investments in financial assets, which is related to financial equity investment. During the first 6 months of the year, Sonova spent $31 million on M&A, reflecting continued bolt-on acquisitions in our Audiological Care business, mainly in Germany, in Canada and in the U.S. In summary, this resulted in a free cash flow of CHF 38 million. The cash outflow that you see from financing mainly reflects dividend payments as well as repayments of lease liabilities, and that was partly offset by new financing arrangements. In October, after the balance sheet date, Sonova repaid a CHF 200 million bond and issued a new fixed rate bond of CHF 150 million with an attractive coupon of 0.92% and a maturity of 8 years. Now let's look at our balance sheet, which remains strong. Days of sales outstanding and days of inventory outstanding improved versus a year ago and versus March 2025. This is a good development, reflecting better receivable collection and was achieved despite some inventory buildup to mitigate impacts from trade disruptions. Day payables outstanding remains largely stable. Overall, we saw an improvement in the return on capital employed, which rose to 17.5%, and this is entirely driven by the higher profitability over the past 12 months. The leverage measured net debt to EBITA reached 1.5x, down from 1.8x a year ago, but up from 1.2x at the end of the last fiscal year. And with this, let me move to the outlook. So let's look at our outlook for the year, and I will start with our assumptions going into the second half. First of all, while markets remain volatile, we continue to expect overall market growth of 1% to 3%, in line with what we saw in the first half and reflecting weaker demand from macroeconomic uncertainties and tariffs. Please note that this outlook assumes no significant additional tariffs or other major disruptions beyond those already known at the time of this publication. Normalizations are expected to be in the range of CHF 30 million to CHF 35 million for the full year. And based on end October exchange rates and looking at a full year 2025-'26, adverse currency developments are expected to reduce sales growth in Swiss francs by about 6 percentage points, and normalized EBITA growth in Swiss francs by 13 to 14 percentage points. So coming to the outlook for the year. With the launches outlined by Eric, including Virto R, Infinio Ultra and Infinio Ultra Sphere, we expect to maintain good sales momentum in our Hearing Instruments business, building on the momentum we had in the first half. Coupled with continued growth in Audiological Care and an expected sequential improvement in Consumer Hearing and Cochlear Implants, we reiterate our outlook and continue to guide for sales growth of 5% to 9% and normalized EBITA growth of 14% to 18%, both at constant exchange rates. So with this, Eric and I are happy to answer your questions. Operator, can you please open the line for the Q&A? Operator: [Operator Instructions] The first question comes from the line of Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: A couple, please. Firstly, if I can ask on the guidance and your confidence around the acceleration in the second half, particularly on the top line amidst broader market uncertainty. Do you view the lower end of the range more likely? And what are your key assumptions for the top end? And then secondly, on Costco. Can you talk about your share here given you had expected to get to 25% pretty quickly and had recently mentioned that you didn't think you were quite there. Is that still the base case despite a trial of a potential new entrant into the channel? Eric Bernard: Thank you, Hassan. So Eric here, I will take the second question first. As a general principle, we do not comment on specific customers. But if we talk about a very large account in the U.S., we have reached a reasonable share, stable, and we believe we have solid plans that we are designing together with this customer. I think what you may see is that now five players are invited at the table. I won't comment any further about what will happen next. I'd say that it was great for Sonova to be back at the table of this large account in the U.S. and things are progressing nicely. Elodie Carr-Cingari: So I will take the question on the guidance, Hassan. So as you will have seen, in the first half, we grew 4.9% in terms of revenue growth and in Hearing Instruments and Audiological Care combined with a growth of 7%. We do expect to benefit from the recent launches of Infinio Ultra, Infinio Ultra Sphere and as well the entry into a growing new market segment with Virto R successfully introduced in the month of August. And so building on this innovation leadership, we have reiterated our guidance for year 2025, 2026, which remains at 5% to 9%. Eric Bernard: And I could add to give more color about the potential impact of Virto R over time. It's a segment valued at roughly CHF 400 million. If we reach our natural share of 25% to do the math, it could be an additional CHF 100 million of revenue over time. It's starting very well. We've launched in the VA a few weeks back. The numbers are very promising, as an example, but great numbers as well in general in all other markets where we've launched it. And I won't give the specific, but wherever we've launched it, it's extremely well received. Hassan Al-Wakeel: That's really helpful. If I could just follow up on the North America strength, 7.4% constant currency growth. How much of that was down to Costco and the VA price uplift, please? Eric Bernard: So we won't be as granular as you'd love us to be, but they had a significant share or contribution to this growth. But in general, we've done well in the U.S., also in other large accounts, but our innovations launched a year ago were very well received. So the U.S. market has been very favorable for us also beyond these large accounts. Operator: The next question comes from the line of Andjela Bozinovic from BNP Paribas Exane. Andjela Bozinovic: The first one maybe on the VA. Eric, last month at the EUHA Conference, you mentioned that you have had some difficulties in the channel up until November. Can you please elaborate what these difficulties were, and if it was just specific for the VA and how confident are you that these are behind us? And the second one, just on the market share and the products, and maybe it's also a follow-up on Hassan's question earlier. But your outlook assumes significant market share gains in H2. Can you comment if you're seeing any kind of slowdown in the market share gains in the last 2 or 3 months? And when we look at Ultra, because it's just a platform upgrade, it's not a new product. Can you walk us through your assumptions of market share gains versus Sphere? Eric Bernard: So I'll start by trying to answer the second question, which is rather complex. No, we haven't seen a slowdown in market share gains. We have kept gaining share quite across the globe. If you look at the last 3 to 6 months, we gained share in the U.S. We covered that just a minute ago. In Germany, in France, we have less precise data in China, but we know that in HI as well, our development in China has been very strong. So I think there's very, very good momentum. I'm a bit sorry to hear you describing Ultra as just a small improvement, and let me reflect on that. When Sphere was launched, and it will, by the way, be a good segue to the question you asked about the VA. When Infinio and Sphere were launched back in August 2024 -- and by the way, I was not in charge of the company. So I'm reflecting on this as an observer. The choice was made to bring to market a product that was not perfect, but it was a product ahead. Ahead because the only one with a dedicated AI chip, leading to a much better sound performance, especially when you want to listen to conversation in noise. And even with a product for Sphere that is 20% to 25% bigger than others, it's been selling very well. And this is almost a proof in the pudding, if I can be a bit simple here, that the sound is significantly better. When the product was launched, there were some imperfections. One of them was related to a component called the receiver. The problem is completely solved now, completely solved and for a while. But in the VA, where intensity in the clinic is much higher than at an independent, speed is important. This generated some challenges. And this is what I was alluding to when we were together in Germany. All of this is behind us. And so we are very confident that with all of this being addressed and with Ultra being what, it's a Sphere that works all day long, not just 3 hours, that connects perfectly. It's a bit more than just a platform upgrade because it just keeps increasing the gap with all the other competitors. And what we've seen is some resistance sometimes because of the size of the device. But what we see now is that the word of mouth, when people try it, we sell more and more of the Sphere. So Ultra is a significant improvement in many ways. I believe I've addressed both the question of the VA and why we are confident about why we will keep gaining share over the last few weeks and few months. I could add to this that really, really talking about AI is certainly more exciting than talking about wax. EasyGuard really addresses one of the worst pain points that both the HCP and the user have been facing historically. And this is a door opener for our sales teams, and this is going to help us enter new accounts. I'm sure it's a great entry point and it really addresses a significant pain point, which, by the way, we are able to monetize. Operator: We now have a question from the line of Veronika Dubajova from Citi. Veronika Dubajova: I will keep it to two, please. One, I just want to understand sort of your -- I know this question has been asked by Hassan, but I kind of want to decompose it maybe a little bit. I think if I look at the sort of 8% growth that you did in the first half of the year in wholesale, there's about 2.5 points in there from the VA. You don't want to comment on the large customer, but assume for argument's sake that, that's kind of 100 to 200 basis points, which is I think what your ambition was at the time of the guidance. What that leaves the wholesale business growing at excluding that is an above-market number, but not a meaningfully above-market number at sort of a 4% growth rate against the market growing at 2%. I guess, are you satisfied with that momentum when you think about it, excluding those two big tailwinds that you've had? And as you fast forward to the back half of the year, what do you think that number could look like given the things that you're launching with Virto and the Ultra upgrade? So that would be my first question. The second question is a little bit of a financial one around the gross margin. Pretty meaningful compression there. Obviously, I appreciate that. FX played a role there. But Elodie, I don't know if you have any guidance for the back half of the year and whether there's anything you can do to improve the profitability in the short term. Or is this kind of the new normal, given the changes you have made to the manufacturing footprint more fundamentally? Eric Bernard: Veronika, thank you. So I will take the first question. So yes, we're happy because I've got numbers that I cannot share in details in front of me, but it's clear that beyond the VA, beyond a large account in the U.S., we have gained share very nicely in France, in Germany, in Canada and in U.S. commercial in general. So it's been a very, very solid past quarter and first half as far as gaining shares are concerned. And again, we are confident that Virto R, Ultra and no longer any issues around the receiver like the ones we experienced after the launch back in 2024 of Infinio, this is gone. So we are confident that in the HI space, we're going to keep growing very, very nicely. Elodie Carr-Cingari: Good. And I will take the question on the financials. So you were asking on the gross profit side and generally on the margin side, regarding the second half outlook and what the expectations are there. So from this perspective, I would say, 3 different impacts. One is obviously operating leverage that really drives -- comes from the revenue growth and that should -- as you see in the first half was also a positive element there. So we expect that also to continue in the second half. Second is the cost improvements that we have seen and are coming from the initiatives that we've taken -- structural initiatives that we've taken in previous year. So obviously, these will also continue in the second half. And then last but not least, as I explained, we talked about some temporary costs relating to some regionalization of some of our manufacturing footprint with the ramp-up in Mexico and the ramp-up of the distribution center in airport and the expectation there is that this should also drive further improvements in the second half. Operator: The next question comes from the line of Oliver Metzger from ODDO BHF. Oliver Metzger: The first one is a little bit more general about the hearing aid market, and this has obviously also some impact on your guidance. So you assume a continuation of the 1% to 3% market growth which is still compared to what we have seen a more muted -- continuation of a more muted development. So history has shown, and Eric, you are for multiple years in hearing in industry. So you -- that normally, weaknesses are more of a temporary nature. And I completely understand why your guidance had and your market assumptions are where they are. But what do you think about -- you're talking about 6 months for the second half. When do you think that we might see also growth in hearing market back to a north of 3% towards the 4% level? That would be great to hear. The second question is about your Cochlear Implant business. So even excluding China, it's not doing well. And it would be great to have your view, what has changed over the years. So we saw it was growing steadily over multiple years, have been there any changes in reimbursements? Less willingness of copayments? Or what do you see behind this structure slowdown we see now for quite a while? Eric Bernard: All right. Thank you, Oliver. So I will start with the second question Cochlear Implant. As you know, we have 2 types of revenues systems and upgrades. And if we are fully transparent, our latest innovation was brought to market in 2021. So we are slow to innovate versus our competition. In 2026, we will come to market with great innovation that will allow us to sell not only systems but also upgrades that will be very relevant. By the way, the change that we have put in place in our organization is to have one head of R&D supervising both what's called HI and what is called CI. The speed at which what is developed for hearing aids gets into our implants is not satisfactory for me discovering Sonova from the inside. And this explains most of the weakness behind the numbers. But I will repeat that if you put aside China, not having anything new to offer to still grow at 3% is the testimony that from a commercial standpoint, the team are doing a great job, and this is something that we will keep in the future. But expect us some time in '26 to come up with a brand-new solution that will allow us to get back into growing both systems and upgrades. And by the way, by then, we will have absorbed the bumps and the challenges coming from the VBP deployments in China. So I'm positive about what we will see from the Cochlear Implants business units sometime later in 2026. About the market, and I'm sure you've heard that from other players, we cannot neglect the impact of in-Europe inflation only tariffs and the impact of the volatility of financial markets for retirees in the U.S. where it's 401K plans and so on and so forth. So what we think is that people have waited. And that at some point, we're going to see the market bouncing back. The question is when. Is this going to be towards the end of 2026 or second half of 2026. I'm talking calendar year. Is this going to be early 2027, that I honestly don't know. So we are working with the assumption that the market at least for the next 6 months will keep growing at around 3%. And by the way, one has to be careful behind the 3% because France was a very large contributor of the global growth, and it's a bit of an outlier, growing at a much faster pace. So we are conservative as far as the market growth is concerns. And I will repeat what we've described. Leveraging our innovations, we expect to grow at a faster pace in the HI segment. Operator: We now have a question from the line of Urs Kunz from Research Partners. Urs Kunz: I have 1 question again about Cochlear Implants business there. And where do you take your positive expectations of having a better H2 there? When you were hinting at a new products in 2026, I guess that's a new processor. Is there more than a new processor that we can expect. But even then, this would have no impact, I guess, in the current fiscal year yet? Eric Bernard: Correct. It will have no impact in the current fiscal year. That's going to come next fiscal year. Absolutely. Urs Kunz: And where do you take then the positive expectations of having a better H2 in the Cochlear Implants business? Eric Bernard: I don't think I mentioned that. Maybe I wasn't clear. That's not what I suggested. What I explained is that when we come to market with a new processor, then we will see a different pattern in our growth. And that will come sometime in the next fiscal year. Sorry, if I wasn't clear. Urs Kunz: So this -- but the problems in China, do you think that should be something that we can expect to be better in H2, or is that also something that you have to keep in consideration? Eric Bernard: Yes, I'm hopeful that towards the end of H2, we will see a normalization of our business in China, but there's still a bit of work to be done in that space. Urs Kunz: Then my second question would be on share buybacks. I see that the net debt-to-EBITDA level is at 1.5 now, which would allow at some point relatively soon to come back on that question. Is there anything to mention from your side? Elodie Carr-Cingari: So we are, in fact, at 1.5x net debt to EBITDA, as you mentioned. Our capital allocation strategy as discussed in May is still relevant, and we are not considering a share buyback at this point in time. Urs Kunz: Then next question, short question about acquisitions that we are in a really low level in H1, do we have to expect that there will not be a lot more in H2? Or did you already do something that you can say H2 should be a bigger impact? Elodie Carr-Cingari: In line with the capital allocation strategy, we do expect an envelope for what we call bolt-on acquisitions. So basically in the Audiological Care business so there was about CHF 31 million in the first half. We do expect to ramp that up in the second half to come in line with the overall envelope that we have previously talked about for the year. Urs Kunz: Okay. Then my last question on this new organization structure that you start to implement now. I guess there's no significant restructuring costs involved is that because otherwise, I guess you couldn't stick to your normalized EBITDA guidance? Eric Bernard: Absolutely no restructuring costs. It's about creating regions reporting to me directly with region head supervising both wholesale and retail. It's about making sure that we meet the specific needs of customers, which are very different from China to the U.S., from Europe, the U.S., et cetera. It's all about customer centricity and being very close to the market needs. And it follows something that we did not comment about, but I can share that for already a few weeks both the head of R&D, and I explained supervising now both Hearing Instruments and Cochlear Implants and the Head of Quality report to me. So if I summarize this very briefly, to win in this industry, you have to keep innovating and you have to be on quality on time. And this is why both R&D and quality report to me directly. And the second step is to create 4 regions so that we are clear on what needs to be delivered for the specific needs of customers which are very different region by region and coming into Sonova, I see, for instance, real significant opportunities in Asia Pacific. Operator: The next question comes from the line of Martinien Rula from Jefferies. Martinien Rula: I hope that you can hear me okay. So I would have 2 questions, if that's okay for you. The first one is that I just wanted to circle back on the EUHA related discussions that we had, it's my impression that patients equipped with the Infinio and Sphere products can get the Ultra software upgrade for free. So I was wondering if you could comment on the commercial strategy for the Ultra versions. Will these be priced in line with the classic versions? Will these be priced higher than the classic versions and/or will clients have access to both the classic and Ultra version at different price points? These are kind of the questions I'm asking myself at the moment. And I'm asking that because if I understood correctly, your comments during EUHA so your newer wax management system is something that is only available on the Ultra version so far and that is something that you intend to monetize. This was the first question. So maybe I can give you some time to answer this one before asking the second one. Eric Bernard: Okay. Thank you for the question. So yes, indeed, for existing wearers, the upgrades to Ultra is available for free. Well, assuming that the HCP is offering it for free. However, for new wearers, Ultra is priced at a higher level from us, so wholesale price. Again, I have addressed that question already at EUHA, so there's nothing new there. For the EasyGuard, first point, we can monetize it, and it's going to be available beyond Ultra over time. Martinien Rula: Okay. That's perfect. And for the second question, it was about the momentum in Consumer Hearing and Cochlear Implants. So I would appreciate any comments that could help us do the modeling stuff for these 2 divisions as the momentum has been pretty bumpy and that comp-based differences makes it even harder to get a proper view on what could look like when it comes to the second half of this year? Elodie Carr-Cingari: So I will pick up that question. Looking at Consumer Hearing, we do expect a stronger sales in second half than what saw in first half. I think a part is really driven by the introduction of our new products, the HDB 630. I don't know if you've seen, but it's very exciting product. It's the first wireless audio file product, and the reaction in the market has been very positive. So we do see a better growth on Consumer Hearing compared to the first half. I think there was some on Cochlear Implants as well. So Cochlear Implants, as Eric has mentioned, I mean you have 2 sides. One side is the VBP situation in China, which he has already mentioned. And the other side is the weakness that we have seen in upgrades versus systems. So while systems have been strong in all areas, except China, upgrades have been lagging behind because of the fact that the product there is starting to be quite aging and the new products will come in the year 2020 -- in the fiscal year 2026. So that's currently the underlying business assumptions that we are taking. Martinien Rula: Okay. That's perfect. And just a quick follow-up on the Consumer Hearing business. So I got it that you should grow the sales on a sequential basis. But what about sales growth for Consumer Hearing on a year-on-year basis? Elodie Carr-Cingari: As I said, our assumption is to be on a stronger sequential basis. And that should come, as I said, from the new products and stronger momentum there. And then I will not give a specific number year-over-year. Operator: We now have a question from the line of Susannah Ludwig from Bernstein. Susannah Ludwig: I have 2, please. I guess, first, I just wanted to follow up about your comments on the opportunity in APAC for Sonova. Maybe if you could just comment a little bit more on what it is that Sonova needs to do differently in that region to take advantage of the opportunity. Does this require sort of different products, different brands or a different go-to-market strategy? And then second, just following up on the question on gross margins into H2, I guess, could you maybe quantify the sort of 80 basis point headwind this half? What percentage of that comes from the temporary cost from the ramp and the regionalization of manufacturing? And then is that expected to fully abate in the second half? Eric Bernard: Thank you for the question about Asia Pacific. I spent more than 20 years of my life across Japan, China, Singapore, et cetera. So your question is what does it take to win bigger than currently for Sonova in Asia Pacific. Well, you've seen that we are creating a new role of Head of Asia Pacific, excluding China, knowing that China already reports to me directly. And this head of Asia Pacific ex China will be based in Asia, in Singapore. That's the first change. Managing Asia Pacific from Switzerland is probably very challenging, irrespective of the quality of the leader. Then awareness, access, affordability, consumer journey. This is what you need to tackle if you want to grow in this category. And in Asia, it's particularly acute. You need to be able to bring products at different prices and yet keep profitability at the same level. So here, you're talking about more simple products, maybe defeatured products and not just selling in Asia, what you have designed for Europe or the U.S., then there's a lack of qualified professionals. So you also have to think in terms of more simple solutions for dispensing. So products, price points, and certainly, as you've touched on brands, presence on the ground. China, for China, I speak about China, in particular, this is what we need to get our fair share of Asia Pacific, which I believe we do not have today. This will take time. And it's giving you some insights about one of the dimension of the strategy we will be talking about when we go into next year. but certainly very good opportunities for the group in this part of the world. Susannah Ludwig: Great. Thanks for the comprehensive answer. And then I guess just on the gross margins. Elodie Carr-Cingari: Yes, I will gladly answer this one. So you were asking about the gross margin, and specifically the impact of the ramp-up costs for the regionalization of some of our manufacturing footprint. So as I mentioned, we ramped up activities on the manufacturing side in Mexico and also with our distribution center in Germany. We did absorb some ramp-up costs in the first half. Those transfers are now in the completion stage. And so we do expect a sequential benefit half over half to come from cost improvements in these areas. But I will not give a specific number. Operator: The next question comes from the line of David Adlington from JPMorgan. David Adlington: Most have been answered, but maybe just to put a clip a little bit further on the second half implied guidance for the top line. Obviously, that implies at the top end, sort of 13%, 14% growth in the second half. I just wondered maybe put another way, why not narrow the top of the range down a little bit just to make -- it seems a very, very wide range? And then secondly, just on the Section 232 probe and the scope of the tariffs, I just want to get your thoughts on the tariffs and what mitigation you might be able to put in place if they do come in? Elodie Carr-Cingari: I will pick up the first question on the guidance. So we stick to our range in 5% to 9%. So I mentioned... Eric Bernard: David, may we ask you to go on mute because there's noise in your background. Thank you very much. Elodie Carr-Cingari: Yes. So -- and as I mentioned, we achieved 4.9% in the first half with 7% in HI and AC. And we do expect some growth in the HI side based on new products. So Infinio Ultra, Sphere Ultra and Virto R, and that allows us to basically stick to our range in the second half. Eric Bernard: And about the tariffs, as you know, we are currently exempt from U.S. tariffs based on the [indiscernible] protocol. If you were referring to the sector 232, if my recollection is correct investigation. As a matter of principle, we don't comment on ongoing investigations. If we take time anyway. If we were really in a difficult situation, we have facilities in Mexico, in the U.S., in Canada, and we will be agile about adjusting the way and the location where we manufacture. Operator: We now have a question from the line of Michelle Buchler from Zurcher Kantonalbank. Unknown Analyst: Do you hear me? Thomas Bernhardsgruetter: Very well. Unknown Analyst: It's actually not is Michelle, it actually me, Daniel, as you hear. So just a question on the ASP uplift. I'm not sure if it was already answered. But when I look at the great 7% local currency growth in the Hearing Instruments segment total. Can you talk about the unit growth there or the other way around the ASP uplift, must have been quite an impact, right? First question. Eric Bernard: Yes. Okay. So of course, without being too granular because this becomes a competitive information. If you look at HI versus AC to wholesale versus retail, a rather good balance in the wholesale business with both growth in units and some ASP increase, more skewed towards volume than prices. And if you look at our retail business, the opposite. We had both positive impact but more skewed towards price increases than on volume, and this is a reflection of the fact that our own retail stores are able to drive, create value growth out of the innovations that we brought to market. So a good balance if you look at the combination of both. Unknown Analyst: Okay. Good to hear. And the second and last question, I mean, with your background at Essilor [indiscernible] we all tried this great eyeglass with hearing aids. Is that an idea for the future as well for you? Or is it too far away? Just -- yes that's the question. Eric Bernard: First, what's great when you see such initiatives with large organizations with market power is that they help us increase the awareness of the importance of good hearing. I would not comment about whether we're going to go there or not. I won't make any comments about it. Operator: We now have a question from the line of Niels Granholm-Leth from DNB Carnegie. Niels Granholm-Leth: First one on the launch of Virto R. So wouldn't you expect any cannibalization from this CIC form factor on your other form factors? And perhaps you could elaborate on the amount of sales that would come from your CIC category now. So where could this category actually go as a percentage of sales. We know that it's about 10% of the market. And then secondly, we have had this discussion throughout this year about these 5-year reimbursement cycles and to what extent it has affected the overall hearing aid market this year. So do you prescribe to the idea of market growth being under pressure this year because of less people or fewer people renewing hearing aids in 5-year after the shutdown since 2020? Eric Bernard: Yes. So I'll start with the last question. We believe there's a longer repurchase cycle for the last few months. So yes, I think it did increase. So first question. Second question is Virto R. So again, we estimate that this segment is about CHF 400 million per annum. And so it will take a fair share of that segment. At some point, we hope to -- it's a cruising at altitude of CHF 100 million, which we see as incremental. We don't see a risk of cannibalization what we see is that we're entering the new accounts and that we are reaching to new type of consumers. So we don't see a risk of cannibalization, maybe marginal. But for us, we really see it as incremental. And I will repeat what I said in my introduction, what's very interesting is to see that black as a color is more than 20% of the sales. And that's really something new. We've never seen that otherwise. And when I'm wearing it, when I see people wearing it, the reflection you get it, it's really cool. It's really different. And I think this product is helping us not only within the industry to get into a segment where we have no right to play because we had no rechargeable solution. And by the way, we were not best-in-class for custom products and there, we have significantly improved. But we're also tackling the stigma in a new way, and that is very, very exciting. By the way, what I mean by we were not that great in the custom segment is now with the new way we tell the product this process called right fit, which is using AI. You get really to an optimal feed and acoustic performance in the smallest possible size. It's really the smallest of all and the returns are much, much lower than what they were before. And we mentioned that at EUHA, but now we have a bit more -- we have 3, 4 more weeks on top of when we met at EUHA. And so it's a very promising category for us. Niels Granholm-Leth: So you would expect your CIC to -- you would close the gap to the market where -- which is currently at around 10%? Eric Bernard: We believe so. Very promising. Operator: The last question comes from the line of Sibylle Bischofberger from Vontobel. Sibylle Bischofberger: As a first question, in the past on the outlook slide, you always mentioned the midterm outlook. Now it was not mentioned anymore. So is the goal still valid? This is my first question. Eric Bernard: Right. So yes, indeed, we are not sharing the midterm targets any more why. And I'll be very candid and straightforward here. We have a new management team, we have a new chair, and we are currently working on updating our strategy and our strategic ambition. And so sometime at -- in the first half of 2026, we will be very specific about this updated -- upgraded midterm targets. Elodie, anything you'd like to add to this? Elodie Carr-Cingari: Well, I'd just like to add that we have strong fundamentals in the industry. You have an aging population in the world. And in that sense, the industry is an industry that will grow because more and more people are getting older and more and more people will need some hearing aid. So in the scope of that, I will say, and now with a focus on the regions and growing in those markets that will be -- these are strong fundamentals we can talk about. Eric Bernard: We don't expect our ambition to go down. The market growth has slowed down over the past few quarters, but demography doesn't change. The world is aging, aging very fast, and so demand for hearing solutions will increase. But again, we have now started the process to refresh in depth our strategy in our strategic ambition. And so expect us in the first half of 2026 to come back with probably a capital day to be organized to present this to all of you. Sibylle Bischofberger: And then my second question, you several times mentioned your market share has gone up. Could you give us a hint how large is your market share now? Eric Bernard: Do we share that, Thomas? I'm not sure. So... Thomas Bernhardsgruetter: No, we don't really share that, but I think, historically, we've always talked that we had more than a quarter. And you can imagine that it has gone up from there, but I wouldn't go beyond that. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Eric Bernard, CEO, for any closing remarks. Eric Bernard: Well, thank you very much for all these questions. We will talk not too long down the road and looking forward to further calls and meetings in person over the next few weeks and few months. Thank you very much. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

148天前Insight Analytics约5分钟阅读

LIGT3.SA 2025 Q3 财报电话会议

Operator: Good morning, ladies and gentlemen, and welcome to the Third Quarter Earnings Call for Light. Today's event will be in Portuguese and will be translated into English. If you would like to listen to the English language audio, you can click on the Interpretation button at the bottom of your screen. We'd like to inform you that this event is being recorded and it will be available at the company's Investor Relations website along with the materials used in this presentation, which can be downloaded there. [Operator Instructions] Before we continue, I would like to state that any remarks during this presentation about the company's business perspectives, projections, operational and financial goals are simply based on the directors' beliefs and assumptions. They are based on information that is currently available for the company. Remarks about the future are not a guarantee of performance as they involve risks and assumptions and refer to future events that, therefore, depend on circumstances that may or may not occur. Investors should understand that the general economic conditions, industry conditions and other operating factors may affect the company's future results and lead to results that differ materially from those expressed in these forward-looking statements. After that disclaimer, we will begin the company's presentation with Mr. Alexandre Nogueira, CEO, who will make his opening remarks; and then we will hear from Rodrigo Tostes, CFO and Investor Relations Officer, who will talk about the company's results. Mr. Alexandre will begin. Go ahead, sir. Alexandre Ferreira: Good morning, everyone, and welcome to Light's third quarter results call. Before commenting on the company's performance, I would like to highlight that we were very pleased to receive a favorable recommendation for the renewal of our distributors' concession at the ANEEL Board meeting on November 4. This recommendation is not only a crucial step in the process, but also an unequivocal validation that Light has met all of ANEEL's rigorous technical, economic, financial and operational management criteria. It demonstrates our commitment to responsible management and long-term operational and financial sustainability. Following the procedural rules, the matter was forwarded to the Ministry of Mines and Energy, which is responsible for signing the addendum to the concession contract. This important milestone consolidates our transformation plan, which is based on 3 fundamental and complementary pillars: economic, financial and operational. The economic pillar also considers these new terms for the concession contract, which will be valid for the next 30 years. This is a balanced contract that addresses the structural challenges in our concession area, such as a differentiated treatment for risk areas. This rebalancing process will guarantee long-term sustainability and security for us to expand our investments. So we will be able to accelerate the modernization of the network and improve services, honoring our legacy in Rio de Janeiro. This has been the case for the last 120 years and will continue to be so for decades to come. In the financial pillar, the company is up to date with all stages of its judicial reorganization plan. The debt has already been reprofiled, resulting in lighter capital structure with reduced rates and extended terms. On the operational side, we continue to reap good results in our indicators. The DEC index, which measures the duration of interruptions reached a historical low of 6.08 hours in the 12-month period, 10.6% below ANEEL's regulatory limit. The FEC index, which tracks frequency, stood at 3x, 33% below the regulatory limit. Light has also reduced by 40% the average emergency response time and power outages lasting more than 24 hours by 64%. These results reflect the disciplined execution of our transformation project. On the investment side, this quarter alone, our distribution company invested BRL 457 million, an increase of more than 70% over the same period last year. Year-to-date, the Light Group's investment already totaled BRL 1.2 billion with approximately BRL 1 billion of this amount allocated exclusively to electrical assets. These resources are being directed to several fronts with an emphasis on optimizing processes and systems, expanding our field teams and continuously modernizing our network. Our vision for the future also extends to our generation business. We are working to ensure the renewal of generators concessions and our participation in future capacity reserve auctions to be announced by the government, which we have already formalized with the competent authorities. The renewal of the concession, financial discipline and strengthening our operational indicators marked the beginning of a new cycle for Light. Our entire team is committed to transforming these results into sustainable values and consolidating Light as a leader in the evolution of the Brazilian electricity sector. To detail this quarter's figures and the next steps in our court mandated reorganization plan, I will now give the floor to our CFO, Rodrigo Tostes. He will comment on the advances that include a capital increase of up to BRL 1.5 billion, supported by our reference shareholders and the conversion of debt into company shares. Thank you, everyone. After Tostes' presentation, I will be available for a Q&A. Rodrigo Tostes Solon Pontes: Thank you, Alexandre. Good morning, everyone. As said by Alexandre, this is indeed a very special moment for the company. ANEEL's favorable recommendation for the renewal of our concession is the result of a great effort. The deliveries that we've made so far will sustain the company's future for the next years in a structural and definitive way. So let's start the presentation with the highlights. First, cash continues to be the company's focus. Life continues to have a solid cash position, a total of BRL 2.64 billion at the end of the third quarter of 2025. In this context, it's worth noting that we've reached this position by making investments to the order of BRL 470 million in the quarter, a 60% increase compared to 2024. This was done 100% on capital. Everything that's been done is a part of a plan that keeps the company healthy from a financial perspective. At the end of September, our net debt-to-EBITDA ratio was 2.89x with a downward trend in the short term which will take place after the debt is converted and the planned capital increase takes place after signing the contract. On the operational side, we continue to work hard. The distributors' nontechnical loss indicator on wire load fell to 22.8%. Quality indicators, DEC and FEC remain well below target and are improving consistently. Continuing with Slide 5, we have the evolution and more details on the company's consolidated cash position. As already mentioned, the group ended the quarter with cash and equivalents of BRL 2.6 billion. The 14% reduction compared to last December's position mainly reflects a lower energy consumption at the distribution and the negative effect of the CVA composition in the period, also in the range of BRL 500 million. A key point I would like to elaborate on is the application of our cash. First, I would like to clarify that we strictly follow the investment policy approved by our Board of Directors and that this policy has objective allocation criteria that consider: one, the rating and book value of financial institutions; two, the maximum percentage exposure per institution; and three, the maximum proportionality of exposure in institutions by book value to ensure security and conservatism in the application of our resources. It's important to note that at the end of the quarter, around 85% of our cash and cash equivalents were allocated to government securities or assets of institutions with the highest investment grade. The remaining portion, around 15% was allocated to institutions with an A rating or higher. Moving on to Slide 6 and now turning to the distributors' operational highlights. We can see consistent progress in the main quality indicators monitored by ANEEL. The DEC, which measures the duration of interruptions over the last 12 months stood at 6 hours at the end of the quarter and is at historic lows, while FEC, which measures the frequency of these interruptions, stood at 3x in the same period, both comfortably within ANEEL's regulatory limits. In addition, another clear sign that we're on the right track is the transformation that we've achieved in other operational indicators. For example, the average emergency response time and the volume of incidents lasting more than 24 hours have been drastically reduced as a result of the investments made in the operation and network infrastructure and field teams. I'd like to take this opportunity to congratulate the entire operations team and other support areas of the distribution company, which spared no efforts to reached this extremely significant milestone, which is already being felt by the entire population of our concession area. Moving on to Slide 7. We can see the impact of the harshest winter in the last 19 years on our city, which has impacted electricity demand in our concession area. In the quarter, the energy market declined 5.3% year-on-year with a sharp decline, not only in the residential and commercial classes influenced by the temperature effect, but also in energy demand in the industrial class. Moving on to Slide 8, we will talk a little about losses in our concession area. For a better understanding of our business and to avoid misinterpretations, we will now monitor the loss indicator considering nontechnical losses on the wire load. That is nontechnical losses in relation to all the energy that's circulated in Light's grid during a given period. In this sense, in the last 12 months ending in September, this indicator was 22.8% for the distributor as a whole, an improvement of 0.3 percentage points over the same period last year. It's important to note that our strategy to combat losses so far, we have combined the implementation of new technologies with data intelligence to translate into more assertive field actions. This strategy is based on investments in infrastructure modernization such as intensification of cut and reconnect actions, reregistration of the customer base, implementation of boundary measurements and resolution of an old but relevant challenge in our concession area, which is the outsourcing of meters. Moving on to Slide 9, we present the progress in the distribution -- excuse me, the distributors' investments. This quarter, we invested BRL 457 million in the distribution business, increasing the amount invested by 73% year-on-year, mainly due to the growth in investments in maintenance and quality actions in low voltage and underground networks. As a result, the distributor accumulated investments of around BRL 1.2 billion in the first 9 months of 2025, surpassing the amount invested throughout the entire year of 2024, which was BRL 967 million. Moving on to Slide 10. I will briefly comment on the distributors' adjusted EBITDA performance, which totaled BRL 402 million in the quarter. As already mentioned, the result was impacted by low temperatures and PMSO expenses as observed in recent quarters, which have been higher due to the increase in in-house and third-party teams focused on supply quality and customer service. It's also important to mention that we expect an increase in productivity and a significant reduction in PMSO expenses in the coming years due to structural projects, modernization and improvement in management. Contingency expenses have already shown us significant results. We saw a 21% drop in the volume of new claims in special courts, 40% in new claims in civil courts and 8% reduction in the backlog of cases in both courts. Moving on to Slide 11, we will briefly comment on the Generation and Commercialization segments, which together reported an adjusted EBITDA of BRL 103 million in the third quarter. Despite the growth in the volume of energy sold with a 42% year-on-year increase, adjusted EBITDA performance was negatively impacted by the unfavorable GSF in the period. Despite this, the combined businesses delivered a net income of BRL 21 million in the quarter. Additionally, I'd like to mention that in July, we contracted a hedge operation for the remaining balance of the company's foreign currency debt, which will mature in June 2026 to the amount of USD 159 million, thereby eliminating the bond's exposure to exchange rate fluctuations to the dollar. Before we move on to the Q&A, I'd like to quickly go over Slide 12 with the next steps outlined by the company's court order reorganization plan, which are the private capital increase and the conversion of convertible debt as described in clauses 4 and 5 of our plan. The starting point is signing the new Light SESA Concession Agreement, which has not yet taken place. After that date, we will have a 90-day window to execute both the capital increase and the debt conversion. All relevant information about these events, including amounts, deadlines and operational details will be disclosed in a timely manner when duly approved by our Board of Directors, obviously, respecting the terms and conditions imposed by the judicial reorganization plan. Finally, getting to this point was no accident. Everything we've achieved is a result of plans that were made and carried out by all of our company's teams led by Alexandre. Our 120-year history starts with a new contract, a new business model in which Light will be a balanced company with all the conditions to provide quality services that our customers deserve while remunerating the capital employed by our shareholders. With that, I conclude my remarks and give the floor to the moderator, who will begin the questions-and-answer session. Thank you. Moderator, please proceed. Operator: [Operator Instructions] The first question was asked by Mr. [ Francisco Barbe ] from [ Moneda ]. He asks about the company's investment expectation for the distribution company. Rodrigo Tostes Solon Pontes: Francisco, thank you for that question. As Alexandre said, and as I've stated a few times, our expectation after renewing the concession is for Light to have a broad investment plan, especially to modernize its assets. This investment plan is still being perfected, but it will definitely be a plan that will give more reliability to the asset on the short term and a renewal and modernization of these assets in the short and medium term. Thank you. Operator: [Operator Instructions] This concludes the question-and-answer session and the company's conference call. On behalf of Light, we would like to thank you for being here and inform you that the Investor Relations team is always available. Thank you, and have a good day.

148天前Insight Analytics约5分钟阅读

SONVY 2026 Q2 财报电话会议

Operator: Ladies and gentlemen, welcome to the Sonova Half Year Results 2025-2026 Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Bernhardsgrutter, Senior Director, Investor Relations. Please go ahead, sir. Thomas Bernhardsgruetter: Yes. Welcome, everyone, to our half year 2025-'26 results presentation. The slides for this call are available on our website. With me in the room are Eric Bernard, CEO; and Elodie Carr, CFO of Sonova. During the call, Eric will take you through the performance across our four businesses and give you a quick recap of all the new innovations we recently presented at the EUHA Congress in Germany. He will then hand over to Elodie, who will take you through the financials in more detail and present the outlook for the current financial year. We will then move to Q&A, where those of you who have dialed in over the phone have an opportunity to ask questions. Before we dive into the presentation, please take note of the disclaimer. In short, this presentation contains forward-looking statements and serves for marketing purposes. It constitutes neither an offer to sell nor solicitation to buy any securities. And with this, I pass the word on to Eric Bernard. Eric Bernard: Thank you very much, Thomas, and a warm welcome also from my side. And let's start the business review with the key highlights of the first half. A strong performance in our two larger businesses, Hearing Instruments and Audiological Care, resulted in a combined sales growth of 7% in local currencies in the first half. And this is around twice the estimated market growth and resulted in significant market share gains. Growth in the HI business was driven by the success of the Phonak Infinio and Infinio Sphere platforms that we launched in August 2024. The AC business benefited from continued investments in targeted lead generation, resulting in above-market growth. On the other hand, our two smaller businesses, Consumer Hearing and Cochlear Implants, both faced headwinds. The Consumer Hearing business struggled with weak markets and the lack of significant product launches. In the Cochlear Implants business, robust growth in system sales outside of China was offset by disruptions stemming from the introduction of volume-based procurement in China, so-called VBP, and lower upgrade sales. In terms of profitability, we have made significant progress. The strong growth resulted in substantial operating leverage and margin expansion in local currencies. Unfortunately, the strength of the Swiss franc continues to be a major headwind. Looking ahead, we are excited about our latest recent launches, and we are confident that they will contribute to a continued positive momentum in the second half. And I'll talk more about the new products a bit later. In summary, we remain confident for the remainder of the year and maintain our outlook for the full year 2025-'26. And before we move to the group highlights, I'd like to address the changes to the organizational structure we announced in conjunction with our half year results. As outlined in the release, we will retire the current business unit structure for Hearing Instruments and Audiological Care, shifting to a four-region model to strengthen customer proximity and regional responsiveness. It's all about customer centricity. And the heads of the four regions will report directly to me. Cochlear Implants and Consumer Hearing will remain distinct entities. Now looking at the highlights for the group. Sales reached CHF 1.8 billion, up 4.9% in local currencies. Normalized EBITA reached a solid CHF 316 million, up 16% in local currencies, which translates into a strong margin expansion of 180 basis points, again in local currencies. And we confirm our outlook for the '25-'26 financial year, targeting 5% to 9% growth in sales and 14% to 18% growth in normalized EBITA, both measured at constant exchange rate. Last but not least, we further built on our innovation and AI leadership with the recent launch of Ultra and entered the growing segment of ITE rechargeable hearings with Virto R, which so far is receiving a very strong market response, and I'll provide more details on this later. Let's take a closer look at the Hearing Instruments segment now. Total segment sales were up 5.7% in local currencies to EUR 1.7 billion. This was largely driven by organic growth, while acquisitions contributed around 40 basis points. The key driver was the impressive growth of 7% in combined sales in our HI and AC business. Based on market statistics and recent competitor results, we estimate that this represents around twice the market growth. This strong development clearly demonstrates that our innovative portfolio helps to drive growth, not just in our HI business, but also supports the momentum in AC or retail. On the other hand, growth in the segment was dampened somewhat by lower sales in the Consumer Hearing business. Normalized EBITA rose by 16.9% in local currencies to EUR 305 million. And this corresponds to a margin of 18.1%, representing a strong margin increase of 190 basis points in local currency. You will hear more details about the drivers for margin development later from Elodie, our Group CFO. Let's move on to the individual businesses, starting with Hearing Instruments. Building on the momentum from the second half of last year, sales increased 7.9% in local currencies to EUR 880 million, with positive contributions from both volume and ASP. Growth was driven by the ongoing success of the Phonak Infinio and Infinio Sphere platforms. And our innovation leadership can clearly be seen in the VA channel where Infinio Sphere sales alone are about 35% higher than the hearing aid sales of our largest competitors across the entire portfolio. Virto R now. Although this rechargeable ITE had only a limited initial impact as it was launched towards the end of the first half, it contributed to growth in the period's final weeks, reflecting a very positive market reception. Growth was further supported by expanding commercial relationships with large U.S. customers. I am truly convinced that Virto R, together with the recently launched Infinio Ultra and Infinio Ultra Sphere will contribute to continued momentum in the second half. So let's have a look a bit more in detail at these latest innovations. So what you see here, it's an overview of our latest innovations launched in the past months and presented during the EUHA Congress in Germany. In August, Phonak introduced Virto R Infinio, the company's first rechargeable In-The-Ear device. By combining Infinio's speech performance with a compact, custom-made design and universal connectivity, it no longer requires trade-offs from consumers in terms of performance, size or connectivity. It blends the look and feel of a traditional hearing aid with the styling of a modern consumer earbud, and it has received a very strong initial market response. And this device positions Sonova to capitalize on rising demand in this CHF 400 million market segment where we previously had no presence. A detail, more than 20% of our sales are in black. So people choose the black color. It means that this product is tackling the stigma. People are proud to show it, and that's a shift from what we've seen before. And then just over a year after the launch of Infinio and Infinio Sphere, we introduced Infinio Ultra, expanding our innovation and AI leadership. And in a benchmark study, Infinio Ultra outperformed competitors in the most challenging listening environment, speech in loud noise. And this is even without taking advantage of the unique Spheric Speech Clarity functionality of Sphere, which uses the power of our proprietary DEEPSONIC Chip, that mimics the human brain to extract and enhance voices instantly from all directions. Here, thanks to the continuous training of the deep neural network, we improved efficiency by 30%. Which means that with Infinio Ultra Sphere, now this powerful feature can be used all day and not just 3 hours. Virto R, Infinio Ultra and Infinio Ultra Sphere, all run the AI trends AutoSense OS 7.0 operating system for better automatic adaptation to different listening environments and offer a simplified one-step pairing process with phones and other Bluetooth devices. Our innovation extends beyond devices. We also introduced the patented EasyGuard wax management system, which helps protect the receiver with a sound transmitting membrane, simplifying cleaning and reducing service visits by up to 38%. That may sound -- may not sound as exciting as talking about AI, but this solution removes a very significant pain point from both the HCP and the user. So as you can see, we continue to innovate with a high cadence, and we expect these launches to be a key contributor to growth in the second half. Moving on to our Audiological Care business. Sales reached CHF 707 million, up 5.8% in local currencies; clearly outpacing the estimated market growth. And this was largely driven by organic growth. The contribution from acquisitions, including the full year effect of prior year acquisitions was around 1% and somewhat lower than in past periods. The strongest contributions came from bolt-on acquisitions in Germany, France, Canada and Australia. Our recent product launches, as mentioned before, were a major driver of healthy growth. And in addition, the business benefited from consistent and targeted lead generation. You may remember that when we published our full year results, we also discussed structural cost initiatives, including the streamlining of global and local headquarter functions and the optimization of our store network. The savings from these initiatives clearly materialized, delivering strong operating leverage and providing flexibility to reinvest in growth. Then a brief word on our Consumer Hearing business. Sales were held back by continued weak consumer demand across key geographies and the lack of major product launches in the first half. As a reminder, last year, we introduced the MOMENTUM True Wireless 4 earbuds, which were a significant growth contributor. In summary, sales declined by about 12% in local currencies to CHF 97 million. To address the growth challenge, we are sharpening our focus, concentrating on categories where we have a natural right to play, which includes audiophile and premium headphones and sound bars. One good example of this is the October launch of the HDB 630, our first wireless audiophile headphones. Great reviews, you can find them online. They deliver high-resolution digital audio with or without cable and 60-hour battery life on a single charge. This means that consumers no longer have to compromise between high-fidelity sound and wireless convenience. While it's early days, consumer and expert reviews really have been positive. I strongly recommend you look online, and you'll see it's really great. Sennheiser remains the market leader in audiophile headphones with an approximate 22% share, and this category accounts for around 1/4 of our Consumer Hearing sales. So promising beginnings for the HDB 630. Moving on to the Cochlear Implants segment. Sales totaled EUR 132 million, down 5% in local currencies. The development was hampered by tariffs and uncertainties around the introduction of volume-based procurement, so-called VBP in China. However, excluding China, sales were up 3% in local currencies. We had solid momentum in system sales in developed markets, supported by very strong commercial execution and improved D2C lead generation through our HI and AC businesses. As a result, system sales were up 7% in local currencies, excluding China, but declined by 6% overall due to the previously mentioned headwinds in China. Upgrade sales modestly down by 1.5% in local currencies, expected as we have previously flagged that during this financial year, we expect continued pressure ahead of the next processor launch as many recipients have already adopted the Marvel technology, which was introduced in 2021. Normalized EBITA reached CHF 11 million, representing a margin of 8.2%, and this was fairly stable versus the prior year period, supported by strict cost control and benefits from the weaker U.S. dollar, helping to offset the negative operating leverage in the segment. And with that, let me hand over to our CFO, Elodie Carr, who will provide more details on the financials and the outlook, and I will, of course, come back for the Q&A. Thank you very much. Elodie? Elodie Carr-Cingari: Thank you, Eric. And also a warm welcome from my side to everyone on the call. So let's take a closer look at the financials, and starting with the sales development. Eric has already discussed the growth dynamic by business, so I'm going to focus on regional performance. I'm pleased to report that all regions achieved solid positive growth in the first half. Sales in the EMEA region rose 4.5% in local currencies. This was driven by success of new products and a limited contribution from bolt-on acquisitions in Germany and France. Growth in the hearing aid market was strong in France and the U.K. private market, while Germany and Italy experienced some weaknesses. The U.S. posted the strongest growth, up 7% in local currencies, driven by double-digit growth in our HI business, indicating substantial market share gains. Growth was further supported by expanded commercial relationships with major customers and positive growth in the VA. The Americas region, excluding the United States, rose 4.3% in local currencies with solid growth across our Hearing Instruments segment. Standout countries were Canada and Brazil. Sales in the APAC region grew 0.5% in local currencies. As mentioned by Eric, CI sales in China were held back by the VBP introduction. However, our hearing instruments and Audiological Care business posted double-digit growth in China and solid gains in Australia and Japan. Excluding CI, APAC grew by 4.7% in local currencies. As you know, Sonova generates almost all of its revenue in currencies other than the Swiss franc. With a strong appreciation of the Swiss franc against all major currencies and in particular, the U.S. dollar, reported sales were reduced by CHF 107 million or 5.8% due to FX translation. Now let's look at our gross profit margin development. In local currencies, the gross profit margin fell by 80 basis points. Higher volume and ASPs in the HI and AC businesses had a positive impact on our gross profit margin. In H1, we incurred temporary costs related to regionalizing our manufacturing and logistics footprint as we further ramped up activities in our plant in Mexico and in our distribution center in Germany. In addition, lower operating leverage in our Consumer Hearing business contributed negatively to the development. Here, the FX impact on gross margin was 40 basis points. We have a better balance between U.S. dollar revenue and cost due to regionalized production and sourcing, moderating some of the impact of currency. Moving on to operating expenses. Normalized operating expenses declined by 0.2% in local currency despite strong sales growth, and that resulted in significant operating leverage. R&D expenses were up 2.4% as we continue to invest in innovation to advance our product portfolio. You heard from Eric about the results of these efforts with the launches in recent months. Sales and marketing expenses were effectively stable in local currencies. Launch investments were lower as we had our big Infinio and Sphere Infinio launches in the prior year period. On the other hand, we continue to invest in growth through ongoing lead generation efforts in the Audiological Care business. G&A expenses declined by 2.7% in local currencies through disciplined cost control and also the benefit from last year's structural cost initiatives. Whilst FX reduced operating expenses in Swiss francs by 3.8%, the impact was less pronounced than on sales as key functions such as R&D and headquarters are largely located in Switzerland. So when we bring it all together, let's look now at EBITA components, looking from left to right. In local currencies, normalized EBITA rose by 180 basis points or 16% year-over-year, driven by operational improvements in our two largest businesses, Hearing Instruments and Audiological Care. Acquisitions had no material impact. Normalization totaled CHF 29 million, mainly related to legal costs from patent litigation fees and settlement. As you may remember, we incurred significant legal costs in recent years related to a patent dispute in the Cochlear Implants business and were temporarily prevented from selling some products in Germany back in 2022. With this settlement, pending litigation in all jurisdictions worldwide is now resolved. Moving on to FX. I talked about the translation impact on sales, gross profit and operating costs already. And in sum, adverse currency developments reduced the reported EBITA margin by 150 basis points. Let me now quickly summarize the key P&L figures. Sonova delivered strong profitability growth in local currencies across all metrics. All regions contributed to higher sales. And all in all, normalized EBITA grew 16% in local currencies. Moving on to normalized EPS. We achieved a strong growth of 20% in local currencies. Including FX movement, this resulted in a stable EPS versus the prior year period in Swiss franc. Now a note on our cash flow. Cash flow from operating activities rose 12%, primarily driven by lower cash outflows from changes in working capital with positive effect from lower receivables and inventories, partly offset by lower payables. Moving on to operating free cash flow. The lower CapEx was more than offset by net investments in financial assets, which is related to financial equity investment. During the first 6 months of the year, Sonova spent $31 million on M&A, reflecting continued bolt-on acquisitions in our Audiological Care business, mainly in Germany, in Canada and in the U.S. In summary, this resulted in a free cash flow of CHF 38 million. The cash outflow that you see from financing mainly reflects dividend payments as well as repayments of lease liabilities, and that was partly offset by new financing arrangements. In October, after the balance sheet date, Sonova repaid a CHF 200 million bond and issued a new fixed rate bond of CHF 150 million with an attractive coupon of 0.92% and a maturity of 8 years. Now let's look at our balance sheet, which remains strong. Days of sales outstanding and days of inventory outstanding improved versus a year ago and versus March 2025. This is a good development, reflecting better receivable collection and was achieved despite some inventory buildup to mitigate impacts from trade disruptions. Day payables outstanding remains largely stable. Overall, we saw an improvement in the return on capital employed, which rose to 17.5%, and this is entirely driven by the higher profitability over the past 12 months. The leverage measured net debt to EBITA reached 1.5x, down from 1.8x a year ago, but up from 1.2x at the end of the last fiscal year. And with this, let me move to the outlook. So let's look at our outlook for the year, and I will start with our assumptions going into the second half. First of all, while markets remain volatile, we continue to expect overall market growth of 1% to 3%, in line with what we saw in the first half and reflecting weaker demand from macroeconomic uncertainties and tariffs. Please note that this outlook assumes no significant additional tariffs or other major disruptions beyond those already known at the time of this publication. Normalizations are expected to be in the range of CHF 30 million to CHF 35 million for the full year. And based on end October exchange rates and looking at a full year 2025-'26, adverse currency developments are expected to reduce sales growth in Swiss francs by about 6 percentage points, and normalized EBITA growth in Swiss francs by 13 to 14 percentage points. So coming to the outlook for the year. With the launches outlined by Eric, including Virto R, Infinio Ultra and Infinio Ultra Sphere, we expect to maintain good sales momentum in our Hearing Instruments business, building on the momentum we had in the first half. Coupled with continued growth in Audiological Care and an expected sequential improvement in Consumer Hearing and Cochlear Implants, we reiterate our outlook and continue to guide for sales growth of 5% to 9% and normalized EBITA growth of 14% to 18%, both at constant exchange rates. So with this, Eric and I are happy to answer your questions. Operator, can you please open the line for the Q&A? Operator: [Operator Instructions] The first question comes from the line of Hassan Al-Wakeel from Barclays. Hassan Al-Wakeel: A couple, please. Firstly, if I can ask on the guidance and your confidence around the acceleration in the second half, particularly on the top line amidst broader market uncertainty. Do you view the lower end of the range more likely? And what are your key assumptions for the top end? And then secondly, on Costco. Can you talk about your share here given you had expected to get to 25% pretty quickly and had recently mentioned that you didn't think you were quite there. Is that still the base case despite a trial of a potential new entrant into the channel? Eric Bernard: Thank you, Hassan. So Eric here, I will take the second question first. As a general principle, we do not comment on specific customers. But if we talk about a very large account in the U.S., we have reached a reasonable share, stable, and we believe we have solid plans that we are designing together with this customer. I think what you may see is that now five players are invited at the table. I won't comment any further about what will happen next. I'd say that it was great for Sonova to be back at the table of this large account in the U.S. and things are progressing nicely. Elodie Carr-Cingari: So I will take the question on the guidance, Hassan. So as you will have seen, in the first half, we grew 4.9% in terms of revenue growth and in Hearing Instruments and Audiological Care combined with a growth of 7%. We do expect to benefit from the recent launches of Infinio Ultra, Infinio Ultra Sphere and as well the entry into a growing new market segment with Virto R successfully introduced in the month of August. And so building on this innovation leadership, we have reiterated our guidance for year 2025, 2026, which remains at 5% to 9%. Eric Bernard: And I could add to give more color about the potential impact of Virto R over time. It's a segment valued at roughly CHF 400 million. If we reach our natural share of 25% to do the math, it could be an additional CHF 100 million of revenue over time. It's starting very well. We've launched in the VA a few weeks back. The numbers are very promising, as an example, but great numbers as well in general in all other markets where we've launched it. And I won't give the specific, but wherever we've launched it, it's extremely well received. Hassan Al-Wakeel: That's really helpful. If I could just follow up on the North America strength, 7.4% constant currency growth. How much of that was down to Costco and the VA price uplift, please? Eric Bernard: So we won't be as granular as you'd love us to be, but they had a significant share or contribution to this growth. But in general, we've done well in the U.S., also in other large accounts, but our innovations launched a year ago were very well received. So the U.S. market has been very favorable for us also beyond these large accounts. Operator: The next question comes from the line of Andjela Bozinovic from BNP Paribas Exane. Andjela Bozinovic: The first one maybe on the VA. Eric, last month at the EUHA Conference, you mentioned that you have had some difficulties in the channel up until November. Can you please elaborate what these difficulties were, and if it was just specific for the VA and how confident are you that these are behind us? And the second one, just on the market share and the products, and maybe it's also a follow-up on Hassan's question earlier. But your outlook assumes significant market share gains in H2. Can you comment if you're seeing any kind of slowdown in the market share gains in the last 2 or 3 months? And when we look at Ultra, because it's just a platform upgrade, it's not a new product. Can you walk us through your assumptions of market share gains versus Sphere? Eric Bernard: So I'll start by trying to answer the second question, which is rather complex. No, we haven't seen a slowdown in market share gains. We have kept gaining share quite across the globe. If you look at the last 3 to 6 months, we gained share in the U.S. We covered that just a minute ago. In Germany, in France, we have less precise data in China, but we know that in HI as well, our development in China has been very strong. So I think there's very, very good momentum. I'm a bit sorry to hear you describing Ultra as just a small improvement, and let me reflect on that. When Sphere was launched, and it will, by the way, be a good segue to the question you asked about the VA. When Infinio and Sphere were launched back in August 2024 -- and by the way, I was not in charge of the company. So I'm reflecting on this as an observer. The choice was made to bring to market a product that was not perfect, but it was a product ahead. Ahead because the only one with a dedicated AI chip, leading to a much better sound performance, especially when you want to listen to conversation in noise. And even with a product for Sphere that is 20% to 25% bigger than others, it's been selling very well. And this is almost a proof in the pudding, if I can be a bit simple here, that the sound is significantly better. When the product was launched, there were some imperfections. One of them was related to a component called the receiver. The problem is completely solved now, completely solved and for a while. But in the VA, where intensity in the clinic is much higher than at an independent, speed is important. This generated some challenges. And this is what I was alluding to when we were together in Germany. All of this is behind us. And so we are very confident that with all of this being addressed and with Ultra being what, it's a Sphere that works all day long, not just 3 hours, that connects perfectly. It's a bit more than just a platform upgrade because it just keeps increasing the gap with all the other competitors. And what we've seen is some resistance sometimes because of the size of the device. But what we see now is that the word of mouth, when people try it, we sell more and more of the Sphere. So Ultra is a significant improvement in many ways. I believe I've addressed both the question of the VA and why we are confident about why we will keep gaining share over the last few weeks and few months. I could add to this that really, really talking about AI is certainly more exciting than talking about wax. EasyGuard really addresses one of the worst pain points that both the HCP and the user have been facing historically. And this is a door opener for our sales teams, and this is going to help us enter new accounts. I'm sure it's a great entry point and it really addresses a significant pain point, which, by the way, we are able to monetize. Operator: We now have a question from the line of Veronika Dubajova from Citi. Veronika Dubajova: I will keep it to two, please. One, I just want to understand sort of your -- I know this question has been asked by Hassan, but I kind of want to decompose it maybe a little bit. I think if I look at the sort of 8% growth that you did in the first half of the year in wholesale, there's about 2.5 points in there from the VA. You don't want to comment on the large customer, but assume for argument's sake that, that's kind of 100 to 200 basis points, which is I think what your ambition was at the time of the guidance. What that leaves the wholesale business growing at excluding that is an above-market number, but not a meaningfully above-market number at sort of a 4% growth rate against the market growing at 2%. I guess, are you satisfied with that momentum when you think about it, excluding those two big tailwinds that you've had? And as you fast forward to the back half of the year, what do you think that number could look like given the things that you're launching with Virto and the Ultra upgrade? So that would be my first question. The second question is a little bit of a financial one around the gross margin. Pretty meaningful compression there. Obviously, I appreciate that. FX played a role there. But Elodie, I don't know if you have any guidance for the back half of the year and whether there's anything you can do to improve the profitability in the short term. Or is this kind of the new normal, given the changes you have made to the manufacturing footprint more fundamentally? Eric Bernard: Veronika, thank you. So I will take the first question. So yes, we're happy because I've got numbers that I cannot share in details in front of me, but it's clear that beyond the VA, beyond a large account in the U.S., we have gained share very nicely in France, in Germany, in Canada and in U.S. commercial in general. So it's been a very, very solid past quarter and first half as far as gaining shares are concerned. And again, we are confident that Virto R, Ultra and no longer any issues around the receiver like the ones we experienced after the launch back in 2024 of Infinio, this is gone. So we are confident that in the HI space, we're going to keep growing very, very nicely. Elodie Carr-Cingari: Good. And I will take the question on the financials. So you were asking on the gross profit side and generally on the margin side, regarding the second half outlook and what the expectations are there. So from this perspective, I would say, 3 different impacts. One is obviously operating leverage that really drives -- comes from the revenue growth and that should -- as you see in the first half was also a positive element there. So we expect that also to continue in the second half. Second is the cost improvements that we have seen and are coming from the initiatives that we've taken -- structural initiatives that we've taken in previous year. So obviously, these will also continue in the second half. And then last but not least, as I explained, we talked about some temporary costs relating to some regionalization of some of our manufacturing footprint with the ramp-up in Mexico and the ramp-up of the distribution center in airport and the expectation there is that this should also drive further improvements in the second half. Operator: The next question comes from the line of Oliver Metzger from ODDO BHF. Oliver Metzger: The first one is a little bit more general about the hearing aid market, and this has obviously also some impact on your guidance. So you assume a continuation of the 1% to 3% market growth which is still compared to what we have seen a more muted -- continuation of a more muted development. So history has shown, and Eric, you are for multiple years in hearing in industry. So you -- that normally, weaknesses are more of a temporary nature. And I completely understand why your guidance had and your market assumptions are where they are. But what do you think about -- you're talking about 6 months for the second half. When do you think that we might see also growth in hearing market back to a north of 3% towards the 4% level? That would be great to hear. The second question is about your Cochlear Implant business. So even excluding China, it's not doing well. And it would be great to have your view, what has changed over the years. So we saw it was growing steadily over multiple years, have been there any changes in reimbursements? Less willingness of copayments? Or what do you see behind this structure slowdown we see now for quite a while? Eric Bernard: All right. Thank you, Oliver. So I will start with the second question Cochlear Implant. As you know, we have 2 types of revenues systems and upgrades. And if we are fully transparent, our latest innovation was brought to market in 2021. So we are slow to innovate versus our competition. In 2026, we will come to market with great innovation that will allow us to sell not only systems but also upgrades that will be very relevant. By the way, the change that we have put in place in our organization is to have one head of R&D supervising both what's called HI and what is called CI. The speed at which what is developed for hearing aids gets into our implants is not satisfactory for me discovering Sonova from the inside. And this explains most of the weakness behind the numbers. But I will repeat that if you put aside China, not having anything new to offer to still grow at 3% is the testimony that from a commercial standpoint, the team are doing a great job, and this is something that we will keep in the future. But expect us some time in '26 to come up with a brand-new solution that will allow us to get back into growing both systems and upgrades. And by the way, by then, we will have absorbed the bumps and the challenges coming from the VBP deployments in China. So I'm positive about what we will see from the Cochlear Implants business units sometime later in 2026. About the market, and I'm sure you've heard that from other players, we cannot neglect the impact of in-Europe inflation only tariffs and the impact of the volatility of financial markets for retirees in the U.S. where it's 401K plans and so on and so forth. So what we think is that people have waited. And that at some point, we're going to see the market bouncing back. The question is when. Is this going to be towards the end of 2026 or second half of 2026. I'm talking calendar year. Is this going to be early 2027, that I honestly don't know. So we are working with the assumption that the market at least for the next 6 months will keep growing at around 3%. And by the way, one has to be careful behind the 3% because France was a very large contributor of the global growth, and it's a bit of an outlier, growing at a much faster pace. So we are conservative as far as the market growth is concerns. And I will repeat what we've described. Leveraging our innovations, we expect to grow at a faster pace in the HI segment. Operator: We now have a question from the line of Urs Kunz from Research Partners. Urs Kunz: I have 1 question again about Cochlear Implants business there. And where do you take your positive expectations of having a better H2 there? When you were hinting at a new products in 2026, I guess that's a new processor. Is there more than a new processor that we can expect. But even then, this would have no impact, I guess, in the current fiscal year yet? Eric Bernard: Correct. It will have no impact in the current fiscal year. That's going to come next fiscal year. Absolutely. Urs Kunz: And where do you take then the positive expectations of having a better H2 in the Cochlear Implants business? Eric Bernard: I don't think I mentioned that. Maybe I wasn't clear. That's not what I suggested. What I explained is that when we come to market with a new processor, then we will see a different pattern in our growth. And that will come sometime in the next fiscal year. Sorry, if I wasn't clear. Urs Kunz: So this -- but the problems in China, do you think that should be something that we can expect to be better in H2, or is that also something that you have to keep in consideration? Eric Bernard: Yes, I'm hopeful that towards the end of H2, we will see a normalization of our business in China, but there's still a bit of work to be done in that space. Urs Kunz: Then my second question would be on share buybacks. I see that the net debt-to-EBITDA level is at 1.5 now, which would allow at some point relatively soon to come back on that question. Is there anything to mention from your side? Elodie Carr-Cingari: So we are, in fact, at 1.5x net debt to EBITDA, as you mentioned. Our capital allocation strategy as discussed in May is still relevant, and we are not considering a share buyback at this point in time. Urs Kunz: Then next question, short question about acquisitions that we are in a really low level in H1, do we have to expect that there will not be a lot more in H2? Or did you already do something that you can say H2 should be a bigger impact? Elodie Carr-Cingari: In line with the capital allocation strategy, we do expect an envelope for what we call bolt-on acquisitions. So basically in the Audiological Care business so there was about CHF 31 million in the first half. We do expect to ramp that up in the second half to come in line with the overall envelope that we have previously talked about for the year. Urs Kunz: Okay. Then my last question on this new organization structure that you start to implement now. I guess there's no significant restructuring costs involved is that because otherwise, I guess you couldn't stick to your normalized EBITDA guidance? Eric Bernard: Absolutely no restructuring costs. It's about creating regions reporting to me directly with region head supervising both wholesale and retail. It's about making sure that we meet the specific needs of customers, which are very different from China to the U.S., from Europe, the U.S., et cetera. It's all about customer centricity and being very close to the market needs. And it follows something that we did not comment about, but I can share that for already a few weeks both the head of R&D, and I explained supervising now both Hearing Instruments and Cochlear Implants and the Head of Quality report to me. So if I summarize this very briefly, to win in this industry, you have to keep innovating and you have to be on quality on time. And this is why both R&D and quality report to me directly. And the second step is to create 4 regions so that we are clear on what needs to be delivered for the specific needs of customers which are very different region by region and coming into Sonova, I see, for instance, real significant opportunities in Asia Pacific. Operator: The next question comes from the line of Martinien Rula from Jefferies. Martinien Rula: I hope that you can hear me okay. So I would have 2 questions, if that's okay for you. The first one is that I just wanted to circle back on the EUHA related discussions that we had, it's my impression that patients equipped with the Infinio and Sphere products can get the Ultra software upgrade for free. So I was wondering if you could comment on the commercial strategy for the Ultra versions. Will these be priced in line with the classic versions? Will these be priced higher than the classic versions and/or will clients have access to both the classic and Ultra version at different price points? These are kind of the questions I'm asking myself at the moment. And I'm asking that because if I understood correctly, your comments during EUHA so your newer wax management system is something that is only available on the Ultra version so far and that is something that you intend to monetize. This was the first question. So maybe I can give you some time to answer this one before asking the second one. Eric Bernard: Okay. Thank you for the question. So yes, indeed, for existing wearers, the upgrades to Ultra is available for free. Well, assuming that the HCP is offering it for free. However, for new wearers, Ultra is priced at a higher level from us, so wholesale price. Again, I have addressed that question already at EUHA, so there's nothing new there. For the EasyGuard, first point, we can monetize it, and it's going to be available beyond Ultra over time. Martinien Rula: Okay. That's perfect. And for the second question, it was about the momentum in Consumer Hearing and Cochlear Implants. So I would appreciate any comments that could help us do the modeling stuff for these 2 divisions as the momentum has been pretty bumpy and that comp-based differences makes it even harder to get a proper view on what could look like when it comes to the second half of this year? Elodie Carr-Cingari: So I will pick up that question. Looking at Consumer Hearing, we do expect a stronger sales in second half than what saw in first half. I think a part is really driven by the introduction of our new products, the HDB 630. I don't know if you've seen, but it's very exciting product. It's the first wireless audio file product, and the reaction in the market has been very positive. So we do see a better growth on Consumer Hearing compared to the first half. I think there was some on Cochlear Implants as well. So Cochlear Implants, as Eric has mentioned, I mean you have 2 sides. One side is the VBP situation in China, which he has already mentioned. And the other side is the weakness that we have seen in upgrades versus systems. So while systems have been strong in all areas, except China, upgrades have been lagging behind because of the fact that the product there is starting to be quite aging and the new products will come in the year 2020 -- in the fiscal year 2026. So that's currently the underlying business assumptions that we are taking. Martinien Rula: Okay. That's perfect. And just a quick follow-up on the Consumer Hearing business. So I got it that you should grow the sales on a sequential basis. But what about sales growth for Consumer Hearing on a year-on-year basis? Elodie Carr-Cingari: As I said, our assumption is to be on a stronger sequential basis. And that should come, as I said, from the new products and stronger momentum there. And then I will not give a specific number year-over-year. Operator: We now have a question from the line of Susannah Ludwig from Bernstein. Susannah Ludwig: I have 2, please. I guess, first, I just wanted to follow up about your comments on the opportunity in APAC for Sonova. Maybe if you could just comment a little bit more on what it is that Sonova needs to do differently in that region to take advantage of the opportunity. Does this require sort of different products, different brands or a different go-to-market strategy? And then second, just following up on the question on gross margins into H2, I guess, could you maybe quantify the sort of 80 basis point headwind this half? What percentage of that comes from the temporary cost from the ramp and the regionalization of manufacturing? And then is that expected to fully abate in the second half? Eric Bernard: Thank you for the question about Asia Pacific. I spent more than 20 years of my life across Japan, China, Singapore, et cetera. So your question is what does it take to win bigger than currently for Sonova in Asia Pacific. Well, you've seen that we are creating a new role of Head of Asia Pacific, excluding China, knowing that China already reports to me directly. And this head of Asia Pacific ex China will be based in Asia, in Singapore. That's the first change. Managing Asia Pacific from Switzerland is probably very challenging, irrespective of the quality of the leader. Then awareness, access, affordability, consumer journey. This is what you need to tackle if you want to grow in this category. And in Asia, it's particularly acute. You need to be able to bring products at different prices and yet keep profitability at the same level. So here, you're talking about more simple products, maybe defeatured products and not just selling in Asia, what you have designed for Europe or the U.S., then there's a lack of qualified professionals. So you also have to think in terms of more simple solutions for dispensing. So products, price points, and certainly, as you've touched on brands, presence on the ground. China, for China, I speak about China, in particular, this is what we need to get our fair share of Asia Pacific, which I believe we do not have today. This will take time. And it's giving you some insights about one of the dimension of the strategy we will be talking about when we go into next year. but certainly very good opportunities for the group in this part of the world. Susannah Ludwig: Great. Thanks for the comprehensive answer. And then I guess just on the gross margins. Elodie Carr-Cingari: Yes, I will gladly answer this one. So you were asking about the gross margin, and specifically the impact of the ramp-up costs for the regionalization of some of our manufacturing footprint. So as I mentioned, we ramped up activities on the manufacturing side in Mexico and also with our distribution center in Germany. We did absorb some ramp-up costs in the first half. Those transfers are now in the completion stage. And so we do expect a sequential benefit half over half to come from cost improvements in these areas. But I will not give a specific number. Operator: The next question comes from the line of David Adlington from JPMorgan. David Adlington: Most have been answered, but maybe just to put a clip a little bit further on the second half implied guidance for the top line. Obviously, that implies at the top end, sort of 13%, 14% growth in the second half. I just wondered maybe put another way, why not narrow the top of the range down a little bit just to make -- it seems a very, very wide range? And then secondly, just on the Section 232 probe and the scope of the tariffs, I just want to get your thoughts on the tariffs and what mitigation you might be able to put in place if they do come in? Elodie Carr-Cingari: I will pick up the first question on the guidance. So we stick to our range in 5% to 9%. So I mentioned... Eric Bernard: David, may we ask you to go on mute because there's noise in your background. Thank you very much. Elodie Carr-Cingari: Yes. So -- and as I mentioned, we achieved 4.9% in the first half with 7% in HI and AC. And we do expect some growth in the HI side based on new products. So Infinio Ultra, Sphere Ultra and Virto R, and that allows us to basically stick to our range in the second half. Eric Bernard: And about the tariffs, as you know, we are currently exempt from U.S. tariffs based on the [indiscernible] protocol. If you were referring to the sector 232, if my recollection is correct investigation. As a matter of principle, we don't comment on ongoing investigations. If we take time anyway. If we were really in a difficult situation, we have facilities in Mexico, in the U.S., in Canada, and we will be agile about adjusting the way and the location where we manufacture. Operator: We now have a question from the line of Michelle Buchler from Zurcher Kantonalbank. Unknown Analyst: Do you hear me? Thomas Bernhardsgruetter: Very well. Unknown Analyst: It's actually not is Michelle, it actually me, Daniel, as you hear. So just a question on the ASP uplift. I'm not sure if it was already answered. But when I look at the great 7% local currency growth in the Hearing Instruments segment total. Can you talk about the unit growth there or the other way around the ASP uplift, must have been quite an impact, right? First question. Eric Bernard: Yes. Okay. So of course, without being too granular because this becomes a competitive information. If you look at HI versus AC to wholesale versus retail, a rather good balance in the wholesale business with both growth in units and some ASP increase, more skewed towards volume than prices. And if you look at our retail business, the opposite. We had both positive impact but more skewed towards price increases than on volume, and this is a reflection of the fact that our own retail stores are able to drive, create value growth out of the innovations that we brought to market. So a good balance if you look at the combination of both. Unknown Analyst: Okay. Good to hear. And the second and last question, I mean, with your background at Essilor [indiscernible] we all tried this great eyeglass with hearing aids. Is that an idea for the future as well for you? Or is it too far away? Just -- yes that's the question. Eric Bernard: First, what's great when you see such initiatives with large organizations with market power is that they help us increase the awareness of the importance of good hearing. I would not comment about whether we're going to go there or not. I won't make any comments about it. Operator: We now have a question from the line of Niels Granholm-Leth from DNB Carnegie. Niels Granholm-Leth: First one on the launch of Virto R. So wouldn't you expect any cannibalization from this CIC form factor on your other form factors? And perhaps you could elaborate on the amount of sales that would come from your CIC category now. So where could this category actually go as a percentage of sales. We know that it's about 10% of the market. And then secondly, we have had this discussion throughout this year about these 5-year reimbursement cycles and to what extent it has affected the overall hearing aid market this year. So do you prescribe to the idea of market growth being under pressure this year because of less people or fewer people renewing hearing aids in 5-year after the shutdown since 2020? Eric Bernard: Yes. So I'll start with the last question. We believe there's a longer repurchase cycle for the last few months. So yes, I think it did increase. So first question. Second question is Virto R. So again, we estimate that this segment is about CHF 400 million per annum. And so it will take a fair share of that segment. At some point, we hope to -- it's a cruising at altitude of CHF 100 million, which we see as incremental. We don't see a risk of cannibalization what we see is that we're entering the new accounts and that we are reaching to new type of consumers. So we don't see a risk of cannibalization, maybe marginal. But for us, we really see it as incremental. And I will repeat what I said in my introduction, what's very interesting is to see that black as a color is more than 20% of the sales. And that's really something new. We've never seen that otherwise. And when I'm wearing it, when I see people wearing it, the reflection you get it, it's really cool. It's really different. And I think this product is helping us not only within the industry to get into a segment where we have no right to play because we had no rechargeable solution. And by the way, we were not best-in-class for custom products and there, we have significantly improved. But we're also tackling the stigma in a new way, and that is very, very exciting. By the way, what I mean by we were not that great in the custom segment is now with the new way we tell the product this process called right fit, which is using AI. You get really to an optimal feed and acoustic performance in the smallest possible size. It's really the smallest of all and the returns are much, much lower than what they were before. And we mentioned that at EUHA, but now we have a bit more -- we have 3, 4 more weeks on top of when we met at EUHA. And so it's a very promising category for us. Niels Granholm-Leth: So you would expect your CIC to -- you would close the gap to the market where -- which is currently at around 10%? Eric Bernard: We believe so. Very promising. Operator: The last question comes from the line of Sibylle Bischofberger from Vontobel. Sibylle Bischofberger: As a first question, in the past on the outlook slide, you always mentioned the midterm outlook. Now it was not mentioned anymore. So is the goal still valid? This is my first question. Eric Bernard: Right. So yes, indeed, we are not sharing the midterm targets any more why. And I'll be very candid and straightforward here. We have a new management team, we have a new chair, and we are currently working on updating our strategy and our strategic ambition. And so sometime at -- in the first half of 2026, we will be very specific about this updated -- upgraded midterm targets. Elodie, anything you'd like to add to this? Elodie Carr-Cingari: Well, I'd just like to add that we have strong fundamentals in the industry. You have an aging population in the world. And in that sense, the industry is an industry that will grow because more and more people are getting older and more and more people will need some hearing aid. So in the scope of that, I will say, and now with a focus on the regions and growing in those markets that will be -- these are strong fundamentals we can talk about. Eric Bernard: We don't expect our ambition to go down. The market growth has slowed down over the past few quarters, but demography doesn't change. The world is aging, aging very fast, and so demand for hearing solutions will increase. But again, we have now started the process to refresh in depth our strategy in our strategic ambition. And so expect us in the first half of 2026 to come back with probably a capital day to be organized to present this to all of you. Sibylle Bischofberger: And then my second question, you several times mentioned your market share has gone up. Could you give us a hint how large is your market share now? Eric Bernard: Do we share that, Thomas? I'm not sure. So... Thomas Bernhardsgruetter: No, we don't really share that, but I think, historically, we've always talked that we had more than a quarter. And you can imagine that it has gone up from there, but I wouldn't go beyond that. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Eric Bernard, CEO, for any closing remarks. Eric Bernard: Well, thank you very much for all these questions. We will talk not too long down the road and looking forward to further calls and meetings in person over the next few weeks and few months. Thank you very much. Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

148天前Insight Analytics约5分钟阅读

SIA.TO 2025 Q3 财报电话会议

Operator: Hello, ladies and gentlemen, welcome to Sienna Senior Living Inc.'s Q3 2025 Conference Call. Today's call is hosted by Nitin Jain, President and Chief Executive Officer; and David Hung, Chief Financial Officer; and Executive Vice President, Investments of Sienna Senior Living Inc. Please be aware that certain statements or information discussed today are forward-looking and actual results could differ materially. The company does not undertake to update any forward-looking statement or information. Please refer to the forward-looking information and Risk Factors section in the company's public filings, including its most recent MD&A and AIF for more information. You will also find a more fulsome discussion of the company's results in its MD&A and financial statements for the period, which are posted on SEDAR+ and can be found on the company's website, siennaliving.ca. Today's call is being recorded, and a replay will be available. Instructions for accessing the call are posted on the company's website and the details are provided in the company's news release. The company has posted slides, which accompany the host's remarks on the company website under Events and Presentations. With that, I will now turn the call to Mr. Jain. Please go ahead, Mr. Jain. Nitin Jain: Thank you, Sarah. Good morning, everyone, and thank you for joining us today. The third quarter set the stage for a strong finish to this year. There's positive momentum across every part of our company. We achieved strong operational results in both lines of our business, successfully completed 2 development projects in Ontario and continue to grow through acquisitions. We're on track to make 2025 a year that marks the next stage of Sienna's growth journey. Both operating platforms delivered strong results in the third quarter. Same-property NOI increased by 13.2% in the Retirement segment and by 6.7% in Long-Term Care. Key drivers of the double-digit increase in the Retirement segment were a strong occupancy increase and rental rate growth as well as higher care revenue. Average same-property occupancy was up 230 basis points year-over-year and has reached 94.1% in the third quarter. Following the quarter, monthly occupancy increased to 94.7% in October, putting us well on our way to achieve a 95% target by the end of this year. Our results also reflect an increase in care revenue. We increasingly apply our expertise in clinical care at our retirement platform, which allows residents to stay with us longer as their care needs change. Additional key drivers behind the strong performance in our Retirement segment are a robust sales platform and focused marketing campaigns. Our call center leads remain high and the number of tours in our properties have significantly increased each quarter this year. Our Q3 leads have increased by 37% year-over-year compared to the same period last year, and we are also encouraged by the results of our recently hosted National Open House in October. We generated a much stronger double-digit increase of new leads compared to our previous event in July. In addition, we maintain a robust focus on hospital outreach and excellent relationships with health care and business partners in the communities we operate in. All of these initiatives are expected to drive increasing lead generation and future move-ins. Beyond the strong same-property performance in retirement segment, we are pleased with the results of our optimization efforts in 5 of our properties. Occupancy increased by 970 basis points year-over-year in Q3 in the optimization portfolio and supported NOI growth of over 40%. Our initiatives to better position these assets within the local markets are clearly delivering results. With respect to our long-term care operations, our fully occupied homes with growing wait lists, higher revenue from private accommodations and annual government funding increases all added to the strength of our results. Our government-funded long-term care operations add significant value to our business and as they provide stability and are largely insulated from market volatility or economic uncertainty. In the coming quarters, we will also start to see the contributions from our recently opened redevelopment projects. Moving to Slide 6. In September, we opened our redeveloped long-term care community in North Bay, followed by a campus of care in Brantford in October. These large-scale projects are complex, require deep expertise and trusted partnerships, and we are especially proud to have delivered them on time and on budget. Once fully stabilized, each of our long-term care redevelopment is expected to grow Sienna's AFFO per share by about 3%. With long wait list, we expect to see the homes to be fully occupied within 60 days after they open. We are also on track to complete our next redevelopment project in Keswick in 2027. With respect to our development pipeline, we are encouraged by the funding improvements announced by the Ontario government this summer. Improvements for projects in the Greater Toronto area are especially important to us, given that over 80% of our remaining redevelopment pipeline is, in fact, in the GTA. As a result of these improvements, we expect to start construction of 1 to 2 projects next year. Since the beginning of the year, we have also been very active on the acquisition front. The majority of the properties we acquired in 2025 are less than 10 years old and are strategically located in large urban centers. During the third quarter, we strengthened our footprint in the Greater Toronto Area with the addition of our previously announced 133 suite retirement residence and 192-bed long-term care home. Since the end of the quarter, we have also entered into 2 additional acquisition agreements in Ontario. Last week, we signed a purchase agreement for Hygate on Lexington, our 216-suite retirement residence in the city of Waterloo. We will acquire the property in this desirable market for approximately $93.3 million. Hygate also includes a 4.7-acre development site, which is zoned for a retirement residence or residential condominium. Two days ago, we signed a purchase agreement for LaSalle Park, a 123-suite retirement residence in Burlington. A suburb in GTA, we will initially acquire a 78.2% interest in the property for approximately $67.2 million, followed by an additional 10.9% in January 2026 and the final 10.9% in 5 years. This is our third high-quality acquisition in the Greater Toronto area this year, where we already have a significant presence and continue to build scale. Collectively, we have added over $800 million of assets through acquisitions and developments to our platform in 2025, and our pipeline continues to stay very strong. Investing in our team members -- as we grow and scale our operations, investing in our team members is fundamental to the success of Sienna. With over 15,000 employees, we recognize the importance of programs focused on learning and development, leadership skills, recognition and rewards, all designed to attract and retain our highly engaged workforce. The positive impact of these initiatives is reflected in our most recent employee engagement survey, which was completed in September. The participation rate reached an all-time high of 86%, and the team member engagement score rose for the fifth consecutive time. We're extremely proud of this achievement, which is crucial for the continued success of Sienna. Our investment in our team members was also recognized by Time Magazine, who named Sienna one of Canada's Best Companies in 2025. With that, I'll turn it over to David for an update on our financial results. David Hung: Thank you, Nitin, and good morning, everyone. I will start on Slide 10 for financial results. In my commentary, in accordance with our MD&A disclosure, I will make reference to our operating results, excluding onetime items. In Q3 2025, revenue on a proportionate basis increased by 16.4% year-over-year to $261.7 million, this increase was largely due to occupancy and rental rate growth as well as increased care revenue in the Retirement segment. Adding to the increase were the contributions from our long-term care platform, including higher flow-through funding for direct care, higher private accommodation revenue and additional revenue from acquisitions completed in 2025. Same-property NOI increased by 9.7% to $46.4 million in Q3 2025, including by 13.2% in our Retirement segment and by 6.7% in the Long-Term Care segment. In the Retirement segment, same property NOI increased by $2.6 million in Q3 2025 compared to last year, largely as a result of improved occupancy and rate growth. These improvements in addition to generating higher care revenue and maintaining a strict focus on operating expenses supported the year-over-year 220 basis point improvement of our same-property operating margin. In addition, we are making good progress with respect to our asset optimization initiatives, which includes 5 assets in the company's retirement portfolio. Q3 NOI in the optimization portfolio increased by over 40% year-over-year with an average margin increase of approximately 540 basis points compared to the same period in 2024. In the Long Term Care segment, NOI increased by $1.5 million, fully occupied homes with growing wait list and continued improvements in private occupancy supported the year-over-year growth. During Q3 2025, operating funds from operations increased by 33.3% to $31.8 million compared to last year, primarily due to higher NOI. Adjusted funds from operations increased by 36.1% to $27.7 million compared to last year. The increase was mainly due to higher OFFO, offset by an increase in maintenance capital expenditures. On a per share basis, OFFO and AFFO increased by 9.6% and 12%, respectively, in Q3 2025. Our Q3 2025 AFFO payout ratio was 78.7% compared to 91.3% in Q3 2024. This significant improvement highlights Sienna's strong operating results and our successful initiatives of deploying capital we raised to fund our growth. In the coming quarters, we also expect to see contributions from our recently completed redevelopment projects reflected in our AFFO. Each redevelopment is expected to contribute on average an additional $4.7 million to Sienna's annual AFFO once it is fully operational. This represents an approximate 3% increase in AFFO per share for each project. In addition, these projects will enhance our balance sheet and further elevate the quality of our asset pool. Throughout the third quarter, we maintained our strong financial position and balance sheet. We ended the quarter with $464 million of liquidity and $1.3 billion of unencumbered assets. On August 21, we issued $175 million in unsecured debentures at an interest rate of 4.112% to finance our growth initiatives. The significant demand for the debenture resulted in the offering being multiple times oversubscribed. With respect to Sienna's upcoming debt maturities, including the maturity of our $175 million Series E unsecured debenture in Q1 2026, we have multiple attractive financing options available to us. With that, I will turn the call back to Nitin for his closing remarks. Nitin Jain: Thank you, David. Our disciplined approach to enhancing our operations is clearly reflected in our results. Combined with our success in growing through acquisitions and developments, it reinforces our confidence in the outlook for Sienna, both in the near term and in the years ahead. We are on track to end the year with same-property occupancy of 95% in the Retirement segment, ahead of our original Q1 2026 target. In line with strong year-to-date performance, we also updated our same-property NOI growth targets. In our Retirement segment, we expect same-property NOI to increase between 13% to 14% year-over-year. And in Long-Term Care, we anticipate year-over-year NOI growth of 4% to 5% in our same-property portfolio. Our company is at the beginning of an exceptional growth phase. Supply is expected to remain constrained in the foreseeable future, while demand and operating fundamentals continue to strengthen. With our growing scale and the support of our highly engaged team members, we believe that we have a tremendous opportunity to generate sustained growth for many, many years to come. On behalf of our entire team and our Board of Directors, I want to thank our shareholders and for all of you on this call for your continued support. Sarah, we are ready for questions. Operator: [Operator Instructions] Your first question comes from Jonathan Kelcher with TD Cowen. Jonathan Kelcher: First question, just on the operations front looks -- on the Retirement side, it looks like you are sort of hitting it out of the ballpark a little bit here at 95 -- hitting the 95%. What should we think about going forward in terms of rent growth once you sort of meet that target? Nitin Jain: Thank you, Jonathan, and good morning. We expect our rental growth to be in the range of 4% to 5%, which is a combination of annual escalations, plus there would be some opportunity to, in fact, look at market rents again when you're running at those high occupancy. And even though your question was not around margin, once we have said before that -- once we get to the higher margin, a lot of that revenue will continue to fall on the bottom line. So the NOI growth rental revenue will be a part of it, but there will be multiple other levers, which will drive the NOI growth. Jonathan Kelcher: Okay. Fair enough. And then just secondly, on the acquisitions, could you maybe give a little bit more color on [indiscernible]. Just in terms of like the remaining 22%, is that pricing set? Do you see a lot of runway for rent growth there? Like the 5.7% cap rate is a little bit on the low side for what you guys have been buying in retirement? David Hung: Yes. No, thanks for that question, Jonathan. So just in terms of the structure, we are buying 78% now at $67.2 million. We're going to buy another 11% in Q1 of 2026, also at the same price that we're buying now. So it would be at 100%, the value would be $86 million. And then 5 years from now, it would be at the fair market value at that time, and we'll have some predetermined metrics for how we calculate that. I think that in terms of rental rate growth, it's going to be similar to what Nitin said, we see opportunity in the range of 4% to 5% rental rate growth within that market. So -- and a lot of that will also fall to the bottom line and expand the margins within that property. Operator: The next question comes from Himanshu Gupta with Scotiabank. Himanshu Gupta: So first on long-term care, what led to NOI growth here? I mean I know you have been guiding to around like 2% type growth, and we got like 4% to 5% in the year so far. So is there like a margin expansion story in LTC as well? David Hung: Yes. It's a couple of factors, Himanshu. One is higher funding from all 3 provinces in Ontario, Alberta and BC. And that has run a little bit higher than our increase in expenses. The second is around preferred revenues. So we have been driving growth through filling in our beds with residents who pay private accommodation rates. And then there's a little bit around the acquisition of Nicola. We did buy that earlier in the year. So that's contributing moderately to the growth in the Long-Term Care NOI. Himanshu Gupta: Okay. Okay. Fair enough. And I mean sticking to LTC, but on the developments, Brantford and North Bay is complete now. When do you start receiving construction funding? And when will you start reflecting that in the financials? And I guess it will be like a breakdown between like interest income and contribution to AFFO. David Hung: That's right. So CFS funding starts when the building is open. And in the case of Northern Heights, we opened the building and had our first -- welcomed our first residents on September 7. So CFS started flowing on September 7. And then Oakwood Commons, which is in Brantford, opened up in October, and that's when the CFS would start flowing at that time. So we've actually already started seeing a little bit of the CFS flowing through in Q3. We're going to see the full impact of that at least for Northern Heights in Q4 and then Brantford would be Q1. In terms of the breakdown of the CFS, we've actually disclosed that in our MD&A. So out of the $3.3 million, around $2.2 million would be interest income and the other $1.1 million approximately would be an add-back to our AFFO. Himanshu Gupta: Got it. Okay. Very helpful. My last question is on the retirement home side I mean, I think, Nitin, obviously, you mentioned 4% to 5% kind of rental growth. And if I look on the expenses side, same property expenses, I think they were up like 3% to 4% in 2025 so far. Is that a good run rate for expenses for Q4 and beyond? Nitin Jain: Yes, I think that's a good assumption, what you just talked about the rental growth and expense growth. One of the things that we have -- one idea we have -- which most people talk about is how more of it falls to the bottom line. The second part is when homes are stabilized. First of all, we use very less incentives and incentives around 1% to 2% of revenue, but our ability to remove those, that definitely helps. And from a - also from an expense perspective, when you have consistency in the number of residents in the home, you can become a lot more consistent in scheduling and other things, which also drive down costs. So as a starting point, the assumptions you've talked about, Himanshu, are not unreasonable, but we do expect an opportunity to, in fact, drive them lower from an expense perspective. Himanshu Gupta: Okay. Very helpful. Maybe just the last question here. on the retirement home occupancy. I think you mentioned Q3 leads were up like double digits, if I heard it correctly. So it doesn't look like occupancy is going to stop here at like 95%. Is that a fair assumption given how the leads are coming in and you still have more opportunity to ramp it up? Nitin Jain: Yes. I mean that is a fair assumption. Out of our 44 homes, roughly, 25% of them are close to 100%, if not at 100%. And then the other are, call it, 95% to 98%. So we're not -- it is not unusual to see really high occupancy. At a portfolio basis, it remains to be seen what can be sustainable. And I think the idea that it should not stop at 95% is that's not unreasonable. I think what remains to be seen whether we will go to 98% or would it be -- would the next number be 96%. But I think that remains to be seen as an industry. Operator: The next question comes from Sairam Srinivas with Cormark Securities. Sairam Srinivas: Just looking at the redevelopments you guys completed, how should we be thinking about the stabilization time line over here? And I know residents have been coming in. So when do we -- so should we look at probably 12 months when this 98% or 99% occupied? Nitin Jain: Thank you. One of the things that -- which is not well understood is really how well the long-term care redevelopment works, especially after the government funding. So David mentioned on September 7, we opened our North Bay property. On day 1, you get fully funded. And the expectations from the government is that you will be fully leased up within 60 days and we are fully leased up in North Bay in 60 days. The Brantford opened in October and we get full funding on day 1, and it would be fully leased up in 60 days. So in fact, there is no lease-up in Long-Term Care. In Brantford we also have a campus of care, which has retirement home attached to it, and that is also leasing quite well. Sairam Srinivas: And when it comes to Brantford, it's a mix of both retirement and LTC there. How does the funding work? And like is -- are governments more incentivized to actually provide funding for these kind of projects? Nitin Jain: So government's funding is dedicated just to long-term care, and there is a whole mechanism to ensure your expenses, capital expenses are properly allocated just to long-term care. Your operational expenses are properly allocated just to long-term care. So -- and we have many other campuses. So that is -- and there are a few others who have campuses. So this is well established based in the industry. Sairam Srinivas: That makes sense. And maybe my last question around acquisitions. Obviously, you guys have been pretty active both in the retirement as well as LTC space. When you look at the headlines right now, we do see a lot of infrastructure funds or the private players looking into these kind of assets. So when you compete in the market right now, are you seeing a lot more of the private funds come in? Or like what's the competition like? Nitin Jain: Absolutely. And senior living has been a quite competitive space. One of the key factors for us is we know how to operate them. This is not just a pure rental business. Operations are complex. And the fact that we have 15,000 employees, I mean, that might be all the real estate companies combined and just the nature of the work that we do. So one of the things that works in our benefit is really understanding the complexity of operations and driving synergies out of it. And this is also a very relationship-focused business, even though we all compete with each other, a lot of the sector has been around for a while. Relationships are important in this space. And usually, when someone is selling, whether it's generational or whether it's -- they've built it and they want to sell, they want to make sure that they're selling it to people they know can close on a timely basis. And because it has a lot -- a high number of team members and residents involved, they want to make sure it gets to the right place. So all those things play. And I think our -- instead of me saying that we have been quite successful, you can just look at our numbers. We have been quite successful in closing -- getting these acquisitions and closing them. Sairam Srinivas: No, that makes sense. And then sorry, I guess one last from me. You obviously mentioned these are operationally intense businesses and one huge part of that is labor costs. As you get into '26, do you see any bottlenecks from that perspective? And what are the challenges that had come up from the talent sourcing perspective? Nitin Jain: You're talking about labor perspective, Sairam? Sairam Srinivas: Yes. Nitin Jain: So I would say it's -- the industry as a whole has got better from a labor perspective. Immigration helps significantly. 5 years ago, we made a major pivot on the whole idea of you take care of your team, they'll take care of your customer, residents and business will take care of itself. As simple as it sounds, that has had tremendous outcome for us. In the last 2 years, our turnover is down by 60%, 6-0. So we are hiring a lot many less people. People are staying much longer. And that helps not only from a labor perspective in resident -- in retirement homes, helps drive occupancy, residents get comfortable, they refer us more. In long-term care, it's driving less compliance issues, less quality issues, residents are happy. So we are seeing massive improvements in labor front. And other than some very hard-to-fill areas, we, in fact, have no vacancies across our portfolio. Operator: The next question comes from Giuliano Thornhill with National Bank Capital Markets. Giuliano Thornhill: I'm just wondering what led to the big occupancy uptick in your same-property portfolio in August. Nitin Jain: So thank you, Giuliano. We've been working. The strategy has been the same. We are very, very local. The relationship with the hospitals, the relationship with other health care providers, word of mouth, all of those things are important. And it is not, frankly, rocket science. The idea is to ensure you have a set of processes and you want to make sure we get done. So the approach we're taking is not to come up with new programs, but be disciplined on the things that we have and to do them well on a regular basis. That applies to our call center, that applies to how we follow with leads, that applies to the sales cycle and we are seeing good results with it upfront, and we do expect that to continue. Giuliano Thornhill: Okay. So just like on the retirement portion, is that like localized to geography at all or like specific to a couple of properties? Or is it more just broad-based? Nitin Jain: The occupancy gains is broad-based. So it's not that one home increased occupancy significantly and that moved the needle. It is we are seeing a consistent increase across majority of our portfolio. Giuliano Thornhill: Okay. And then just another question was just on the capital funding program announced by the government last quarter. I'm wondering if that, I guess, revised funding program has led you to consider or improve the ability to pursue your GTA properties, your Class C GTA properties? David Hung: It is, Giuliano. So we've been studying the new program with great interest. 80% of our properties are within the GTA, and this program significantly improves the funding within the GTA. We're currently completing some of the analysis in terms of which projects would it make sense to proceed with. But our intention would be to proceed with 1 to 2 projects in 2026 within the GTA. Giuliano Thornhill: And how are you deciding on which ones to pursue within the GTA? Is it mostly based on like, yes, just how are you factoring, I guess, the land cost into that decision? Nitin Jain: So one of the thing which is quite unique about us is that we own quite a bit of land in GTA, which is usually the most difficult to find. And we have been working on these projects for 3 or 4 years because the planning process is quite long. So we have had 4 projects roughly that we have been nudging along with the intent that one day there would be an appropriate funding and that time has come. So these projects will be defined where are they in the planning cycle, what the returns are, which one are -- operationally have the biggest impact. So for example, we have a couple of homes, which will not only solve and build capacity for that site, but in fact, would help us decant another home so we can move all the residents there. So all of those things will go into play. These projects will be bigger than the 160 beds that we have seen in the past. So we would see a material impact of those projects once they are completed. Giuliano Thornhill: Okay. And then just my last question, just on the ATM. How are you guys thinking about that as a funding source? Are you going to anticipate to be quite active on that? Are you going to be leaning more on your -- on the debt markets for liquidity going forward? David Hung: That's a good question, Giuliano. So in Q3 we did issue 1.3 million shares under our ATM at an average price of $18.13. We've been quite disciplined in terms of the use of our ATM. We'll consider all forms of capital when we are looking at acquisitions or redevelopment. So we did issue about $24 million on our ATM this quarter, but we also did $175 million in the unsecured debt market because of the attractiveness of the cost of capital there to fund our acquisitions. So really, we're looking at both. But as it relates to the ATM, we want to make sure that we have specific uses for it as we're issuing shares. Operator: The next question comes from Pammi Bir with RBC Capital Markets. Pammi Bir: Just coming back to the LaSalle acquisition, you're buying a nonmanaging interest at a lower cap rate than what you've done in the past. What made this deal attractive to you versus maybe others in the market? And are there maybe more of these that you expect to do with this vendor? Nitin Jain: Thank you, Pammi, and good morning. So LaSalle Park is owned by [ Reichmann ] Senior Housing. We have had a very successful partnership with them Elgin Falls. We build their home together, they manage for a period of time, and then we will buy that. The 5.75% cap rate is, in fact, not that unusual for really good properties. LaSalle Park is -- when I say it's fully occupied, I mean it's not 95%, it's closer to 100% occupied. They have strong rental growth. The home is built extremely well. So it will stand the time of competition. And we continue to see good occupancy growth over time. In this case, it was the interest of the seller to manage it and considering that we have a relationship and we are comfortable with their management that we -- that worked for us. But from a return perspective, we think we will do extremely well in this opportunity. Pammi Bir: And then, I guess, okay, you mentioned Elgin falls as well. So is there -- are there more of these within their perhaps pipeline that you might do in like as part of your acquisition part over the next year or so? Nitin Jain: Yes. I hope if they ever decide to do more that they would think of us. Again, I do not know their strategy. Obviously, they have been in this space for a long period of time, and I don't think they are expecting to exit it. This is a one-off opportunity where there were other partners involved and they wanted to sell. And if they have another one, we are hoping that they will consider us first. Pammi Bir: Okay. Then just lastly, on the additional care revenue, I think you mentioned that a few times in terms of the source of some of the growth. Can you just expand on what new services are being offered? Or is it really just an increase in the volume of maybe the same services that are being offered? And I'm just curious if you have a sense of what the growth rate in your service revenue growth has been maybe on a year-to-date basis relative to where it was versus last year? Nitin Jain: Absolutely. I think this is -- frankly, would be one of the big difference maker for us at Sienna because we're not shy about providing care, and I would say we are quite good at it. So the expertise that we have in long-term care is how do we use that in retirement and not only provide more care but also do it at a price where residents can afford it. So we recently made the change, Jennifer, who led our long-term care, we moved into retirement with the intention of how to add the right care services to our retirement living. So the one would be increasing our care services, and we are seeing more and more demand for assisted living and memory care. So that would be one. Second, we looked at pricing of a car. So from 2022 to 2024, our care hours went up significantly, but they were not adding much to the bottom line. We were not pricing it correctly. And we were also not having the -- we also didn't have the right structure to make sure we can be more efficient. So we have fixed that this year. It is a multiyear strategy because you don't want a big shock to the system. If someone is paying $100, you don't want to change the price to $300. So we will do that over time. So that would change. And then we continue to think about how do we bundle services which are in the best interest of us, team members and residents, and we will do that. So I would say it will be a combination of all of those things. And that's why when Jonathan asked the question on just rental rate growth, I think that would be one part of our growth strategy. The other, frankly, is going to come from care services. Pammi Bir: Is the care service revenue growing at a faster rate than that blended 4% to 5% that you mentioned? Nitin Jain: Absolutely. I mean those -- the expenses are also a bit higher there. So those numbers go faster. The care revenue is growing significantly faster than anything else. I mean, it started at a low base, but high double digit is not -- is the number that it grown in the last few years, and we expect that to continue on. There is a shortage of long-term care beds in every province we are in. Residents need more care. Hospitals are full. And the right place for residents who do not need long-term care should not be in hospital, they should be in a retirement home. And the idea is how do we make that possible. Pammi Bir: Right. Okay. So a lower margin but higher volume growth in that piece of the business? Nitin Jain: Yes. Yes. Pammi Bir: That's all I have. Operator: The next question comes from Tal Woolley with CIBC. Tal Woolley: I joined late. So if some of the stuff has been answered, please tell me to go look at the transcript. I'm just curious how you see acquisition pricing playing out over the next couple of years. I think for the last 5 years, any time we've talked about retirement assets, basically, the going in cap rate has been kind of plus or minus 6%. With your stock prices rising, with the sector occupancy tightening up, how do you think about the movement of deal pricing expectations goes over the next couple of years? Nitin Jain: We would see increased competition in the deal space, which is a good thing because that keeps the values high and also, again, goes to the idea that this sector is not going away anytime soon. There has been significant growth in this space. And as we talked about before, this is the beginning of next 25 years. There's -- it would always be competitive and -- all the deals that we have closed this year, whether it was our Alberta portfolio or the properties in Ottawa or the property in Waterloo or the one in Mississauga or the one in Burlington, they were all heavily competed against. We don't always get all of them, but we get our fair share. And it's just making sure the deal structure is right for the vendor, our ability to do other things being flexible with our approach. So a lot of those things go into play. And you're right, it has been stuck at 6% for a while. And for Class A properties, 5.75% is not an unreasonable number. And I'll just -- our Hygate property, for example, in Waterloo, we've bought it for around $430,000 a door and the construction cost for our Brantford property was close to $500,000 a door. And even though it was a much bigger home with long-term care. So it's still significantly below replacement cost. Tal Woolley: And in terms of your overall appetite, like is the constraining factor capital availability? Or are there some real operational management constraints like in terms of what you can take on in a given year? Nitin Jain: I think it's a combination of all of those things, but we -- the fact we're sitting at $813 million of development acquisition is not by accident. This is our biggest year so far. And our view is this is not an anomaly. We should expect that going forward. And we spent a lot of time on our structure, beginning of this year, making sure the right people are working on the right things. What we don't want to do is have acquisitions derail our operations, and we've seen that in the results that not only we're acquiring and developing, but our operational results continue to stay strong. So the structure work that we did in the beginning of this year has worked out extremely well for us, and we'll continue to tweak it. So we do that work. So I would say we continue to see more and more opportunities. Our pipeline stays extremely strong, and I think we'll continue to find opportunities both in development and acquisitions. p Tal Woolley: And then just lastly, on the LaSalle Park transaction. I think if I do my math right, $700,000 a door, give or take. That's probably our most expensive transaction on a per dollar basis. Nitin Jain: It is -- and this is again one of the things that you factored in is obviously the per door number. The second is how much NOI is it generating in that, that home does extremely well. And per door number, for example, not all suites are the same. We have property we bought in Ottawa, where the price was close to $300,000 a door. Those suites around half the size of what LaSalle park are. the suite mix is quite a bit different, and the location is quite a bit different. So the $700,000 is pretty close to replacement cost in some cases, but it comes fully leased up. And it's in an incredible part of Burlington. Tal Woolley: And I appreciate you've got the management contract in place. Like long term, are these the types of like sort of higher value assets, something you guys are interested in playing in more seriously? Nitin Jain: Well, absolutely. We have those today. We've bought the 2 Waterford properties in Ottawa and Kingston many years ago. We just bought Hazeldean which is an $85 million home 170 suite, around $500,000 a door. We have our properties in BC of high end. So we -- our model is we have 3 different kind of properties, call it in the St. Regis of the world which have full services, a lot more amenity, the full service, call it the Sheraton of the world, and I'm using these because I came with a hotel background, and then we would have some which are in smaller communities, which are limited services, and that's exactly what the residents need. So we -- I would say we have those 3 tiers, and we're very comfortable with operating all those 3 tiers, acquiring all those 3 tiers and building all those 3 tiers. Tal Woolley: And do you have any particular view on like where the demand ultimately is going to lie as this market really starts to grow in terms of the population. Nitin Jain: That is such an interesting question because you would think that all this demand would be in the big cities, such as Toronto and Vancouver, which is true. These markets continue to be very strong. But having said that, we see very strong demands in Waterloo market, we just bought Hygate as we talked about. We have 2 other properties there. They're running close to 100% full our market and BC is very, very strong. Even our properties in offshore, we have a home that we did a strategic renovation, and that's running close to 100%. So I would say there is going to be demand all over. So the whole idea that there are not enough places for seniors to live we are seeing that play out. So other than some very, very specific markets or very, very specific locations. I think you will see occupancy gains all around. Operator: The next question comes from Tom Callaghan with BMO Capital Markets. Tom Callaghan: Maybe just one for me on the balance sheet. Obviously, there's significant opportunity ahead on both the internal and external growth for the business. So just kind of curious to get your thinking on the balance sheet from a leverage perspective. Is there kind of a debt-to-EBITDA you have in mind and think about on kind of a run rate basis? And conversely, if the right external opportunity pops up and it's a bit chunkier, where are you comfortable leverage-wise? David Hung: Yes. That's a great question, Tom. From a debt-to-EBITDA perspective, we've been talking about the last couple of years being under 8x debt to EBITDA. We realize that currently our debt-to-EBITDA is at 8.8x. But I would point out the fact that that's at a moment in time because as the debt is as of September 30, whereas the EBITDA is a trailing 12 months. So if we look on a pro forma basis, we would find that our debt-to-EBITDA on a run rate basis would be under 8x. And that's where we would feel comfortable over the medium term. If something chunky came up and we really liked it, we might temporarily go up above that point. But over the medium term, we'd like to get back down under 8x. Operator: Your next question is a follow-up from Giuliano Thornhill with National Bank Capital Markets. Giuliano Thornhill: Sorry, I just had one follow-up. Of the acquisitions you've done year-to-date, how have they -- the integration, has that really met your expectations? Or is it tracking ahead? And I guess, like occupancy, margin and why? Nitin Jain: Thank you. And I think that's when we talk about our ability to close and I think it is -- most people think doing the acquisition is the most difficult part, and I would just argue that I think competitively operating is a lot more difficult. And this is where we are really seeing great success in Alberta, for example, the 4 properties. They are, in fact, running ahead of schedule. We had some income support, which we've not drawn and expect to give it back to the owners, which is a win-win. And the 2 properties we bought in Ottawa. One of them had an earn-out structure for the seller and we would be giving them an earn-out structure and we share that so that property is doing better than what we expected it to be. The home we just bought in Mississauga, which is a long-term care home, it's full. We know that extremely well. So on day 1 we have synergies and it's going to perform better than what we underwrote. And Nicola Lodge, the home we bought in BC, that we already owned a majority of it. So that fit extremely well. And when the others close, we do expect them to do -- to perform because of the work that we do to make sure we underwrite it correctly and then how do we integrate it. Operator: This concludes the question-and-answer session and does conclude today's conference call. We thank you for joining. You may now disconnect.

148天前Insight Analytics约5分钟阅读

EZPW 2025 Q4 财报电话会议

Operator: Good morning, ladies and gentlemen. Welcome to the EZCORP Fiscal Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this call may be recorded. I'd now like to turn the conference over to Sean Mansouri, the company's Investor Relations Adviser with Elevate IR. Please go ahead, Sean. Sean Mansouri: Thank you, and good morning, everyone. During our prepared remarks, we will refer to slides, which are available for viewing or download from our website at investors.ezcorp.com. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides contain certain forward-looking statements regarding the company's expected operating and financial performance for future periods. These statements are based on the company's current expectations. Actual results for future periods may differ materially from those expressed due to a number of risks or other factors that are discussed in our annual, quarterly and other reports filed with the Securities and Exchange Commission. And as noted in our presentation materials and unless otherwise identified, results are presented on an adjusted basis to remove the effect of foreign currency fluctuations and other discrete items. Joining us today on the call are EZCORP's Chief Executive Officer, Lachie Given; and Tim Jugmans, Chief Financial Officer. Now I'd like to turn the call over to Lachie. Lachlan Given: Thank you, Sean, and good morning, everyone. Fiscal 2025 was a transformative year for EZCORP. Outstanding operating and financial results on the top and bottom line drove exceptional shareholder value creation. We materially grew the store base across the 5 countries in which we operate, while retaining a highly liquid and lowly geared balance sheet. We achieved record revenue of $1.3 billion for 2025, up 12% year-over-year and adjusted EBITDA of $191.2 million, up 26%. EBITDA margin also expanded to 14.7% from 13%. Net income surged 30% to $110.7 million. Turning to Slide 3. EZCORP is a leading provider of pawn transactions in the United States and Latin America. Founded in 1989, we operate 1,360 stores across 5 countries with approximately 8,500 team members. Our model expands access to financial services through neighborhood retail locations and promotes the circular economy by recycling preowned merchandise and jewelry. The fundamentals of our pawn product continue to resonate powerfully with customers who need immediate access to cash. Our loans are nonrecourse, meaning customers have no obligation to repay. They can simply walk away and forfeit their collateral with no further consequences. We don't check credit scores. We don't require bank accounts or employment verification. We never engage in collection activities, and we don't report to credit bureaus. These small short-term transactions serve millions of Americans and Latin Americans who are underserved by traditional financial institutions that need immediate cash solutions delivered in a highly respectful and efficient way. Moving to Slide 4. We added 24 stores in the quarter, opening 17 de novo stores in Latin America, 11 in Mexico, 4 in Guatemala and 2 in Honduras. We also completed the acquisition of 7 stores through our Monte Providencia and Tu Empeno Efectivo transaction in Mexico, plus acquired 1 store in the United States, offset by 1 consolidation. Our store count has grown from 1,148 stores in fiscal 2021 to 1,360 stores at fiscal 2025 year-end. Post fiscal year-end, we acquired 14 additional stores in Mexico and 3 in Texas and entered into a definitive agreement to acquire 12 more Texas locations. We ended the quarter with earning assets of $549.1 million, up 18%, comprised of record PLO of $303.9 million and inventory of $245.2 million. The PLO balance represents an 11% increase year-over-year, driven by strong consumer demand and increased average loan sizes. Our PLO to inventory ratio remains healthy at 1.2x, demonstrating disciplined lending and inventory management. Our cash position of $469.5 million increased materially from $170.5 million at fiscal end 2024, reflecting the $300 million senior notes offering completed in March 2025. We remain well positioned financially to unlock further scale and accelerate organic and inorganic growth. Slide 5 and 6 highlight our strong financial performance during the fourth quarter. Tim will walk through those in detail shortly. On Slide 7, it provides an update on the strategic initiatives fueling our consistent growth across 4 of our fundamental operating metrics. Under the strength in the core, we delivered double-digit growth with record revenues and record high PLO, powered by our customer-centric approach and robust consumer demand. The team's ongoing commitment to operational excellence continues to support exceptional profitability. Adjusted EBITDA grew 33% to $47.9 million, while margins expanded 210 basis points to 14.3%. On team members, we implemented a targeted incentive compensation campaign in Q4 that successfully improved merchandise sales, results we plan to replicate periodically throughout fiscal 2026. We've also completed enterprise-wide talent and succession planning and launched structured retention programs that are already enhancing early engagement and reducing workforce attrition. Our customer focus initiatives are gaining significant traction. Our strategy is delivering measurable results. Digital transformation continues to accelerate omnichannel engagement and operational efficiency. EZ+ Rewards membership is up 26% to 6.9 million members, driving loyalty in local neighborhoods we serve and repeat transactions. We continue to broaden engagement across platforms, with our website traffic increasing 49% to 2.6 million visits this quarter. Importantly, Net Promoter Scores improved dramatically, rising to 61% in the U.S. and 62% in Mexico, while we maintained Google review ratings above 4.7 across all geographies. Finally, our innovate and grow initiatives delivered tangible expansion this quarter. In the U.S., we collected $34 million in online payments, up $10 million or 42% year-over-year growth, demonstrating strong customer adoption of digital platforms. We expanded our view-online purchase in-store capability to all U.S. stores as of October 2025, seamlessly connecting digital discovery with in-store transactions. Additionally, our instant quote tool, which provides real-time loan estimates for electronics is now operational in 66% of U.S. stores, driving both customer engagement and conversion. In Mexico, we're seeing rapid digital adoption with 22% of extensions and layaway payments now processed online, creating convenience for customers while improving store productivity. As we continue to scale these digital initiatives, we're unlocking meaningful operational leverage while enhancing the customer experience. This omnichannel approach positions us at the forefront of digital innovation in our industry, while digital engagement successfully translates into increased store transactions and reinforcing our market leadership position. I'll now turn it over to Tim to walk through our detailed financial results. Tim? Timothy Jugmans: Thanks, Lachie. As we transition into the detailed financial highlights section, I want to emphasize that fiscal 2025 represents not just a strong quarterly performance, but the culmination of multiple years of operational improvements, strategic investments and disciplined execution. The results demonstrate the significant earnings power of our platform and our ability to generate consistent profitable growth while maintaining strong financial discipline. Turning to Slide 9. PLO of $303.9 million increased 11% or 9% on a same-store basis, driven by an increase in average loan size, reflecting higher gold values and the increase in value of general merchandise. Inventory increased 28% to $245.2 million due to increase in PLO, layaways and purchases. Aged general merchandise increased 83 basis points to 2.6% of total general merchandise inventory, demonstrating disciplined inventory management. Merchandise sales of $176 million increased 9% with same-store sales up 7%. Merchandise margin remained steady at 35%. PSC of $125.6 million grew 9%, primarily driven by same-store PLO growth. EBITDA reached $47.9 million, up 33% year-over-year with margins expanding 210 basis points to 14.3%. General and administrative expenses of $23.4 million increased 13%, primarily due to higher incentive compensation. On Slide 10, total revenues increased $26.9 million or 13% to $238.9 million for the U.S. Pawn segment. Approximately half of this is attributable to scrap sales benefiting from higher gold prices and increased jewelry purchases. Earning assets increased $66.5 million to $419.4 million, driven by PLO growth of $19.5 million to $233.8 million and inventory growth of $47 million to $185.7 million. The 9% PLO growth on both a total and same-store basis reflects strong performance across our markets. On Slide 11, our 545 stores across 19 states are concentrated in large urban markets. Texas remains our largest market with 247 stores, followed by Florida with 95 stores. During the year, average loan increased 13% to $209, supported by higher gold prices and increased value of general merchandise. PLO composition continues to shift towards jewelry, now 68% of PLO, up 220 basis points. Jewelry inventory composition increased 310 basis points to 65%. This shift enhances our ability to capitalize on elevated gold prices through scrap sales, which contributed significantly to our 27% segment EBITDA growth. Slide 12 details U.S. pawn financial performance. Merchandise sales of $117.3 million increased 6% overall and 5% same-store. Merchandise margin remained steady at 37%. Segment EBITDA of $55.2 million increased 27% with margin expanding 250 basis points to 23%, driven by higher gross profit, including incremental scrap gross profit of $5.7 million and disciplined expense management with same-store expenses up just 3%. Turning to Latin America on Slide 13. Fourth quarter revenues were $96.9 million, up 17%. Earning assets of $129.7 million increased 15% with PLO up 17% to $70.1 million and inventory up 12% to $59.6 million. Slide 14 shows our 815-store footprint across 4 countries. Mexico remains our largest international market with 622 stores. We opened 17 de novo stores in the quarter and acquired 7 stores in Mexico. For the year, average loan size of $88 decreased 4% as reported, but increased 3% when adjusted for foreign exchange. Jewelry composition increased. PLO jewelry composition up 450 basis points to 41%, inventory jewelry composition up 850 basis points to 39%. Slide 15 provides detailed metrics. PLO grew 17% with same-store growth of 9%. Merchandise sales increased 16% with same-store up 10% and merchandise margin remained steady at 32%. Segment EBITDA of $14.2 million increased 18% with margins improving to 15%. Store expenses increased 19%, driven by new stores, while same-store expenses increased 11%. Slide 17 and 18 capture the exceptional transformation we have driven over the past 5 years. Since fiscal 2021, we fundamentally transformed EZCORP's earnings profile. Net income has increased more than 5x from $21 million to $110 million. EBITDA has grown nearly 3x from $68 million to $191 million. Revenue has grown from $729 million to $1.3 billion, while EBITDA margin expanded from 19% to 15%. On Slide 18, PLO has grown from a pandemic low of $176 million today's record $304 million. The portfolio has shifted towards jewelry now represented 62% of PLO versus 54% in fiscal 2021, contributing to our high average loan size of $145 compared to $114 in fiscal 2021. Slide 19 illustrates our inventory management evolution. Inventory has grown to $245 million with aged general merchandise up slightly to 2.6% of inventory. Inventory turns are 2.5x, partially reflecting higher jewelry balances. While inventory as a percentage of PLO is growing, we remain comfortable with the metrics given our increase in purchasing and the impact of our 10-month layaway program. Slide 20 illustrates our merchandise sales evolution over the past 5 years. Merchandise sales grew 69% from $426 million in fiscal 2021 to a record $721 million in fiscal 2025. While merchandise margin normalized from 42% in fiscal 2021 to 35% in fiscal 2025, within our targeted range of 35% to 38%. Merchandise sales gross profit grew 36% from $185 million to $251 million. On Slide 21, our strategic investments continue delivering strong returns. Cash Converters International has returned $14.2 million in dividends over 5 years, of which we have used $10.7 million to increase our ownership to 43.7%. During quarter 1 FY '26, we committed to maintain our ownership percentage by investing an additional $5.7 million through a rights offering, while also receiving an additional $1.8 million dividend. Our investment in Simple Management Group through Founders is performing well. SMG generated $171 million in revenue for the 12 months ended September 30, 2025, up 23% with gross profit of $88 million, up 18%. Our preferred equity structure provides a 20% cumulative preferred return plus 50% participation in distributions above certain thresholds. Looking ahead to fiscal 2026, we remain focused on growing PLO, improving inventory efficiency and scaling operational best practices across all geographies. We are very pleased with expense management to date. However, we do expect a sequential increase in total expenses through the year. Based on the current gold prices remaining steady, we expect similar scrap sales gross profit as we have seen in the last 2 quarters to continue into quarter 1 and then for scrap margins to decline sequentially during FY '26 back to normal levels. Our M&A pipeline remains very active with multiple opportunities in various stages of due diligence. The fragmentation in our industry continues to create attractive acquisition opportunities where we can leverage our operational expertise and robust balance sheet. Each opportunity is evaluated through our rigorous framework focusing on strategic integration complexity and return on invested capital. Back to you, Lachie, for closing remarks. Lachlan Given: Thanks, Tim. Fiscal 2025 was a defining year for EZCORP. We delivered record financial performance, improved our scale, continued our relentless focus on operational discipline by focusing on our people and our customers and enhanced our balance sheet with the largest financing in our history. Thank you to our 8,500 team members, their dedication to serving our customers with respect has driven these exceptional results. We are very well positioned with a highly resilient, exciting growth platform to capitalize on organic and inorganic opportunities to drive further superior returns for our shareholders. With that, we'll open the call to questions. Operator? Operator: [Operator Instructions] Our first question or comment comes from the line of Brian McNamara from Canaccord Genuity. Brian McNamara: Congrats on another strong year here. So we get a lot of questions on gold prices. I'm sure you guys do. How -- what's kind of your message to investors and prospective investors maybe assuming that a lot of this benefit is maybe short-lived. And obviously, nobody can predict what the price of gold will do. But like from a managing the business function, like should investors worry about a potential decline in gold price? Like how should we -- can you kind of frame that for us? Lachlan Given: Yes. Look, I think, Tim, you can comment as well. But I think we run this business over, obviously, many, many years in very different gold environments. I think a rising gold price is clearly helpful. I think we had some real tailwind in this year's numbers clearly from scrap gross profit. But ignoring gold, we still had a phenomenal year. I think the core business across all that we're doing, whether it's lending, sales, the business is doing extremely well. And I think the rising gold price just added to that performance. I think we've spoken to you a lot in the past about the fact that these are short-term loans that we offer, and so we're able to adjust very quickly no matter what gold does. So I think when we speak to investors, we obviously say that a large part of our PLO and inventory is gold, and a rising gold price is helpful. But that said, a change in that, clearly, a very significant change quickly, you would have some short-term issues. But I think in the long term here, no matter what gold is doing, we have a very resilient business model that we can adapt very quickly to a change in price in gold. Tim, I don't know if you'd add any more to that. Timothy Jugmans: I think we have to remember that this business is driven from a PLO perspective. And you're saying, well, the customer is in need for cash. And so that need for cash ignores gold price. So just because the gold price is up or down, doesn't change the customer's need for cash. It just changes what they're bringing in. And so I think that's just an important part of the business to remember that just because gold price has doubled, it doesn't mean our average loan size has doubled in the past year. And so the average loan size is where the demand is for the product. It's not in the gold price. Brian McNamara: Got it. That's really helpful. Secondly, on LatAm, obviously, a really significantly improved performance there over the last couple of years. Like what inning are we in there in terms of improving that business? It seems like a lot has been done over the last couple of years. Lachlan Given: Remember, I'm a cricketer, not a baseball player, Brian. So I'll take my best crack at that. Look, I think we have built really fantastic momentum, particularly in Mexico in the last, call it, 1.5 years. But it's still early down there. When Blair walks into a store, there's opportunity every single time. And so I think down in Latin America, it is still early in the innings. We have got a lot to do in gold and jewelry generally. I think historically, we've been a GM business down there, particularly in Mexico. And so our teams are learning how to lend a lot better on jewelry. So I think there's some real upside around that. I think digital adoption down there is early. So we're seeing some real momentum now in online payments and extensions, but I think we can do more there. So I think you're right to point out the momentum because it's -- every quarter, we're seeming to deliver just fantastic results. And it's not just the key metrics down there. I think what's really important is you're seeing a truly balanced business. So you're seeing the metrics move strongly, but you're seeing them move in the right way. For example, PLO is growing faster than inventory. And aged looks good and so turns look good. And so I think it's growing well. It's in a balanced way. So -- and I think there's still plenty to do down there. I think we've got a big M&A runway down there. I think we're well capitalized to take advantage of that. So there's plenty to do on that front as well as you've seen us build 40 stores last year. I think we would -- while we don't sort of commit to a number, our intention is to grow our de novo business down there at a similar rate, pending what happens on the M&A front. So I think on all fronts in Latin America, we have got a lot more to do. So very pleased with the momentum. Brian McNamara: Got it. And then just finally, on the M&A pipeline. Last quarter, it sounded like you had a pretty robust pipeline. You did some -- you acquired some stores in Q4. It sounds like you acquired some stores subsequent to the end of the quarter. How does that look? How does -- how should investors be thinking about M&A as it relates to 2026? Lachlan Given: As you pointed out -- thanks, Brian. As you pointed out, it was super pleasing to see the momentum there. As everyone knows, M&A by nature is opportunistic. So you can never kind of plan for when it comes together. But across the board, Latin America, we did a really good acquisition down there in the quarter. And then subsequent to that, we've done some really exciting stuff in Texas in October. So I think things are coming together there. But as I said, we have a lot more to do. The pipeline remains extremely robust. But I think as we say every quarter, we do this in a disciplined way. Even though we've got plenty of cash, we look at this on a return on invested capital basis and whatever is best for our shareholders. So while the pipeline is robust, I think you're going to see more of the same from us. It's going to be done in a disciplined way. And -- but we are excited about what we've managed to do in the last 3 or 4 months. Operator: Our next question or comment comes from the line of David Scharf from Citizens Capital Markets. David Scharf: Just a couple here. First, focusing on LatAm. I know there's always a lot of questions about just minimum wage inflation, other dynamics within Mexico. I'm kind of wondering if you're seeing any impact on the ground in terms of pawn loan demand based on what's going on in the U.S. remittance industry. I mean we've seen a clear slowdown in money transfer volume based on immigration enforcement actions here. Are you able to ascertain whether or not that's actually increasing demand in store in Mexico and throughout LatAm? Lachlan Given: Well, I think it's a good question. We get asked this quite a bit. And our evidence is more anecdotal because we're not doing any money transfer. But you're seeing very robust lending in our Latin America business. And whether that's as a result of the money transfer business or other factors, I think the good news for us is that lending across all regions in that part of the world are very strong. Tim, I don't know if you'd add any more to that. Timothy Jugmans: And it also is -- some of this is short term. When these money things change, some months is a little bit higher than others. And so it does move over the place, and it does move between different countries that we've seen. So just because in Mexico, it's slightly lower, it doesn't mean the other Latin American countries we are operating in are lower as well. It is something we do look at, but there's not an immediate correlation there. But we know that the demand for the loan product has been strong in Latin America, especially over the last 18 months, but a lot of that is really to do with operational changes that we've made. David Scharf: Got it. No, I appreciate the color. Just quickly shifting to the U.S. I appreciate the previous comments about gold prices and ultimately the impact on borrowing demand. But given that half the U.S. revenue growth is obviously, as you noted, related to scrap sales this past quarter, is there any kind of benchmark for U.S. top line growth you'd be willing to offer up for fiscal '26, just given the kind of the scrap and underlying gold assumption... Lachlan Given: We don't guide. All I can tell you is that our intention and our objective is to continue with robust revenue growth. I think your point is well made that scrap gross profit was a significant part of particularly the last couple of quarters. But we still see real opportunity in our business outside of just that. So I'd say to you, we're not going to guide specifically, but our objective is to continue this relatively robust revenue growth and particularly profit growth. Operator: Our next question or comment comes from the line of Kyle Joseph from Stephens. Kyle Joseph: Congrats on a nice quarter and year. I just wanted to -- most of my questions have been taken, but if you don't mind, kind of walk us through your -- the loyalty program and some of the marketing efforts and walk us through some of the results you're seeing in those in terms of whether it's increased foot traffic or increased transactions per consumer? Lachlan Given: Thanks, Kyle. Yes, look, I think this 2026 is a big year for our marketing effort. I think it's sort of the culmination in a couple of years of real focus on what we're doing there, particularly digitally. So you pointed out the rewards program. As we said in our opening remarks, we are now across all stores, offering all of our inventory online, so consumers can see all what we're doing online and come into the stores and buy it. I think we're leading the industry in that area. We are now doing instant quotes online. So if you've got an electronic good, we can give you a quote online for a loan or for a purchase. I think that's leading the industry. I think you're going to see us very, very active across social channels. We're already active across YouTube and Facebook and TikTok and Instagram. But I think you'll see some more focus, some more spend, particularly around video in those areas. We're having a lot of success with SEO, SEM in our digital marketing program. So I think for the first time, we are now kind of entering a year where we're firing on all cylinders from a marketing perspective built on all of these initiatives we've been talking about the last couple of years, but they're finally sort of launched and we're ready to see the impact. So look, we're really excited about those things. We think it's both going to drive, as you say, traffic, but it's also what the customer wants. You can't pick where you're going to meet your customer, they pick where they want to meet you. So we want to be able to meet them, whether it's on the phone, online, in-store. And so we're providing all of these channels for the first time across all that we're doing. And I think we genuinely lead the industry in that area. So I think this is the first year that you're going to -- that we're going to really be able to measure those benefits. In terms of the rewards program, it continues to build quite nicely. We are almost 7 million members now, I think. And it's sort of getting a bit more mature. But I think we are now running really exciting, targeted marketing programs to those members. So we're learning much more about each member. We're using data to target them better to increase sales, increase turns, increase margin. So I think it's a really good question, and we're kind of -- we're quite excited about that part of the business this year because I think this industry generally, including us, have sort of ignored that part of the business for decades. And I think customers have become much more savvy, particularly younger customers. And I think EZ has -- we've taken a real position here to focus on this part of the business, hire a great team. And I'm hoping that this year, we're going to see some pretty strong results come out of those efforts. Kyle Joseph: Got it. Really helpful. And then just one follow-up for me. Going back to the M&A pipeline. You guys recently made an acquisition in the auto pond space. Just want to get a sense for how that's performing and if you have more appetite there? And then in terms of geographies, should we think about your M&A pipeline kind of in existing geographies or willing to expand beyond those? Lachlan Given: Both good questions. Thank you, Kyle. So let me start with the second one on the M&A side. Look, there's a lot to do in our existing markets. So I think we're certainly focused there. That said, we are always open to new markets, new geographies. But with that, obviously, comes risk. And we've got great existing teams in our existing markets. So my own bias is to those markets. I just think it's less risk. We've got a better chance of strong execution. So I think our bias is definitely to our existing markets, and we've got plenty to do there. But that said, I think there are some new exciting markets that we can open up, but we're going to do that in a disciplined, not a casual way. So I think really the answer to your question is, first, the existing markets and then maybe some new ones. And then on the car lending business in Mexico, it started well. So we are really firming up our processes around that product, whether it's underwriting, whether it's collections, in the pawn lending business down in Mexico. I think we are now assessing how we're going to roll that out into our existing stores. I think it's becoming quite a large pawn product in the Mexican market around our competition. So I think we bought a really good solid business to start with that's performing well. And now our team is assessing how quickly we roll that out in which stores, in which markets in Mexico. So I think 2026 should be a really interesting year for that business. Operator: Our next question or comment comes from the line of Raj Sharma from Texas Capital. Raj Sharma: Solid results. Congratulations. My question was, are you -- all the digital initiatives that you have made to the business, are you seeing -- what changes are you observing in your business on these digital initiatives? Does it serve -- is it serving a younger cohort that's more stressed? Or are you doing more layaways as a result of all these initiatives? And my question really is around -- do you need to track economic indicators like delinquencies and credit card balances? Or do you just see it clearly in your store traffic online flow and then I have some follow-on question. Lachlan Given: Thanks, Raj. Look, on the second question, on the tracking of metrics, look, Tim certainly looks at macro metrics. But I think our focus is really what we're doing. And that means our operating initiatives in the stores. That's where we focus. We look at the macro at times when we're asked, but I think we can't control that. What we can control is what we're doing for our customers in the stores. So that's really our focus. And on the digital initiatives, you're seeing genuine change as a result of those initiatives. If you look at extensions and paying loans online, it's just sort of phenomenal growth as to our customers who are wanting to do that. So that's not only exemplary customer service, but it's making our stores more efficient so that our people in our stores are actually looking after customers on the lending and the sales side rather than just extending loans. So I think you can see very, very high growth in those metrics where people are taking that option to pay or extend online. That's sort of one of the digital initiatives that's really changed significantly in the last couple of years. And then on the other digital initiatives, obviously, you've got the loyalty program, and we think that, that's very, very helpful in us growing market share. So I think that digital initiative has been super important. And then really just your core website, social marketing, paid search marketing. I think we're just -- we're gathering more and more customers across the regions in which we're operating, the new way. It used to be that you would just put up a big sign that said pawn and you had good customer service. They were the 2 ways you'd market in a pawn shop. I think now you've just got to be a lot more diverse than that because that's where you're going to meet your customers, whether it's through social, whether it's paid search, whether it's SEO, I think you've got to be doing all these things to ensure that your customer base is growing. So look, I think there's -- customer growth is an obvious outcome from these digital initiatives, I think making our stores more efficient, so giving our people more time to serve our customers instead of doing the brand kind of loan extensions or loan payments. And I think customer loyalty and retention through the rewards program is the other major outcome here from concentrating on these digital initiatives. Raj Sharma: Got it. Got it. That's very helpful, very descriptive. And then just one other question is in the U.S. Pawn side, the PLOs were up 9%. The inventory was up more. Inventory turnover was down. Is that -- can you explain the inventory was up more than the PLO growth? And is that layaways? Is that... Lachlan Given: Yes, it's a good question, that one. I would say to you that we're still happy with these metrics. And what's driving that is partly doing more purchases. It's partly doing more longer-term layaways. But I would say it's an opportunity for us is to increase turn. So we've got various operating initiatives in place, which we started towards the end of the year and going into the new year where we are designing bigger, better incentive programs for our store staff to sell more. We are putting more talent into this function, which is the selling function. I think EZ has always been a fantastic lender first. And I think our current team has taken a more balanced approach to that. It always starts with the loan clearly, but you have to flush that inventory and flush it quickly. So look, I think you point out, it is a metric that is an opportunity for us. I think there's good reason for inventory growing the way it's been growing. But I think we have got initiatives in place for 2026 where we want to improve those turns. Timothy Jugmans: I think also remember that, that inventory increase, a majority of that is jewelry. So if we wanted to tomorrow, go scrap a whole lot and improve that turnover, we could. But we see that selling that gold in the stores is an important part of the long-term growth of the stores. So you're selling it back to the neighborhood. And so that -- our focus is on the long term and not a short-term gain. And so you'll see that inventory growing a little bit more just because we have more jewelry and that jewelry price -- gold price has obviously significantly increased. Yes. Raj Sharma: Got it. So it's not necessarily a concern for you, more of an opportunity. It reflects more of a gold price rise and increased gold jewelry being taken in. Timothy Jugmans: Correct. So jewelry obviously sells at a little bit slower rate. That's why the inventory turnover is down. Obviously, with the gold -- quickly gold rising price, lots of people come in and sell their gold more than in the usual period. So that drives the inventory as well. And then we've also talked about our 10-month layaway program that is just for the first time this -- in quarter 4 lapped from last year. So it's not quite apples-to-apples yet. But over the year, we'll start seeing a more like-for-like comparison. Operator: Our next question or comment comes from the line of Andrew Scutt from ROTH Capital Markets. Andrew Scutt: Strong results. Most of my questions have been answered. So just one quick one for me. In recent months and weeks, we've heard that the U.S. consumer has been a little bit constrained. We're also going through a long government shutdown. Have your store managers in the U.S. seen any change in consumer behavior or maybe a different profile of customer coming in store? Lachlan Given: Look, thank you, Andrew. I think -- look, we are certainly seeing, as you can see from the results, strong demand for the line product in our U.S. stores. What that is a result of, I can't really comment whether it's government shutdown, whether it's difficulty in getting loans from alternative providers. But we are seeing the customer continue to be under pressure. And I think you can see that in the U.S., in our really strong lending profile. We're also doing a good job on the sales side. So I think the business is firing on all cylinders. But to your specific question on government shutdown, all I can point you to is our lending results and they're robust. So maybe it is part of the situation. Operator: I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Lachie Given for any closing remarks. Lachlan Given: Thank you, everyone, for joining. It was obviously a phenomenal year for us. We're very proud of the results. We're very grateful to our 8,500 staff members for delivering these results, and we're also very grateful for everyone's support here on the call. So look forward to talking to you all more through the course of the next day and week. Thanks for joining. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

148天前Insight Analytics约5分钟阅读

BLGO 2025 Q3 财报电话会议

Operator: Good day, everyone. Welcome to the BioLargo Q3 Earnings Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Brian Loper. The floor is yours. Brian Loper: Great. Thank you very much. Good afternoon, everybody, and welcome to this quarterly conference call for the months ended September 30, 2025. This call is being webcast and is available for replay. In our remarks today, we will include statements that are considered forward-looking within the meanings of securities laws, including forward-looking statements about future results of operations, business strategies and plans, our relationships with our customers, market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties and may cause the actual results to differ materially from forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-Q, which we fully expect to be on record by Monday at market opening, our Form 10-K and in other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. And with that, I now hand the call over to BioLargo's CEO, Dennis Calvert. Dennis Calvert: Okay. Brian, thank you very much, and thank you, everyone, for joining us. And we've got quite a bit to share on business updates as well as the performance for the last Q. And I know everyone has been anxious to see this information, so we're glad to do it. So at BioLargo, we make life better, purpose-driven innovation across a number of fields. We're really a portfolio company, and we've been at this for some time, and we're finally at the spot where we're able to begin realizing some of the fruit of our investments that have been made over an extended period of time. Okay. So let's see. Here we go. Safe harbor. We've covered that. So who are we? Innovators, scientists, engineers, passionate about sustainability and human health, driven by a purpose, focused on best-in-class solutions. We believe each of the portfolio assets that we're investing in have a chance to be transformative in their respective markets. We're certainly focused on filling the gap in the market, find the gap, fill it, solve a problem, make impacts, get paid for it. We aim primarily through partnerships and spin-outs to capitalize the IP. One of the fundamental value propositions in our company is that we're investing in assets that have an extraordinary functional long life. Some of them have been very difficult to get to market. Everybody knows that, and we're going to talk about that in great detail. In the portfolio, of course, we have Energy Tech, which is focused primarily on battery. It's a transformative battery for the long-duration storage industry, that's grid scale. Clyra, that's antimicrobial products focused on infection control and wound care, finding its way to market now, very excited, long investment cycle. We think a shining star in the portfolio that's finally coming to commercialization. ONM, that's odor and VOC, that's air quality control. Of course, everybody knows about Pooph. We're going to talk quite a bit about Pooph and the frustrations that we felt there and some of the disappointments we just had recently. And then, of course, our PFAS solution is finding its way to market in a very, very significant way. Early recognition of the technology. So I'd call it still in the early adopter stage, but we're heading into significance, and we'll talk about the developments there. People always ask me, how are we doing, right? How are we doing? And given the most recent frustrations over Pooph, the answer is somewhat a little different, which is we're 95% awesome, 5% pretty much kicking our butt. And I hate to say it that way, but that's about the way it feels. It's a pretty tough scenario, and I think we're handling it well, but critical, critical the way we're handling it as well. We'll talk about the detail in Pooph. The unseen value, right? This is the #1 challenge as the company, right? So just think about it. We're doing venture stage investing with a mark-to-market microcap company. It's pretty hard to do. In fact most people wouldn't do it. Part of it came out of the evolution of the company. Part of it came out of really the need to diversify to create a portfolio effect across a number of assets that could do two things, minimize risk for the timing and the adoption rate for one of the assets in any given moment and also allow us to invest in an incredibly highly qualified staff. We've got, I don't know, 10 or 12 PhDs and 30-something engineers, and reportedly we always say the same thing. We can do just about anything. And of course, not literally. But the concept is highly qualified people that are skilled in this art of innovation, finding the gap, getting these technologies seeded in the market. And there's a lot that's unseen. We're going to talk about some of those things that you want to know about that helps illuminate what can be seen. And the principles are really simple, unmatched technology, conserve your capital is the most precious asset, highly qualified people and driven by purpose, all very, very critical to the ongoing support. Now this is a relatively new slide, and it really is the sum of the bull case debate. A lot of our investors see it because they track the company carefully. We did a presentation at LD Micro, and I think it's the first time we presented this publicly. It was also filed under a press release and an 8-K. It's not brand-new information, but it's pretty close, week, 10 days ago, maybe 2 weeks ago. The basic argument is that the company, given its recent transactions and an argument because it's really a lot of argument, we should be valued somewhere around $200 million. And yet we have a market cap that's trading somewhere in the $50 million range and with some pressure on it as well. And so that's very frustrating. It's very frustrating for management. It's very frustrating for all the stockholders, including our staff. Sometimes it's disheartening actually. But here's what happens. We know that the fundamental value sits in our company. And we know what the assets are because we've been living them every day, and we're advancing these to some sort of commercial adoption. So these mark-to-market transactions are really important. The battery technology, we've raised money at a $44 million valuation. That's a mark-to-market, although not public. We believe the valuation will go from $44 million to $400 million as we get to the next adoption cycle. We'll talk about that in a minute. The medical has just raised about $2.2 million as total invested capital over the last 12 months is about $7.6 million, and the current valuation is at $95 million. Now I'm just going to point out to you real quick on a $95 million valuation, BioLargo owns approximately 48%. So that's a little bit of an error in this deck. 48%, I think, is the last count because we raised another couple of million dollars from family office investors, very, very important, significant investment, significant investors and the company is heading into an institutional grade investment scheme, okay, the plan. There's a good argument on the bull case to date that the asset that we own in Clyra Medical justifies our entire market cap. The entire market cap is justified by what we've done at Clyra. Now of course, visibility means show me the revenue, show me the expansion of growth, see the market, find adoption with these technologies. And we certainly know that, that's here and on its way. We believe in this portfolio approach that, that opportunity to create an exit value is likely to exceed and should exceed greater than $0.5 billion and has a chance to push $1 billion, okay? Now just think about that, BioLargo owns roughly 48% plus we own a royalty. That means that asset that's currently valued at about $100 million justifies our $50 million market cap. And yet the portfolio has so much more including the battery tech, our PFAS solution. Now [indiscernible] real quick, PFAS. We put a $60 million number, and that's an argument. I don't have a mark-to-market transaction. We're going to pursue investment from strategics that are north of $60 million. We haven't closed them yet. But given the technical advancements, the level of adoption and the pipeline we've accumulated, we believe we can command that kind of number. And then, of course, in odor, we used to say it's going to be worth at least $100 million. Of course, the Pooph has set us back, and we're going to have to reposition that asset. But it's pretty easy to argue something around $40 million. After all, it allowed us to support Pooph that generated $50-plus million last year and 60,000 positive reviews based on our technology. And that technology is ours, it's not theirs, don't forget it. And that needs a repositioning, it's painful. We're going to talk about that in a minute. And then, of course, the upside, as we find adoption, these assets have a future potential, we would argue, in the $4 billion range. And it's a big vision. But make no mistake that that's what we're investing in. And we believe these assets will find that kind of market traction. The bull case debate, we'll have that debate on and on, okay? So we just did a press release about Advanced Solutions. It's a really nice situation. Advanced Solutions is a great company. There's a cultural fit. They've got a nationwide presence in their heat map. They cover the domestic U.S., okay? That means they have representatives that are organized under the umbrella of Advanced Solutions who are technical specialists in selling wound care products. That's what that is, wound care products. They're wound care specialists. That's a subset of our bigger market, okay? Remember that we have two categories we're primarily focused on, the surgical suite and wound and burn, which is really wound, wound care, wound and burn is the same. Also potentially tissue therapy. Those are kind of agglomerating into that category. Now in the marketplace, this is a big market. And if you layer on the surgical suite, which everyone knows that we've signed a major partnership with a global leader. We're under NDA, our partners said, until you're ready to ship product and we're ready to push the button on launch, you need to honor our NDA and keep the name silent, quiet. So we've honored that. It's a lot of pressure for us, a very difficult thing to do, but we're doing it, and we're doing it because we have to, okay? Now all of those assets are coming to market, and we're going to talk about timing. We have a shot to see first orders before the end of the year with Advanced Solution, a shot. Product is in production, which is great, right? Assuming everybody stays on track, we can see first orders, shipment, delivery. Remember, we don't recognize revenue until it's delivered. So we'll just see how that goes when we come into the end of the year. But it's a nice start, and it's a nice start with a high-quality firm that has a great reputation, a highly trained sales force, and they are stocking distributor. And so we're very proud of that relationship. Also, you'll see soon Advanced Solution generate its own social media to promote the product and its relationship with Clyra. And again, a very exciting development. And as we had indicated before, the surgical suite products have extraordinarily high bar of performance before they go to market, and we have been successfully clicking off the list to achieve that. We did a press release about 2.5 weeks ago, I think October 7, and then we just did this one just yesterday, and we've achieved success in the milestones, in preparation for the last filing of paperwork to the FDA, the last filing of paperwork. Remember that the technology -- the core technology has already cleared FDA so that means label changes, indications changes, refinement for the sterile field. That's what we're talking about, okay? With the shutdown of the government, unfortunately, we don't have a good sense of what the FDA is going to do on response time. And therein lies another level of uncertainty about the timing because we just don't know. So we believe that we'll finish our testing for stability and ruggedized testing for the package design that will come in hopefully before the end of the year, at which point then we prepare for filing of the paperwork with the FDA. We coordinate with our partner. We go through the logistics, then we begin production and then we launch. That's all coming to bear. It's just very exciting. And the other thing that we mentioned in the last press release, just briefly that I want to just highlight, we're also doing significant work with clinicians. And so remember, in this industry, clinical work is required to help validate the experience for patient experience and outcomes as well as physician experience who witness the product going to work and witness and have evidence to support safety. Both of those are super critical. And so that clinical work is expanding rapidly. And if you go to Clyra Medical's website, you'll see a key opinion leader list. And we believe in Q1, what we'll begin to see next is the rolling out of clinical data presented by the clinicians that do the work with their summary of experience as well as their opinions about the efficacy and the safety that they've experienced in the use of the product. And that is a great moment. And so we're very excited to see that activity now come to public view that should begin to have public visibility in Q1, and it's a critical piece of the puzzle. I also remind everyone that we talked about the UAE in the past, the work that we're doing for Europe and Northern Africa and the Middle East. And in that scenario, it's very important to understand that we have to have a CE mark. A CE Mark is a certification that is required, which is primarily a safety confirmation to the specification is designed by the EU, okay? CE Mark, that's what that's called. So we're in the process of doing that. It does require clinical evidence, which thank God, we have now, and we're advancing that clinical evidence, and we're checking off the boxes. And as soon as we get clearance on the breadth of the market for the distributor, we'll be announcing that transaction and get going on the European and Africa and Middle Eastern opportunity as well. Big deal, big deal. Now again, I'm just going to remind everybody, this is a technology idea that's 18 years in the making -- that's up 18 years in the idea stage more, 13 years investing, 6 years to get to FDA. And then you have to do product design and compete. This is -- I just have to remind you, it's a transformative technology for patient care at a global scale. Number one, make no mistake, we're claiming #1. It's #1. It provides broad spectrum efficacy. It's got efficacy proven for duration in 3 days in a closed environment. It's got efficacy proven through studies for biofilm disruption. And the basic fundamental claim is it delivers this support for patient advocacy, patient care, health, infection control, supporting the process of healing, okay, in a way that does no harm with no local or systemic toxicity. And that claim set makes it #1. And so now it's about getting the word out and getting distribution and supporting our selling agents throughout the world. And finally, we're knocking on the door, ready to go. I'm going to highlight real quick the liquid sodium battery because I still believe it's probably the largest, most significant asset in the portfolio. Imported is a funny word. If you measure imported by money making, yes, it's got a chance for that, for sure, because it's so big. Transformative potential in the marketplace, yes, it fits that bill. I think in terms of mass opportunity and our plan, we've got a great piece of technology that works, and we're continually derisking that. And our business model is to sell factories, not sell batteries. So we form joint venture partners around the world. And its role in the world is extraordinarily valuable in this time -- on this planet at this time in the world. At this moment, we're talking about a $1 trillion investment cycle, and we're going to play a significant role. So that takes us to the battery long-duration energy storage industry as a general, okay? We quote this article all the time. It's about a year old now, expected to grow between $1 trillion and $3 trillion by 2040, trillion, okay? Long-duration energy storage. In the last 3 to 6 months, you're going to watch some companies that have had extraordinary climbs in valuation. And we would argue with not nearly the technology that we offer. Now some of these companies have significant infrastructure investments. They're producing at scale. They're supplying the market. They're in commerce. And so the R&D dollars, which just about killed them to get there is long behind them, and now they're in the process of commercializing successfully. Unfortunately, we believe they're not going to be able to keep up with our technology. And the market is so big, it is so big and so demanding at this time in the world that not one company can possibly keep up with the demand. So it's important for us to get going. And so what do we need to do, right? We're going to talk about what we need to do to accomplish that. But we fill a void in the market, and I'm going to just highlight, lithium is highly explosive. You're seeing communities now ban the production of lithium batteries and storage of batteries, all kinds of stuff going on, not well suited for long duration, highly temperature-sensitive, internal degradation, which creates instability. Instability creates fire risk and Runaway Fire Risk is the idea that one cell lights another. They have poor environmental outcomes. The biggest thing, though, is China global supply chain risk. It's an intolerable situation. We've seen the trade war recently with the administration and the push and the pull with China. And you'll notice that in the battery tech, many Chinese companies are state supported and they're dominating the world by subsidizing every piece of the supply chain, but it's not a sustainable strategy. And yes, they're big. And yes, they're formidable and they're selling batteries that are cheap, but they're not as good. And as this expands, quality, safety, durability, sustainability, durability and efficiency are going to be the key marks that make the market. That's where we fit in. It's a better battery. The punchline is we've got a better battery. And we've derisked it to a large extent, I'm going to talk about risk in a minute. The key claims, I leave this for a lead behind. Don't focus on all this detail right now. Energy density at 2.9x the energy density at a higher voltage. Without the loss of energy, we've got 95% round-trip efficiency. It's a better battery for long-duration storage. That's the punchline. And we can also make it to scale. Now we haven't proven that. That's a thesis. That's one of our challenges to prove that. What do you do with these? We're talking about big batteries, big batteries next to the house or the neighborhood, big batteries next to data centers, 20-foot trailers full of cells, okay? That's what we're talking about. I'm not going to go through the thesis of why we need batteries. It's sufficient to say we need -- the market is going to go to the multitrillion dollar market over the next few years. But data centers are number one, resilience. That's the idea never down. So mission-critical operations need batteries. So when the grid goes down, they don't. You got to interact with the grid that's balancing, arbitrage is buy it low, sell it high. And of course, if you're in the renewable energy phase, battery storage is super critical. People often ask, well, what's taking so long? Why is it taking so long, right? I say, well, number one, we bought the technology. We didn't invent it. We had to redo it. It took about 2.5 years to redo. And that's important, 2.5 years to recreate what we already knew was working. But we had to redo it so that we could claim it as our own. People would say to me, does the battery work? We say, yes, pretty sure it works. And they say, pretty sure it's not going to be cut it? I said, well, I don't have anything else, but pretty sure until we do the work. So we completed the work in the first half of this year, about 2.5 years' worth of work, recreated the cells and brought in a third-party validation. We did a press release on 06/18, and we have a third party confirming the claims associated with the cell. Okay, similar work to do. We're about halfway through that sort of this schematic, which basically is prove the cell, scale the cell, right? Continue testing, bring in some money and form partnerships to build factories around the world. That's all underway. It's actually quite exciting, and we've gotten the attention of the industry in a big way. That means there's two buckets. There's two buckets of opportunities that are presenting themselves. The first bucket is people that need batteries. The second bucket is people that need factories that with all the goodies that come with factories like workforce development, employment, economic development, net export, commerce, high-tech manufacturing, factories, they want to enforce -- reinforce investment in that area. And then there's the other group, they want the batteries, okay? And it's fascinating. And so who wants batteries? Well, data centers, right? In fact, I had a data center developer who says, I've run the numbers. If we build a factory, you'll save us on our data center, you are ready, $1.2 billion in CapEx. The factory is a $170 million, right? So this thesis can be summarized in the following way. Have we done enough work to be credible so that investors will support the building of a factory. And we believe that we've done a lot of that work, yes. The critic would say, always more. Yes, always more. And so as we continue to advance that thesis, every day, we get better, and it's a matter of time between now and adoption. As we find the first factory partner, we get started. When we get started, we make money. And this is really important in the business model, very, very important. We're being paid to build a factory. We're being paid to install technology. We're being paid to provision the equipment to work, to start it. We're being paid to train the force and kick off a factory that's making Cellinity batteries. We get paid throughout the process. So when a project gets financed, we're making money as opposed to burning cash from our balance sheet. It's a great business model. It kind of looks like a franchise when you step away from it. It's not a franchise. It's a joint venture strategy. The response we're getting from the marketplace is astounding. And here's the model. I'm not going to go through it all, but a 6% royalty, 19% carried interest as you get factories up and running, you make a lot of money. That's the point. And we've done some economics. We published these. I'm not going to go through them now, but I'll tell you the punchline. For $170 million factory, once it goes live, it takes about 1.5 years to go to full scale. It generates about $80 million to $90 million a year. Okay. So that's 2-year to 2.5-year development cycle, goes live another 1.5 years, you pay for the operation in 2 years after you build it. It's a very profitable business. And that's the point, plus you're getting battery tech coming out of that, it's transformative for the marketplace. So the business model is simple. You don't do a factory, you do a dozen. We modeled it at 7. On a 7 model -- 7 business factory model, our net present value is about $1.5 billion, okay? Now we're raising money at $44 million. I just want to make sure everybody understands that. So we're not saying it's worth $1.5 billion. What we're saying is the model teaches that if you execute the plan and you secure the financing and you show that you can execute that plan, you're talking about a $1.5 billion net present value on a discount model, okay? So this is where we're headed, and that's the point. This is where we're headed. Is it worth $44 million? You bet you, you bet you it is. We're proving that every day. So we've got MOUs, four MOUs signed, a whole bunch of more in the works. You kind of get to where MOUs don't mean much because you really just want to get them into definitive contracts. We are not there yet. We are not at definitive contract stage, but we do believe it's coming. The other thing that's happened is because we're continuing to advance our thesis and get exposure around the world, we now have very large companies and investors that need batteries that have lots of money and want them. And so that's a good recipe, okay? So we look at them and say, right, here's -- you're ready? How many batteries do you need? They say, how many can you make? I say how much money you got? I'll build you the factory. We can build you the factory, get all the batteries you want, okay? And you're going to finance it, and we're going to build it for you and we're going to get paid to build it, and we're going to get a piece of the action, 6% royalty, 19% carried interest. That's a globally scalable business model, and we're proving it every day. I believe that's going to yield fruit. And we've got a shot to do some of that pretty soon, but it's always subject to show me the money. And so yes, that's our risk factor that we're dealing with, and it's very exciting, primarily because the demand for batteries is insatiable. The competitive profile does not compete. We need to shore up infrastructure to prove that we can produce to scale, very much like we had to do for Clyra. And as we do that, we'll realize -- we believe we'll realize not only the capital resources, but the valuation that's associated with it. And so we're pushing hard to get that through. And I'm going to show you later in our economic profile that we're able to do such a significant innovation with relatively small amounts of money. Compared to what we're doing because it leverages over our existing infrastructure in such a nice way -- in a nice way. Okay. AI solutions, okay? Just everybody knows about AI, right, artificial intelligence, that's data centers. Data centers have massive need for batteries. They got -- they need supply chain independence because it's kicking everybody's tail end. They use massive sums of water. And then remember, we've been doing water recycling for data centers for 3 years with Garratt-Callahan. This is a significant value proposition of the portfolio. We believe we'll find its way to market. And then the other thing is PFAS and contaminants. When these data centers use this water, they're using lots of chemistry and lots of the surfactants that they use in some of the chemistries are laden with PFAS and then fundamentally got a recycling issue. If you're in the data center business, you got an end-of-life concern. right? Those batteries have to -- you have to do something with them when you're done. And so that's becoming a regulatory thing that's happening all over the world as well. And we're particularly well suited at that 1, 2, 3, 4, 5 punch in the market. PFAS. Okay. So we have performance breakthroughs. We just did a press release about a week ago. I can't remember, yes, 11/03 and on 09/29, very important, very, very important technical advances. We've advanced the thesis for controlling and removing ultrashort chain molecules. Ultrashort chain molecules are not regulated yet, but they will be. And the reason we know this is because they're the super small contaminants that are associated with highly concentrated PFAS waste streams like the people that make PFAS material. That's what we're talking about, very, very concentrated, and our system works particularly well at that plus long and short-chain molecules, and we achieved less than 4 parts per trillion and non-detect status. It's an astonishing plan. The most recent reduction in cost is associated with 90% reduction in the AEC energy cost. If you took a profile of this pitch that we made to the marketplace, which is all real, which says we can reduce your consumption of your waste stream production for handling waste and disposal by 40 -- 1:40,000, one part versus 40,000. We now can also say and we've reduced the operating expense of our energy consumption by 90%, which is a value enhancement that will allow us to say to the market, we are the #1 technical performer with no breakthrough, small waste print to non-detect status or for parts per trillion or nondetect depending on what you need and low energy, which means our OpEx will become competitive, in the combination of total operating expense, we can be the high-value performer at the lowest net cost. And that is a winner. And so with this claim, we've gone back to our proposals. We've got over $200 million worth of projects that have been bid, spec'd and priced. And while the market was trying to figure out what to do, whether they had the capital, whether regulators were enforcing compliance or whether they needed to reply to state requirements or litigation, all of that is continuing to move forward. And so we're in a great spot, and we're also negotiating with a number of strategic -- very large strategic partners, which we think is a great plan. Let me see, I must have skipped over that. Yes, it's okay. Let me make sure I didn't miss it. Yes, that's okay. Let me move on to the next slide. Here we go. A lot going on with PFAS. So stay tuned for more information. And we'll talk about Lake Stockholm in a minute. Lake Stockholm is prepared to go -- be provisioned and go live. We think it's going to be in the next weeks, not months and all kinds of delays, but most beyond our control between state, shipping, regulatory, EPA shutdown, government shutdown, general contractor, on and on and on you go, client, the customer, we're now in a spot where the last piece of the puzzle is being installed, we think showing up on Monday, then there'll be a couple of week provisioning, then they'll begin to test and modify. EPA will come in, the state will come in. All of this activity is now coming to a crescendo, which is great. And here you go. Rest assured, on the PFAS for Lake Stockholm, it works, and we'll make sure it works, okay? So finally, finally in that success mode. Okay. Everyone knows what's up with Pooph. We filed a lawsuit on November 11, and it speaks for itself. So I'm not going to go through all the detail, but we have allegations that we're committed to defend. We believe that our claims in the case are supported by evidence. I can assure you this is not about ego. This is not about ego. It's very frustrating, disappointing to say the least. And we would argue unnecessary, okay? But it is what it is. And we're forced to deal with it in such a way that we truly believe we had no choice. We had no choice. We must protect our intellectual property, and we are. And we believe that the -- their unwillingness or inability to pay us now $3.9 million is unacceptable. It's just real simple. It's unacceptable. So the good news is in the Pooph situation is that the asset -- the technology has proven that it can establish a national brand. The marketing was great. They did a good job, okay? 60,000 positive reviews on Amazon. You don't get 60,000 positive reviews on Amazon without a product that actually works. It's just that simple. It works. And it needs to be used as instructed, and it needs to be sold properly, okay? And all this other noise that comes with this dispute, okay? We fully intend on defending our position, and we've taken legal action, which we think is fully justified in our response. So what are we going to do? We're going to make sure our technology is safe. We believe that their actions are not excusable. The court is the proper venue. That's great. We'll reposition this asset to redeploy, and we will likely come in with new partners that can share our commitment to quality and transparency and integrity. So we're in a repositioning mode with that asset, but make no mistake, that's what we're going to do. By the way, the lawsuit is public record. I don't know if you can pull it down online yet, but it's public record. So be sure and look for it. It's quite informative and replete. Again, what are we saying? Built a national brand with consumer products and proved it could be done, and our industrial odor control business is continuing and stable. We're also really good at saving for a rainy day. So we think we're in a great spot to deal with the case and with the demands that's going to put on us. Don't forget the engineering group. By the way, the engineering group is never for sale. Somebody says will you sell [indiscernible] because they're the centerpiece of innovation. They support all these innovations throughout the company, and they're really, really good at it, plus they're inventing new technology. And so it's just -- we're so thankful. They are also breaking revenue records, which is great. I'm going to remind everybody when you see the financials, because they're an intercompany balance, they do a lot of the R&D for BioLargo and that's booked as revenue, but then taken out in consolidation. And because of that, since they're doing R&D for BioLargo, they almost can never turn to profit. If they were -- if we were a third party paying them for services, they'd be profitable, but the skin, the value to us is just enormous, okay? So that's it for the forward-looking sort of the synopsis of the business. I'm going to ask Charles Dargan to now step in and take a stab at the next two slides on the financial results and provide some commentary. Charlie? you're up. Dennis Calvert: Okay, Dennis. Thanks so much. And when you do dig into the quarter 3 numbers, the 800-pound gorilla is the Pooph's credit loss that we took in the quarter of $3.85 million. So the revenue, as you see here for the 3 months is down. It's also down about 50% in the 9 months from about $14 million to $7 million. And with that, it has run through the rest of our statements, producing the net losses that we have up on this slide. I'd want to make a specific point towards the SG&A. Again, most of our -- or a good portion of our SG&A is noncash. We continue to issue stock options and in some instances, stock to our consultants and to employees as a potential reward. So not all of the SG&A is at cash expense. Looking at our cash flow, again, the Pooph loss is running through our cash used in operations. I also want to point out that even without Pooph, we did increase our receivables by about almost $2 million. So the business is performing without Pooph. The other element in our cash flow statement is in our investing, i.e., our capital expenditures, and those are down significantly, much of which is we are coming to the end of the capital expenditure cycle with Clyra. And again, we've been able to finance that through Clyra's financing most of their needs on their own through the issuance of the preferred stock, Class B preferred stock, some debt and then some warrant issuances and exchanges. So we've been able to maintain our cash position, which is very strong at the moment of $4.5 million and our total assets come to a little over $9 million. Again, Clyra is financing itself largely. And with that, BioLargo itself has very little debt. So we were able to maintain a stockholders' equity of a little over $3 million. And let's take a look at the next slide. And so what we wanted to do is look at the major components of our net loss. And you can see, once again, it's Pooph dominating both in the 3 months and 9 months and Clyra. But again, I want to focus that Clyra is at the end of its CapEx cycle. It's also at the end of large operating expenses. And therefore, we believe in a really good position for us going forward. If there's something to kind of take away from all of this, we obviously took a big hit with Pooph, but we survived it. And we survived it in the same time frame that we're also increasing capital expenditures and regular expenditures, getting Clyra ready for its market launch. So the bottom line here is, yes, we took the punch, but we've survived it, and we continue to stay resilient by some ability to raise additional cash and by our ability to manage our operating expenses. So Dennis, that's sort of the summary of where we are in the quarter 3 financials. Dennis Calvert: Yes, I think that's right, Charlie. And thank you. Yes. And again, I'll just make notes. I sit with analysts all the time. and we talk about Pooph and their typical response is most companies couldn't take the hit. And again, I think it points to a couple of things that are really worth noting. One is diversified portfolio is really critical, all centered around a core competency. That's number one. Number two, we do save for a rainy day. We'll not spend for us. We don't waste money. We put money to work for assets that we believe have fundamental value and every day we prove it and then eventually, we get to reap harvest. Okay, Clyra. I mean people -- it's really easy for people to say, Clyra is not valuable because it doesn't make money. Well, guess what, that's not true. We just proved it by raising $2.5 million and a $95 million valuation. It's extraordinarily valuable and wait till it makes money? And so again, it just points to that underlying investment thesis of the hidden asset value, the underlying value of technology, has transformative nature. It also points to the resilience that our company has with diversity and lean. We do more with a small amount of capital than most companies are ever going to see. That's an argument. But I'll take that argument on any time. So let's open it up to questions, Brian, if we can and see what we got next. Brian? Hello, Brian? Okay. Charlie, are you there? Brian Loper: Okay. So we have a couple of questions on Clyra. So the PR regarding Advanced solutions noted that it was an exclusive partnership. So with their annual sales around $5 million, is there any concern that Clyra has limited Bioclear's growth potential by this exclusivity? Dennis Calvert: Who's revenue is around $5 million? Brian Loper: I believe the question is saying Advanced Solutions is. Dennis Calvert: Yes, I don't think that's correct. Yes. So they're much bigger than that. They're moving quite a bit of product. They've got a nationwide footprint. And so in that situation, we have belief and confidence that they're going to generate meaningful revenues for us. It's also a sub niche market of wound care, very technical, hands on. And so we'll have our product in the bag associated with reps that will be covering the nation on a nationwide coverage. So yes, so we think it's going to be a good thing. And then relative to all the details of the terms, both companies, of course, at this stage of the game, want to go prove the market, find the channel. And in this case, our partner has expressed a desire to really prove themselves with significance, and so our contracts allow for that sort of relationship to work out pretty well for both of us, and it's something we're going to grow into. So we think it's a great way to get started that requires the hands-on frontline touch that Advanced Solutions can bring. So that's why we chose them. We also think they're a great character and somebody we can trust and depend on. So no, we haven't limited ourselves. We think we're in a really nice spot to win. Brian Loper: All right. Another question about it. For the Clyra pipeline, so the investor said, well, I believe we have heard about the manufacturing investment that has happened for the surgical partner and that switch can flip as soon as the partner is ready for the other products. How long will it take to get manufacturing ready and what type of production capacity will Clyra have in 2026 for these other products? Dennis Calvert: Yes, it's a good question. So there's a whole menu of products. So let's talk about that first. The first category of products is liquid chemistry in some kind of container. Okay. So now let's just distinguish those. There's the containers that go into the surgical field, and that's called for use in the sterile field, and that would be for the surgical suite. That is an extraordinarily high bar, very technical, very special product designs. It's one of the reasons it's taken so long, but we're hitting the mark. And it did take us some extra time. Delay noted, okay? And everybody got frustrated with it, I get it, but we've plowed to it, and we've survived that journey to be successful now. The other products do not require that same level of precision. Now they do require FDA manufacturing capability, but not the sterile field. And so they can be produced by a number of co-packer -- FDA-certified co-packers. We have a number of relationships that do that, and we can do it on ship-point, we can do across the nation. And so our scalability is unlimited. Okay. Now let me just note, there's a whole bunch of other product designs. So potential gels, additions with other products, coatings, surface materials, bandages, all that. All of those have different manufacturing techniques. We're not there yet. We intend on exploiting and pursuing those designs. But really, we're at the spot where let's just get in the game, put the core technology to work, generate some sales, generate some cash flow before we tackle the financial burden of positioning those additional products for the market, but they will come, and they're extensive, and they go on and on and on. So remember, platform technology. So surgical suite, wound care, burn, tissue therapy. Next, what's next? Dermatology, dental, right? And then sub applications in all these different categories, eye care, on and on, on and on, it can go. So it's pretty awesome. Okay. Next? Brian Loper: All right. Yes. let's switch gears, talk about water. So were the Lake Stockholm delays due to BioLargo or supporting infrastructure built by others? Dennis Calvert: Well, we've met every deadline that we were asked to meet ahead of time. And so that's how we get paid. So that's what we did. And so the execution then there is a whole series of things. The government shutdown was part of it because you got to have an EP on site, both state and federal. And then you've also got general contractors that have their delays, which is permitting, which also gets impacted at the local level, not by us. So local permitting, I think, is the number one delay. It just took what it took. And so the general contractor says, I'm waiting for permits. What do you want me to do? And remember, this is New Jersey. You don't touch that stuff without a permit. And if you're not union, you can't do the work. So this is public works. It's the nature of public works. And then we've had other things happen, but shipping, we had some -- a part that was damaged, but that's not the issue for the delay. That's just another incidental thing that happens along the way. So if somebody wants to find cause, just chalk it up to this is the way the world works. I mean, really. It's a lot of moving parts, and it's pretty typical in sort of public work scenarios. But I can just assure everyone, if someone says hop to, it's mission-critical, there's nothing more important, we're in. And we're really close to finally getting that thing launched. So it's a good situation. It should have been 9 months ago, but we couldn't control any of that. So here we are. Brian Loper: All right. Switching gears to battery. So are there any battery factories currently being built? Dennis Calvert: No, the pilot facility we have, some people have expressed frustration about the early confusion, which is fine. I really do empathize with that, and we don't need to do that. We believe actually the factory in Oak Ridge will eventually have the ability to produce batteries that can be sold, okay? Right now, the problem is that the economics are in scalability. So just because they can, doesn't mean you want to. I mean it's one of those scenarios where you really need to push off 1.5 gigawatt hours of batteries a year, okay? So that's like six 20-foot trailers a day, that scale, that scale, and each one of those will sell something like $300,000 a pop, okay? So that's a business. Making a battery pack with 3 cells or 10 cells is certainly doable. I'm not sure it's economically really justified now. Let me just say that there's a number of opportunities where that sort of design can prove concepts for us that allow for the bigger design to happen, and we fully intend on pursuing those. And we've got a couple of projects that are really fascinating where it's almost like the cost doesn't matter. They just want the solution. And I mean, not within -- I don't want to take that to an extreme level. It doesn't matter as in they'll pay premium. okay? So right now, if somebody said, make me a battery pack to operate my home, okay? We can do that. We're not going to make any money. It's like prototype 101 off the line cost you $1 million and then 102 costs you [ $1,000,001, $1 ], right? It's like the economy hits in when you get to scale. So we've done this for quite some time. And that's what we're really working on with the cell, the factory concept. And we're also working with some potential federal funding, maybe military to really help us get into the game of building packs and taking those through the regimen of testing. But I still believe that we can argue that for an investor partner skilled in this art that we're prepared to move forward with the building of battery factories. Now maybe we can prove that with the deal, maybe we can't. right? That's just to be done. That's just the way it works. Now I got a lot of people who want to do it. And so we're pushing through all those barriers. I can say that if you had, as we say, $7.5 million plus another $40 million, you can derisk that scenario so that when you go to say, let's build a factory, everybody is comfortable that it's been derisked sufficiently to not have concern that the money is going to not yield what they want. Of course, well, that's work. That's called working capital, right? You have to have the capital, you have to do the work. All of that's happened at the same time. I think the most unusual claim that's really a value proposition for BioLargo is simple. We have core competency. We've got great technology. We've got people. We've got a plan, okay? So what's really missing? Well, proper capitalization. That's why we talk about openly that we're raising money, $7.5 million Series A, $40 million Series B. That's into the venture, not into BioLargo. And so you say, well, who does that? Well, that's what Clyra did, and here we are. And again, so a critic, we got plenty, that's fine. Critic would say what, don't dilute BioLargo's parent company. Well, we're not. We're financing future ventures with very high valuations that all drive value to BioLargo. That's the point. It's exactly the point. There's no other point. So don't miss it, right? So we say we're going to do a battery tech, and I think our total invested capital is somewhere around $3 million. We brought in about $1.3 million or $1.5 million. And so the other money has come from BioLargo, right? So what's the agenda? Finance the subsidiary so that BioLargo doesn't have to finance it all. Of course. That's, of course, what we're doing. And so the answer is get the money. get the money, execute the plan, and we've got a chance of creating $1 billion plus worth of value. And right now, BioLargo is 95%. So let's say we brought in the money as we've outlined in the deck. That would be $47.5 million, roughly a 28% dilution on the battery company. Post-money valuation will be north of $150 million, probably pushing more like $400 million, okay? And we'd own 75% of that. It's worth 6x our market cap. How else are you going to finance it? So that's what we're doing. And by the way, it's a great plan, and I do believe it will work. I believe we're going to have success here. You know why? Because we have the right plan, the right people and the right technology at the right time in the world in the $1 trillion investment cycle. Listen, the people we're dealing with want those batteries so bad, you can't even get your head around it. And so they say, let me just paraphrase real quick. Does the battery work? Yes. Can you build a factory that works? Yes. Now here's the question. It's not bad. How can you help me get comfortable that that's true? There you go. That's the question. And you know what we say, real simple. You need to bring your technical experts and your engineers to Oak Ridge, Tennessee, sit down with us for 2 days. And when you walk out, you're going to say, this is all doable, right? Now what else could you do to make that work? Spend money. spend the money to do the work so that it's third-party verified at a level that people can be confident in. So this is not rocket science. This is pretty basic, blocking and tackling at this moment. But you have to do it. And so is it a mistake to aim high early? No. I'll take that debate on any day. No. Because you know what, we've got the real deal. We got the technology, we can transform the market. That's what we have. And I say this every day. I go out to the world, I say, tell me I'm wrong. You know what they say, if it's true, it's right. Okay, so I need to find somebody who believes it's true. And then I need to do everything in our power to back that up so that they know it's true, right? And that's what we're doing. It's not rocket science. Same thing with Clyra. I'm sorry -- really, I'm sorry it took so long. It's over 13 years of investment. We're going to make $0.5 billion or more, and we're going to change the world. That's what's going to happen. It's happening. It's right in front of you. Brian Loper: All right. Yes. so one question here about Pooph. Switching gears again. Why are we still seeing commercials? Can your legal team stop them from advertising? Dennis Calvert: Well, the -- as they say, the long arm of the law has a long reach, but a slow-moving thing. So welcome to the U.S. jurisprudence system, okay? So the answer is yes, we'll do what we can to make it accelerate, okay? So that's part of the plan for sure. Don't mistake that that's the plan. We also think that the more that this activity continues, it's -- we think it's a sad commentary on the business, on the entire situation. It's just -- so we're very unhappy about what's going on. We are taking action to correct it. And we believe our case will be defended successfully in court, and we believe in our assertions, and I would encourage everyone on the phone to read it. And there you go. Brian Loper: All right. Last category of questions here about the financials. So could you help me understand the impairment charge shown on the slide. How did that increase net loss? Dennis Calvert: Yes. So that's an accounting question. I'll let Charlie talk about it. Dennis Calvert: Do you want me to handle that? Yes. So once it was decided by management that the assets we were carrying, accounts receivable and a note receivable from Pooph were no longer the same value as we had on the balance sheet, then we had to make a decision as to what the value is. And through conversations, internal discussions, the decision was that the value at this moment was little. And in accounting terms, what that means is you have to reduce the value and our decision was to reduce the value by $3.85 million. And in so doing, the charge doesn't just reduce the asset. The charge goes ahead and you have to run it through your profit and loss. So that's why it shows up in the profit and loss. Brian Loper: Okay. Last question here. Business developments have taken longer than expected. What can you say to your investors to acknowledge their frustrations and help rebuild their confidence in BioLargo? Dennis Calvert: Yes. So yes, absolutely, it's frustrating. I mean some of it's like almost inconceivable. I mean, like Clyra, it's just crazy. Now I guess Clyra is a great example. You have this idea, which started out 13 years ago with an idea -- it's actually more than that. It goes back 20 years. And then we started investing in it about 13 years ago. And you say, here's this incredible discovery that has a chance to make life better for people, right? Heal wounds, help heal wounds, provide that support and then infection control worthy and you start this journey, okay? And it's fascinating because I think the story with the FDA is just sort of the epitome of the challenge. So we did a lot of work, and we presented our data, and we came to the FDA and said, we need to get approval for this under a 510(k) clearance. And I was there. I've been here a long time. I was there on every call with all the big boys listening to this journey. And I remember hanging up a call, we had 27 people on the call. And I said to our internal team, I said, I think we have a really big problem. And he said, what's that? I said, they think we're lying. Okay. Now hear me clearly. They think we're lying, okay? In other words, let's go through the psychology of that real quick. The most careful skeptics in the world are trained to not believe. And then we show up with a claim, that's unbelievable. Okay. Welcome to BioLargo. I've been hearing it for 18 years. It's too good to be true. And here's the deal. It's all true. Everything we've said is true. Everything in the asset is true, everything it can do is true, and we prove it and we prove it and we prove it, meaning we have to go through a cycle to get through from early adopter to mainstream adoption. This is textbook adoption. This is in class books, classroom books, read a book on innovation. This is normal. And so I guess, right? So you'd say, but it's so important, right? And then you have companies like Theranos, right, where people commit fraud, people go to jail and you have skeptics -- the investment community is some professional skeptics. I get it. I'm not offended. I understand. And so what happens is, right, you continue to advance your thesis with additional evidence. You never stop proving it. In fact, as I say, it takes you 10 years to get credibility and a minute to lose it. You have to prove it every day. That's what we're doing. The beauty is we stayed alive long enough to do it. And the other beauty is it's real. For God's sake, it's real. I don't know how to say any clearer. And same thing with battery tech, right? And so hopefully, we can shrink the adoption cycle. So how would you do that? Well, you do it as part of the way we're doing it. You diversify your base of potential partners. You focus on things not just I need batteries, I need workforce, I need other things that get you financing. You do things like advanced third-party verifications. You muscle up with some equity to do the kind of testing necessary to prove to people that what we're saying is real and true and trustworthy, okay? So that's it. And a lot of it is money, okay? Another part of it is being in the right place at the right time for the right opportunity, okay? So odor is a classic. Our odor control does what it's supposed to do. It's an oxidizer, it's safe. It doesn't hurt anybody. And with the molecule and the chemistry, when it comes in contact with an organic molecule that causes odor, it's going to break it down. period, not maybe, done, but you have to get in contact with the molecule, okay? So now you've got all the stuff going on, environmental interference, wind patterns, mountain heaps of trash, some odors that are not organic. I mean you got all kinds of things that come against you. That's fine. So this is an artful practice. In order to win in that market, you have to be artful to know how to deliver it to accommodate the task, okay? So how do you get that business? You do it over and over and over and over, okay? So it's easy to sit back and say, the medical should have been at market faster, okay? I don't think so. Show me a company that transforms the market. That's because they were talking about, transforms the market, right? Number one, they can transform the market at the level we're talking about that's done in less than 10 years, never happens. So I don't know. I mean, I would argue aggressively that we put our capital to good work, and we've advanced our knowledge base, our talent base, our credibility base, our testing base. And now what you're seeing is the culmination of really almost 20 years of work, achieving critical mass in both knowledge and talent and technology and validation and adoption and everything. And so say a prayer that we can take the battery technology into a more rapid adoption cycle. I don't want to spend another 10 years doing it. If I thought it was going to take 10 years, I wouldn't be doing it, okay? But yes, we need some capital. And yes, we need the third-party validation, and we need to build the units to scale. Now let's just go to PFAS real quick, okay? Show me a competing technology in the emerging market that actually has a customer. None. I mean people don't realize it, none, okay? So who got the customers? Well, ion exchange and carbon. Okay. Well, how is that working out? Well, it doesn't work out very well, okay? Now we believe, to somebody just point to you real quick, we believe that our technology in that space has a chance to actually replace the installations of carbon and ion exchange that have already been done. What? Did you hear what I just said? So we're working on that thesis now. And of course, it will require some financing because what happens is people go out and they spend $5 million or whatever it is on the system. And then they pay for it the rest of their life. And how do they pay for it? 40,000x the waste stream, okay? That's money. And ours is 140,000 and now has the lowest energy -- lower the energy consumption by 90%, meaning our total operating cost is a fraction of what this other system costs, which means we're going to be able to justify the swap out of old technology for ours. Now I don't think that's tomorrow, let's be clear. We're going to go where they don't have installations first. But over time, as our technology becomes more and more accepted because you have to get through the early adoption stage, you have to continue to establish your credibility, partner with the right people, find the channel, get multiple installations, verify with the Feds, verify with the state, okay? Now make no mistake, look at our debt, we project that, that asset is going to be worth at least -- not least, I shouldn't say that way, has a chance to be worth $750 million or more, okay? Right now, we've invested, I'd say, about $3.5 million. okay? Now just track with me. If we raise money at $60 million, and we've invested $3 million, what's our ROI? It's off the chart, okay? Meaning we're able to innovate in a way that most people can't even conceive, right? We do it with less money, less burn, and that thesis is now proving out across the entire portfolio. And so what's the trick? Get them to market, monetize them, got the right partners and go for it. And again, we've been at it for so long. Now we're able to see the fruit. I think being in an OTC market is a problem. It's a thinly traded market. That means we're appealing to less than 2% of the total capital available for an investment thesis in the world. That's a problem. We have mark-to-market. People get impatient. They want to take tax loss selling. Got it, I understand, can't deal with it, right? Shame, you're going to miss it. And you say, how do we know? Well, you don't. That's the risk. You won't know until we perform. This deck right here that you're looking at is trying to help people get their head around. The fundamental value of our business is arguably around $200 million. And so now we're going to see some significant assets come into the market and transform them in the near future. I want to be a stockholder, right? All right. Yes. Brian Loper: All right. Yes. Those are all the questions we have. And thank you again for all the information. Dennis Calvert: I'll wrap it up. Sure. Yes, let's wrap it up real quick. So we'll have this recording or deck performed. We'll do an 8-K on the deck. You're welcome to see it, of course. Please read the lawsuit. It will be very informative for anyone that's questioning strategy. It's right there in writing. You can't miss it. And it's going to shock you. I'll just tell you, you're going to go hmm. And it's going to show you what we've been dealing with for now for about a year, and we're not happy, right? We will survive it, and we think that we can reposition this asset in a meaningful way. So stay tuned as we get that done. We're already seeing a lot of people express interest in that whole situation, which could be very, very good for BioLargo and our stockholders. And again, we think about our company, we're not spendthrift. We save for a rainy day. We're lean at the corporate level, and we try to invest capital where we get a high-yield return, and we think we're demonstrating this. So we hope you go along with us, and thank you for your attention and look forward to speaking to all of you soon. All right? Thank you. Operator: Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

148天前Insight Analytics约5分钟阅读

LZRFY 2025 Q3 财报电话会议

Operator: Good morning, and welcome to Localiza&Co.'s webinar on the third quarter 2025 results. Joining us today are Rodrigo Tavares, CFO; and Nora Lanari, Head of Investor Relations at the company. Please note that this webinar is being recorded and will be available at ri.localiza.com, where the full earnings release material are also available. The presentation is also available for download on the IR website. [Operator Instructions] Please note that the figures in this presentation are [ in millions of reals ] and follow IFRS standards. We emphasize that the information contained in this presentation and any statements made during the conference regarding business outlooks, projections and operation and financial targets of Localiza represents the beliefs and assumptions of the company's management as well as currently available information. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Now I will hand it over to Rodrigo Tavares, CFO of the company, to begin the presentation. Rodrigo Tavares Goncalves de Sousa: Good morning, everyone, and thank you for joining our third quarter 2025 webinar. In the third quarter of 2025, we maintained a consistent trajectory of executing our strategy -- our strategic priorities, focusing on restoring the ROIC spread and consolidating operational and financial efficiency gains. The results for this quarter adjusted for the effects of the IPI reduction reflect solid progress on this agenda. We reported net revenues of BRL 10.7 billion, EBITDA of BRL 3.5 billion, EBIT of BRL 2.3 billion and a net income of BRL 871 million. The annualized ROIC for this quarter reached 15.4% with a spread of 5.3 percentage points over the cost of debt. Guided by a long-term vision and a commitment to generating sustainable value, we continue to execute our strategy with discipline and focus on continuous transformation. Our investment in innovation drive improvements in customer experience and operational excellence across all divisions. In Car Rental, initiatives such as AI-powered virtual assistant Liza handled more than 4,000 daily interactions with NPS above 85, delivering agility and resolution in over 90% of cases without human intervention. Another highlight is FAST Digital Pickup, a benchmark in the industry innovation available in 252 branches, where 1 out of 3 individuals customer contracts in opened fully autonomously. This generates significant productivity gains and supports our trajectory towards reaching 1 million contracts in 2025. FAST customer report higher NPS scores for the pickup experience and indicate that this journey will influence their next rental decision. In Fleet Rental and Localiza Meoo, results are strengthened by initiatives that enhance our customer experience such as Localiza PitStop, which since 2019 has offered high-quality maintenance in private and comfortable environments. The process ensure excellence standards combined with cost efficiency, allowing customers to maintain their routine while their vehicle is serviced with convenience and agility. Additionally, the digital journey for this customer has evolved consistently, driven by vehicle connectivity, which improves management, enhance safety and delivers a smart solution for a more integrated experience. In Operations and Seminovos, we reaffirm our commitment to high standards of quality and trust through rigorous inspection carried out our 15 deactivation centers, where 360 items are evaluated by specialized professionals using cutting-edge technology, ensuring technical precision and operational excellence. These practices reinforce brand credibility and guarantee that every Seminovo delivered exceeds customer expectation. In the third quarter of 2025, we continue investing in the evolution of our technology stack, cloud solutions and artificial intelligence initiatives, positioning the company for the future. These advancements strengthen our competitive edge, elevate customer experience and increase the value delivered to all stakeholders. This quarter, we recognized the one-off effect of the IPI reduction in our results, totaling BRL 929 million in pretax impact, including BRL 137 million in impairment adjustments affecting EBITDA and BRL 792 million in additional depreciation. Unless otherwise indicated, year-over-year comparison, this representation will exclude these effects. To present the details of the third quarter of 2025, I'll hand over to our Head of Investment (sic) [ Investor ] Relations, Nora Lanari. Nora Lanari: Thank you, Rodrigo, and good morning, everyone. On Slide 2, we begin with the Car Rental division in Brazil. In the third quarter '25, net revenues for the Car Rental division reached BRL 2.6 billion, an increase of 6.2% compared to the third quarter '24, driven by the rise in the average daily rate despite of the strong comparison base and stable volumes. On Slide 3, we show the 5.7% increase in the average daily rate for the quarter, which ended at BRL 150. The utilization rate rose almost 1 percentage point, reaching 80.8% and reflecting efficient pricing and mix management. Moving to Slide 4. We present the Fleet Rental division, which posted net revenue of BRL 2.3 billion, 6% higher than the same period last year. We continued reducing exposure to severe usage vehicle contracts, which ended the period with around 20,000 cars versus 31,000 as of December 2024. The volume impact was more than offset by the increase in the average daily rate contributing to the recovery of return levels in this division. On Slide 5, we show the average daily rate of BRL 104, 8.5% higher than the third quarter '24. The utilization rate of 94.9% reflect the reduction in severe usage contracts, which require longer preparation and deactivation times. Moving on to Slide 6, we present the revenue evolution of Seminovos, which reached BRL 5.8 billion in the quarter, an increase of 14.6% compared to Q3 '24. Average selling price rose in both Car Rental and Fleet Rental divisions, mainly reflecting a better model/year mix. On Slide 7, we highlight the significant reduction in average mileage at sale. The company continues to reduce average mileage, especially in the wholesale, contributing to higher selling price and lower maintenance costs. The age and mileage of the sold cars continue to show a gradual downward trend over the coming quarters. On Slide 8, we present the car purchase and sale volumes. In the quarter, 77,344 cars were purchased, being 50,930 for the Car Rental division and 26,414 in the Fleet Rental. And 75,400 (sic) [ 75,473 ] cars were sold, a historical record for the company. After a second quarter impacted by the IPI reduction announcement, we saw a recovery in sales volumes in Q3, contributing to a slight reduction in the average age of the car sold in the Rent a Car division to 21.3 months. Following the decree that reduced the IPI tax for entry-level cars, we observed a gradual adjustment in Seminovos prices throughout the quarter. Despite the impact of the IPI reduction on the Seminovos price, we recorded an increase in the average ticket in Q3, mainly due to a better model/year mix. On Slide 9, we show the evolution of average purchase price and sales price. In the Car Rental, the average purchase price was BRL 82,500 and the average sale price reached BRL 73,600 in Q3, resulting in a fleet renewal investment of BRL 8,900 per car, significantly lower than the BRL 18,100 in Q3 '24, reflecting the gradual fleet rejuvenation. In Fleet Rental, the average purchase price was BRL 97,400 in Q3, while the average sale price was 83,100, resulting in a renewal CapEx of BRL 14,300 per car, lower than the 20,600 of Q3 '24, mainly reflecting the sale mix and the participation of trucks on the sale end. On Slide 10, we show the end of period fleet. The company ended the quarter with a fleet of 632,267 cars in Brazil, stable compared to Q3 '24. But in the Fleet Rental division, the reduction in the year of -- end of year period, fleet reflect portfolio optimization with reduced exposure to trucks to heavy use contracts. Moving on to Slide 11. The company posted consolidated revenues of BRL 10.7 billion, a 10.8% increase in Q3 '25 compared to the same period last year. Rental revenue grew 6.1%, totaling BRL 4.9 billion, while Seminovos revenue reached BRL 5.8 billion, a 15.1% increase year-over-year. On Slide 12, we present consolidated EBITDA. In the quarter, EBITDA was impacted by BRL 137 million due to the expected effects of the IPI tax reduction. Excluding these effects, adjusted consolidated EBITDA totaled BRL 3.5 billion, a 6.8% increase year-over-year. In the third quarter '25, the adjusted EBITDA margin of Car Rental division was 67.7%, a 3.5 percentage point increase year-over-year, reflecting rental pricing improvements, combined with efficient cost and productivity management. Rental revenues increased BRL 151 million, while costs and expenses decreased BRL 37 million. Maintenance and preparation costs saw a significant year-over-year reduction. On the other hand, SG&A increased due to the higher provision for doubtful accounts and increased technology spending, mainly related to artificial intelligence. In Fleet Rental, the adjusted margin was 73.4%, a 3.5 percentage point increase compared to Q3 '24. The margin was positively impacted by accelerating tax credits with a one-off effect of BRL 50.6 million. The SG&A increase reflects higher provision for doubtful accounts showing cautious regarding the macroeconomic scenario. Seminovos posted an adjusted margin of 2.6%. In Q3, we again saw increases in sales volume and average prices, contributing to the dilution of the selling expenses, which dropped from 5.6% of the net revenue in Q3 '24 to 4.8% in Q3 '25. This quarter, BRL 118 million was recognized as an adjustment of the book value of the cars available for sale whose selling prices were impacted by the IPI reduction, affecting the accounting margin of the quarter. On Slide 13, we show the evolution of the annualized average depreciation per car. In Q3, the average Car Rental division posted annualized average depreciation per car of BRL 7,652, excluding the effect of the IPI reduction, a slight sequential increase as expected by the company. Including the IPI effect, depreciation would have been BRL 15,177. In Fleet Rental, annualized depreciation per car was BRL 8,602, excluding the IPI effects, following the upward trend signaled by the company. Including the IPI effects, depreciation totaled BRL 12,298. On Slide 14, we show adjusted EBIT of BRL 2.3 billion, an 11.2% increase year-over-year. The impact of the IPI reduction in the quarter totaled BRL 929.2 million. To present net income, I will hand over to Rodrigo. Rodrigo Tavares Goncalves de Sousa: Thank you, Nora. On Slide 15, we present adjusted net income of BRL 871 million, excluding the effect of the IPI reduction. The 7.3% increase in adjusted net income in 3 quarter -- in the third quarter of 2025 compared to the third quarter of 2024 reflects the BRL 224 million increase in EBITDA, partially offset by BRL 175 million increase in net financial expenses due to higher CDI and debt balance during the period. On Slide 16, we present free cash flow before interest. In the 9 months of 2025, cash generated from rental activities were partially consumed by CapEx for cars and other fixed assets as well as reduction in accounts payable to automakers. Free cash flow before interest totaled BRL 4.5 billion. On Slide 17, we show net debt movement, which ended in the quarter in BRL 31.1 billion, a 3% increase compared to the debt of the same period of the end of last year. Moving to Slide 18, we present the debt profile. The company ended the quarter with BRL 12.3 billion in cash, enough to cover short-term debt and accounts payable to automakers. We continue active debt management to capture cost reduction and duration extension opportunities. On Slide 19, we present debt ratios, highlighting the net debt to fleet value at a comfortable level, even with a reduction in fleet value due to IPI tax cut. The net debt-to-EBITDA ratio continues to improve, reflecting our price recovery and cost efficiency agenda. Finally on the Slide 20, we present the ROIC spread. In the 9 months of 2025, the company posted an increase in adjusted ROIC, which closed the period at 14.3%, contributing to a spread of 4.5 percentage points over the cost of debt. It is important to highlight that the third quarter of 2025 brought an annualized ROIC of 15.4% and a spread of 5.3 percentage points, in line with the company's goal to restoring return levels. Before we start Q&A, I'd like to point here our view about this quarter. This was a very strong quarter in our view. The Rent a Car has strong performance, the all-time productivity here. Our utilization is also in one of the highest of our history, and we presented a sequential growth both in volume and prices. Fleet, we continue a consistent improve in our portfolio. The target segments are already at the right ROIC spread, and those segments are growing in double digits in terms of revenue. Depreciation in both Rental a Car and Fleet Rental are under control. Seminovos, we're posting record volumes. Gross margins are at healthy levels. SG&A are being diluted with focus on productivity. We see Seminovos margin stable going forward, even though there is [ IPVA ] discounts in the fourth quarter. Issuance and cash flow showed a very strong cash generation, and we are continuing to reduce the spreads and increase the duration of our debt here. On a final remark, yesterday, we issued a material fact informing about the selling of Voll, a travel tech that we invested in 2021. This was a very strong investment for Localiza. The return was 5.1x the invested capital in just 3 years. With us, the company grew its revenue sixfold and reached breakeven. We're going to maintain a partnership through the commercial agreements, and I also would like to highlight and thank the founders for this incredible journey and wish the best luck and success to Warburg Pincus and the founders going forward. Now we're going to be available for the Q&A session. Operator: [Operator Instructions] Our first live question is from Mr. Filipe Nielsen from Citi. Filipe Ferreira Nielsen: Congrats on the results. So my question is all regarding depreciation. So it's -- we saw that it is trending according to what you've been guiding in past quarters. It's gradually increasing, but I was wondering if you have any indications on how this is going to trend in the fourth quarter and into 2026. You mentioned that Seminovos is healthy, but just wondering if any -- maybe you're accelerating the pace of Seminovos sales and fleet turnover, this could enable some reductions in depreciation already next year? And maybe if the car market continues going stable or even improving, you should maybe prefer to see all those IPI adjustments in high-end depreciation going into a higher Seminovos margins or you would prefer to reduce depreciation faster and maintain a stable Seminovos margins? Rodrigo Tavares Goncalves de Sousa: Thank you, Filipe. First of all, like we see now as the market behaves, the depreciation is under control, both in Rent a Car and Fleet Rental. In regards of the movements of depreciation going forward, we would like to see the Seminovos margin going up first before we actually reduce depreciation. So what we should see in order to question if the depreciation should be reduced is first an upward trend in the Seminovos margin. Before we see consistent increase in the Seminovos margin quarter-over-quarter, I think it's premature to talk about reduction in the depreciation. Having said that, at least the way we're seeing the market, we see the depreciation under control in both our segments. Operator: Our next question comes from Mr. Guilherme Mendes from JPMorgan. Guilherme Mendes: I have 2, both on the Rent a Car segment. The first one is on tariffs. I just wanted to pick your brains on how much more room you see on tariff adjustments. We saw sequential -- a small sequential acceleration. So I wonder if you see much more room for increases in real terms going forward. And the second is on margins, something that we have been discussing for the past conference calls that you do expect margins to accelerate by the time you rejuvenize your fleet. And assuming the run rate once you fully renew your fleet to a younger age, what can we expect in terms of margins on the Rent a Car division? Rodrigo Tavares Goncalves de Sousa: Guilherme, thank you. First thing, it's very important that we look at the tariffs, but we cannot look at the tariffs alone. We have to look at utilization altogether, right? If you control for utilization, we see that we are gradually progressing our tariffs. If you do even more than that, if you look at the tariff divided by the total cars, that's the one that really matters, right? You're going to see that also we have been improving our efficiency consistently across quarters. If we look -- of course, the last quarter is a very strong quarter in terms of seasonality. So you have tariffs going up just because of that. What we just noticed, especially in the mid of September is a little bit of change in the behavior of some competitors, especially on the daily rentals that we saw some pressures on the daily rentals' tariffs here. This is not a segment that we are highly exposed. So the impact for us is not that relevant. But we're going to continue to price based on the willingness to pay of the customer, our return and, of course, the competitive dynamics. Once again, the last quarter will be a strong quarter in terms of tariffs because of seasonality, but specifically on the daily rentals, we're starting to see some competitive pressures here, okay? In terms of the more long-term trend, it is important to highlight that you're right, as we accelerate the sales of Seminovos, we are going to collect the benefits of the rejuvenation of that fleet, mostly in the cost of preparation of the car and the cost of maintenance, and there are some percentage points in EBITDA margin to be captured. Nora Lanari: Yes. A couple of points, if I may add, Guilherme, and thank you for your question. First, on the tariffs, I would like to point that with the level of tariffs, actually, we grew volumes on a quarter-over-quarter basis by more than 4%, and we added average rental rate with increasing utilization. So it was a very positive quarter on our view in that sense. But more important than that is the ROIC spread already in the band in the Car Rental division. So it points for a more mild need to increase prices. And we go for Q4 with appetite for daily rentals, okay? On the second part of the question, margins, more important than the margins per se is the ROIC spread. Why am I saying that? We do have some room to optimize the costs in the Car Rental division based on the renewal of the fleet. We do have, of course, some still pricing lever. But if the interest rates decline next year, we can adjust to that. So pretty much the major KPI for the company is the ROIC spread. And as I said, this quarter, we entered in the historical band of the company. Operator: Our next question comes from Mr. Andre Ferreira from Bradesco BBI. Andre Ferreira: A couple of questions from my end. So first, regarding the provision for bad debt in Rent a Car and Fleet Management, the worsening that you referred to in the release was year-over-year, but there was actually an improvement quarter-over-quarter. So if you can comment on what drove this in Rent a Car and GTF. In the case of GTF, if it's still more related to the heavy segments and if you're seeing improvements or deterioration in both segments at a marginal level? And my second question is related to the gap between the average purchase and selling price of cars closing quarter-over-quarter. If you can just break this down in what is mix and what is actual comparable improvement? And also if in the latest weeks, you see this gap closing or widening? That's it from my end. Nora Lanari: Thank you for the questions, Andre. And let me start with the first one. End of last year, Q4, we started raising the provisions for bad debt, considering the macro, the hike in the interest rates and so on. So we've been seeing some deceleration in economic activity. But since Q4, we increased the provision for bad debt. So it's a year-over-year comparison. I think Q4 will be an easier comp. Having said that, when we look to the evolution of the bad debt provision, it declined from BRL 100 million last quarter to roughly BRL 75 million. So we are seeing improvements in that sense, mostly explained by trucks. Remember that trucks increased the allocation of bad debt because of a couple of clients. We increased a bit the number of repossessions of trucks, and we are reselling those trucks now. But the trend is positive, and we are seeing improvement on a quarter-over-quarter basis, not only in Q3 but also in Q4, okay? Rodrigo Tavares Goncalves de Sousa: Most of it was in the first half. I think that now in the second half, we see a more positive scenario, okay? So as Nora said, the comp of the third quarter of last year was a strong one. But sequentially, we see that most of this happened in the first half. In the terms of the price gap between the acquisition and the sale. This trend is supposed to happen, right? As we renew our fleet, especially in Rent a Car here, we're going to see that gap closing, right? So this happens most because of a mix of a model year. Just to give you a sense, we started selling the 2024 cars last year in November. This year, we started in June. So this brings prices up and reduce that renewal cost, okay? So of course, there can be a quarter-over-quarter mix adjustment, but the majority here is the fact that we are starting to sell the cars at a younger age and in a model year that represents the model year of the current year. So this is an effect that was already expected and it's happening. Operator: Our next question comes from Lucas Esteves from Santander. Lucas Esteves: I have 2 questions. The first one regarding the recognition of tax credits on GTF, even though you mentioned a one-off effect of circa BRL 50 million in the period. I would like to understand what could we expect about the recurrence of this tax credit recognitions going forward since in my understanding, you were not accelerating depreciation in a share of your fleet related to Locamerica before the system integrations due to a matter of tax efficiency. And now you would recurrently recognize this accelerated depreciation for the whole fleet. So just to get the sense of this tax credit recognition going forward and the impact on GTF margins. And on a second matter, I would like to hear more about Seminovos margins since you recognized a one-off fleet depreciation in the period, also continued gradual increase in normal depreciation, while it seems from your current results that the scenario improved a bit more than you expected and as we can see margins. So could we expect a margin overshoot over the next quarters in your view? Rodrigo Tavares Goncalves de Sousa: Thank you, Lucas. I think you pointed correctly, the tax credits before the incorporation, we were not taking accelerated depreciation for a part of the fleet, the part that remained at Locamerica. Of course, this is -- reflects our owner mentality. It doesn't make sense for us to recognize the credit just for accounting purposes. And now we did that. Of course, then in the first quarter that you start to accelerate, you have a small, let's say, one-off effect here. But going forward, the tax recognition should be higher than it was before the incorporation for Fleet Rental, okay? So we should expect this to be a positive influence of the margin of Fleet Rental going forward. In the Seminovos, as I said, we have recognized the IPI. We see so far, the market is behaving well. We see so far at least stable margins going forward. We have to see more probably a positive scenario to see this margin overshoot. That's not our main expectation at least in the short term, okay? There is an impact in the fourth quarter that its commonly, companies tend to give the discount of the IPVA, right? This is relevant, 1% of the price. But even with this discount, we think that the margin should remain stable at least for the last quarter of this year. So it's a positive trend, but I wouldn't assume an overshoot at least in the short term. Operator: Our next question comes from Mr. Daniel Gasparete from IBBA. Daniel Gasparete: Can you hear me? Can you hear me? Nora Lanari: Yes. Yes, we can. Daniel Gasparete: So 2 questions also. The first one, I'd like to ask Rodrigo, his view regarding the size of the impairment. Looking right now after a couple of months since the first announcement, how conservative do you think that this impairment is? I mean you are on the -- close to the top of the range that you provided. And so far, we have seen [ FIPE ] and comments not only from you but from other peers in the industry that Seminovos are behaving well. So I would like to get your view about how conservative this is. And secondly, I would like to ask you a little bit more about how do you see the severe use going forward and how that could benefit margins as well, please? Rodrigo Tavares Goncalves de Sousa: Thank you, Gasparete. First of all, once again, the incremental depreciation is a technical adjustment here. We just replicated exactly what the IPI decree car by car here, and that was the effect that we booked. We really hope that this is conservative. I think only time will tell. Usually, the markets do not adjust everything at once. So of course, that the market is behaving well, but it is a bit too soon to judge if that was conservative or not. Once again, it was a technical decision with no judgment from the company just replicating what the decree had an impact on the new, assuming that all the impact of the new cars would be replicated in the used cars. So that was basically the methodology. Once again, I hope that this is conservative, but we have to wait to see if these prices will not be impacted going forward. The severe usage -- the main effect is not just in the EBITDA margin, I think, because usually, they tend to be priced higher, but the Seminovos and the depreciation are much higher. So the main benefit is actually in the ROIC and the ROIC spread here, right? Because not only you have a higher capital base, but the depreciation is much, much higher than the average. We started this year with roughly 31,000 cars. We're probably going to end up this year with half of that. And going forward, we're probably going to reduce another 50% next year. So gradually, this severe usage will not have a major impact in our balance sheet. I believe that in 2026, we're going to see a much cleaner results of fleet with just a remainder of those cars in our balance sheet. Daniel Gasparete: Rodrigo, if you allow me just to follow up something that you mentioned in the first part of your answer. How much time do you think we should take in order to see Seminovos prices reflecting the IPI reduction? You said that it usually takes a few months. How much time do you think that we should wait until we see stabilization? That will be the first follow-up. And the second follow-up would be -- first of all, please go on this first one and then if there's time, I make the second one, sorry. Rodrigo Tavares Goncalves de Sousa: I think it's hard to precise what we saw in 2023 that it took more than 6 months, right, to see that. So I think that at least in the beginning of this year, the next year, we have to wait to see if there are some evolution here. But it's hard to give you an exact date. But I think that by the beginning of next year, we should know clearly what was the effect, the total effect of the IPI tax on the used car market. Daniel Gasparete: Perfect. And if you allow me, just a second follow-up. Since you are buying cars cheaper, given they had their price reduced, but you're not seeing Seminovos prices coming down. Is it fair to assume that you're seeing that your purchase sales spread is improving? Rodrigo Tavares Goncalves de Sousa: We are not only buying it cheaper, but we're gaining additional discounts as well. Once again, that will depend -- okay. In the short term, we may see that an improvement in the gap of the price that we buy and the price that we sell. But as I mentioned before, a part of it actually comes from the fact that we are selling younger cars and the cars of the 2025 model rather than the 2026 -- 2024 model. Operator: Our next question comes from Alberto Valerio from UBS. Alberto Valerio: One question on my side here also on Seminovos. I remember that Localiza Day when you announced the impairment last year, you guys mentioned a spread to the car that you bought that you'll be selling this car for 2% and 4% -- between 2% and 4% negative. It used to run at positive space. And with the current depreciation that you are presenting after this impairment of this year, we estimate that this gap would be more close to the minus 4% than the minus 2%. Is that the correct -- is how we should think for the future for modeling for next year that the depreciation is at the correct level at this moment? Or we should see some difference in the future? Rodrigo Tavares Goncalves de Sousa: Thank you, Alberto. I think if you run the math the way that you do, okay, you can get to this minus 4% or minus 5%. But one thing that you have to consider is that today, we're not selling cars with 15 months old, right? It's cars that is 21, 20 months. So we have actually to consider the impact of not only the price of a younger car, but there is an impact on the channel that you sell the car. So not only to sell a younger car for a higher price, but you sell a proportion in retail that is much higher than you would sell otherwise, okay? So in order to run your math, you have to consider a little bit these adjustments. And if you consider that, you may reach a number that is below the minus 5% that you're reaching right now. But if we consider the 19, 20, 21 months, I think your numbers seems pretty reasonable. Alberto Valerio: Fantastic, if I may have a follow-up as well on tariff for next year. We see some competitors a little bit more optimistic about tariff for next year. Localiza has the same idea that is still some space for increased tariff for 2026? Rodrigo Tavares Goncalves de Sousa: Competitors are always optimistic. Having said that, we see that it will depend on several factors, right? First of all, is the interest rate, right? That is a major driver. We look at ROIC spread, right? We don't look at the tariff individually. We don't look at EBITDA margin individually here. We look at our ROIC spread. I think the company has been very ready for the next cycle here. Our efficiency, our utilization is very strong. As I said, we are ready to focus more on the daily rentals here, even if the competitive environment is a little bit tougher on that specific segment. So it will depend on all the sector -- on all these parameters here. But I think the macro will have a very strong implication here. Having said that, we, for the first quarter, in Rent a Car, we reached the band of ROIC spread. It's the lower end of the band, but it's the first time that we reached the band. The next quarter is a stronger quarter in terms of seasonality. So once again, I think the company has done its homework and it's ready for the next cycle. Operator: Our next question comes from Mr. Lucas Marquiori from BTG Pactual. Lucas Marquiori: Two questions as well. One is still a follow-up on this yield on Rent a Car trends overall. And I know we have been focusing on the tariffs' dynamics. But I mean, since that you guys are buying cheaper cars. So if I were to look to yield trends, right, and how much are you pricing on top of kind of a cheaper fleet cost overall, can we say that actually yields are on the margin better going forward, right? So I'm not looking to the nominal kind of a price, but actually looking to the yields assuming that you're buying cheaper cars. This is the first question. And of course, if you could kind of throw that trend for '26. And question number two is on the cost agenda, guys. And I know you have been kind of talking about that for a while now. And I mean, when should we start seeing the real benefits of the integration? And do you believe, for instance, a strong season like Q4 and maybe Q1 is maybe the time for us to start to see better margins on both Rent a Car and Fleet besides the tax credits and some kind of cost gains on that end as well? Just to kind of hear your thoughts on that. Rodrigo Tavares Goncalves de Sousa: Okay. I'll start and then Nora can complement here. First, Lucas, for me, especially in Rent a Car, yield is not the best metric that we can follow, right? I can give you several examples. If I rent a monthly rental of 5,000 kilometers a month, that will have a very high yield, very poor return. Usually, economic cars have a higher yield because, of course, the fixed costs are much higher for an economic car. So for the store, for the rent, for everything that I have, I need a higher yield. So yield is really not the best metric. If you have to look also, you should consider the whole fleet, not just the rented fleet or the operational fleet to check that. So I'd much rather see the returns than the yield. But having said that, as I said, we have been delivering a strong price increase if you adjust by utilization or even without adjusting for price utilization. You're talking about the benefits of this integration. The benefit mostly is on fleet, right, because you have some operational procedures that are simplified here. Of course, there are some challenges, too, when you change the system and you incorporate. But -- and the only thing is that we are already seeing a lot of these benefits, right? You see margins increasing. You see costs under control, right? We are allowing ourselves to do more investment, especially on technology. So I think it's going to be gradual. We're not going to see a one-off thing in the next quarter or the quarter after that, but it's going to be something gradual. But the main, main lever here is rejuvenating our fleet, is renewing our fleet in Rent a Car. I don't know if you want to point something, Nora. Nora Lanari: Yes. Just to add a couple of points here on the yield part and both in the integration. But let me start with the last one, Lucas. We just concluded the integration of the systems in the Fleet Rental. We should be able to see some additional synergies being captured in Q4. But having said that, we mentioned in the release that the ROIC spread of the targeted segment is already in our goal. So it means that we don't need to raise much more EBITDA margin because we are more or less on track. If we assume that the interest rates tend to decline, we can actually have the benefit of that. So that's why we say the ultimate metric is the ROIC spread, not the margin per se. Having said that, growing on the subscription is one of the segments that are growing faster, and this segment uses a little less the car, so the depreciation is lower, so we can adjust the margin based on that. So just to reinforce the point here. But we do have some margin gains going forward. We continue with a very strong cost and efficiency agenda that should help on the margin. But again, we'll follow up on the ROIC spread and pricing eventually. And that leads to the second point on the yield in the Car Rental. Conceptually, as little as possible impact on the pricing would be great to help on the demand front. So we are doing our homework on the cost side to be able to impact as little as possible the rate. So yield is definitely not the best metric for us. We have to consider the yield plus the cost, the productivity and by the end of the day, the capital invested so we can get the full picture of the ROIC spread. Operator: Our next question comes from [ João Frizo ] from Goldman Sachs. Unknown Analyst: I have 2 quick follow-ups. The first one relates to used car sales volumes. You guys are now running around 76,000 cars sold per quarter. Just wanted to get a sense from you what should be the level to get the age of the cars sold back to 14, 15 months? And how long should it take for you guys to get to this level of car sold per month? And the second question relates to the negotiations with the OEMs for 2026. Just wanted to get a sense from you guys on how are those going, if anything, you could comment? Rodrigo Tavares Goncalves de Sousa: So thank you, João, for your question. First of all, we're delivering, as you said, 75,000, 76,000. We continue to push to increase that number. This is something that probably will happen gradually. To get to the 15 months, we need something close to 85,000 per quarter, okay? This is the number that we need to reach to get to this 15 months. And we expect -- we have -- once again, this is a long journey. We are increasing. This quarter was the record in terms of sales for Localiza. We have been able to increase quarter-over-quarter and deliver good results, but this will be gradually. But once we reach this 85,000 mark, first, we have to surpass the 80,000 mark. We're going to get to the time that we can get to the fleet to the optimal level again. In terms of the OEMs, still a lot of the negotiations going forward. So it's a bit early to tell about the conditions, but we don't expect anything to change significantly going forward. Nora Lanari: João, just adding up to what Rodrigo just commented on the first question. We sold the record 75,500 cars this quarter. We are in a pace more or less at this level of 19 months, 19 to 20 months or so. So we are not yet in the pace of 15 months. For us to get that, we have to reach a bit over 80,000 cars. But I wanted to add the point that we are increasing the ROIC spread, and we will continue to increase the ROIC spread in spite of getting back to the 15 months. Once we get, we have even more room here to adjust pricing and eventually accelerate growth. Operator: Our next question is from Jens Spiess from Morgan Stanley. Rodrigo Tavares Goncalves de Sousa: Jens? Operator: Jens, you can talk now. Your audio is open. Jens Spiess: Sorry, I was on mute. Can you hear me now, right? I just wanted to make a question building up on the previous question on the amount of cars you've been selling. So first of all, congrats on improving the pace of cars sold and getting towards your target. I was just wondering, should we expect like for modeling purposes, that you will continue to be able to increase that pace in the next few quarters? Are you seeing favorable dynamics in October, November so that we can already assume slightly higher number? Or should it be relatively similar to the current number that you just reported? That's on the amount of cars sold. And my second question goes regarding the IPI tax impact on the used car market. Just to clarify, you mentioned that it still remains to be seen if the impairment was conservative or not. And I just wanted to ask, have you seen no impact whatsoever of the IPI tax? Because we did see several models depreciating at a higher rate to the typical monthly rate according to FIPE data. So just wondering how much of an impact you've already seen. And maybe if you could elaborate on how much like the monthly depreciation was in the past few quarters would be very much appreciated. Rodrigo Tavares Goncalves de Sousa: Thank you, Jens. First of all, it is -- we don't provide any type of guidance in terms of amount of cars that we're going to sell going forward. Seasonality -- the third quarters is usually a strong quarter in terms of seasonality, okay? October is a strong month. November and December, not so much. So it will really depend here. But having said that, we don't expect anything to happen to be gradual, okay? Nothing major, either up or down, we don't expect anything major to happen here, okay? In terms of the IPI tax, definitely, we're already seeing some impacts. If you consider that the regular depreciation should be these 50 bps, the 0.5%, any number that you look, you're going to see that the cars are depreciating more than that. This is already a reflection of the IPI. So the past 3 months after the IPI, the cars have been depreciating more than it's usually have. So -- but it is still not everything of the IPI impact. So that's why I said that we still have to wait going forward to see if this trend will continue or if the cars will come back to depreciate the average of 50 bps per month, okay? Nora Lanari: Sorry, Jens, just one quick comment before you follow up, if I may. On the Car Rental, we still have number of locations to open, okay? We will -- Q4 is a quarter that we usually concentrate some of the openings. So we are working on increasing capillarity, but more important than the capillarity per se is the productivity per salesperson and commercial efficiency here. So we do expect a gradual improve in the volumes of cars sold, but not necessarily in Q4. Q4 usually delivers a very strong October, but some deceleration in November and December as vacation and summer peak season hit. But sorry, I interrupt you. You're going to ask something else, right? Jens Spiess: Yes. So pace of cars sold basically should trend gradually higher, but there could be a bit of seasonality going on. Yes, that's fair. Now on the IPI tax. So of the impairment you did, like how much is already -- how much already happened? How much like cushion do you still have from the impairment? Like is it 80%? Is it 50%? Is it 90%? Just a sense of how much room there is still. Rodrigo Tavares Goncalves de Sousa: It's more like 3 quarters, we're already seeing. Nora Lanari: And there is one question here in the Q&A, if I may, Daniel Spilberg. Rodrigo, Nora, next year, the market is pricing an easing cycle starting in January. In a scenario of lower interest rates and ROIC spreads converging towards 7 or 8 percentage point, is there any reason that could prevent Localiza from applying the long-term strategy of volume growth and market consolidation? Great question, Daniel. I think in that sense, if ROIC -- if interest rates decline and the ROIC spread follow to the right pattern, soon, we can resume the growth mode of the company going forward. Rodrigo Tavares Goncalves de Sousa: We look forward to having this strategic dilemma, right, that when we reach the 7 and 8, and then we're really going to have here, maybe you can resume to grow to another cycle of growth here in market consolidation. We have a strong balance sheet that will allow us to do whatever strategic optionality that we want. But if really the interest rates converge, it's a matter of a decision if the company would like maybe to overearn a bit or to increase growth, passing through part of this interest rate efficiency through tariffs unlocking additional growth. Operator: Our next question comes from Rogério Araújo from Bank of America. Rogério Araújo: One follow-up here on the ROIC spread subject. As I understood, the idea is not that Localiza is going to pass through interest rate reduction to consumers before the company reach 7, 8 percentage points. Is that correct? Or if the interest rates start to drop, we could already see some kind of fare reduction or fare increase below inflation or some sort like that? That's the first one. And the second, if you could elaborate on your expectations for new car prices. And there was a [ 5% ] currency appreciation recently in Brazil. There are some Chinese brands coming to Brazil and producing locally. So if you could talk a little bit about your expectations for car prices and also any change in mix for OEMs that Localiza usually buys vehicles from because the market is changing, right? I want to know if Localiza is going to follow somewhere closer to the mix of the market within brands or not in the foreseeable future? Rodrigo Tavares Goncalves de Sousa: Okay. Thank you, Rogério. In the first question, like we have first to reach our target in terms of profitability first before discussing actually passing through efficiency of interest rates through the tariff, okay, in a scenario that, of course, the rates fall sharply. And now we are surpassing our goals here of profitability, then we can discuss eventually to reduce or to increase the tariffs lower than inflation to unlock a new growth cycle, okay? In terms of the OEMs, of course, that there are some changes here, but we don't see the dollar is depreciating [ in the real ]. So we don't believe that car prices will go up more than inflation, but it's difficult to see at least the public or the transactional prices going down. OEMs are not making a robust profit in Brazil. Of course, they are healthy, but it's not that they have a lot of margin to burn here in Brazil. So we expect here a dynamic that's somewhat stable. Of course, there are new entrants. In the terms of our portfolio, we're always assessing based on expected profitability. If we understand that we can have a return better by switching or adjusting our portfolio, we will do so. But all the decisions in terms of the adjustment of our portfolio will be based on our expected profitability on those buys. Operator: Thank you. Now to close, I will hand back to Rodrigo Tavares. Please go ahead. Rodrigo Tavares Goncalves de Sousa: Okay. I would like to thank you all, and we remain available if you have any other questions. Thank you very much.

148天前Insight Analytics约5分钟阅读

CSAMF 2025 Q3 财报电话会议

Sverre Flatby: Good morning, everyone, and welcome. We have just passed an important quarter, and I'm really excited to take you through the highlights. First off, thank you very much for your feedback. We have sharpened the agenda and the key points according to your input. The highlights, this is what we're going to go through. The format stays the same, 30% updates, and presentations and then a Q&A at the end. And as always, don't wait. Post your questions during the session, and then we will get back to them at the end when we have the Q&A. So what is the main message? Well, the third quarter is very, very strong, and it gives us a platform, and it crowns the first half year, which also was strong and gives us a value creation platform that we have been longing for. And today, it is all about the momentum. And I will go through on the right-hand side, these points before my colleague, Einar, also will go through the financials and the next steps of our plan for intrinsic value creation. So let me start with the EBITDA margin. And of course, 30% EBITDA is a record-high margin. It is not only a record, it's also as expected. So for those of you, who paid attention when we guided in December 2024, you are probably not surprised by a 30% EBITDA margin. If you look around us, our peers, our competitors in our region, you will probably conclude that Omda is not only the leader when it comes to highly specialized software for health care and emergency, but we are also a leader when it comes to profitability in our region. And it's, of course, this quarter, this result, a strong stepping stone for the plans we're going to present to you today. And then over to an even more, I would say, predictable part of our business plan, the growth. And the growth this quarter compared to the same quarter last year, 14% growth. And what is that? It is a mix of the organic momentum we have, but it's also a small contribution from our relatively modest acquisitions we made a year ago. So as part of those 14%, the organic growth is 7%. And as you all know, we have guided in the interval between 5% and 10%. So 7% is as expected. And what is it? It is the activity among our business units with our long-standing customers, and in local currency, constant currency, the growth they have in their business. So -- and also if you look at the growth of recurring revenue, which probably for many, is very, very important. And the reason is, of course, that historically, the last 10 years, we have had about 2% churn, and that means -- or actually lower than that, and we expect that to be the same in the next 10 years as well. And that, of course, tells you something about the 15% growth in recurring revenue, what that means for the long-term recurring revenue. And also please remember, who is actually the counterparty here, public customers, large public customers with critical solutions in place that will stay there for decades. So I think this number is one of the most important, and it speaks for itself. Another good thing this quarter, it shows you a couple of things. 27% growth in Professional Services and what is that? It's actually a combo of 2 important things. One thing is the customer side. All of our customers are dependent on these critical systems. They have complex workflows. They have to add things to their current solutions. That could be integrations, it could be other things to be changed that are necessary to enhance their workflows. So one thing about this 27% is, of course, high activity among our customers. And that is a fundamental important thing. Another thing we announced a few quarters ago that we will increase the efficiency internally, when it comes to billable hours. So that combo, higher activity on the customer side and a more efficient use of our own resources gives you this growth of 27%. And I think, the one thing you need to know about Professional Services is, of course, that this is also recurring. If you look at this quarter, more than 90% of this Professional Services is sold to current customers with current contracts, so with customers that have been there for years. That means we have almost an extreme visibility when we are looking at next year and the years to come. And that brings us over to the guidance. As mentioned, we guided for the first time in December 2024. And when we guide, of course, we need to make sure that we have the intervals that we can control and based on the high visibility we just presented. And we have published earlier NOK 460 million to NOK 485 million for this year as the organic business sales. I think we're now ready to confirm that the sales will be in the upper range of this interval. So it would rather be around NOK 485 million than in the lower part. And also we stick to our current guiding, when it comes to EBITDA between 23% and 27% on average for this year, 2025. And please remember that we guide here and expect this to be the reported EBITDA that includes any type of one-offs. There was other things happening in the fourth quarter at the end of the year, but this is what we expect is going to be our reported EBITDA margin between 23% and 27%. But as mentioned, when we have the run rate for this year and into the fourth quarter, which we are now, then the ability to foresee what's going on in '26 is, of course, much, much stronger at this point in time. That means that we also would like to reiterate the interval we had, when it comes to the top line for 2026. So what we have concluded is that the published guidance for NOK 500 million to NOK 525 million, we stick to that, and you should expect that from us that the company sales for 2026 will be in that range. And also -- and I hope you all will see based on the 30% EBITDA margin delivered this quarter. This also represents the average expectations we have in our budgeting for 2026, that we will be within the range of 28% and 32% EBITDA for 2026. And of course, as you will understand implicitly that the cash from operations will be stronger and stronger, starting, of course, in the fourth quarter now and continuing with a strong '26, that not only the EBITDA, but also the cash EBITDA will be strong. So all in all, we have to say that a very strong quarter gives us the ability when we look at also the visibility for the rest of the year and next year to be quite confident, when it comes to these numbers. But that is one thing, a good news, of course. But not only that, there are more opportunities and more exciting things going on at Omda. And when I presented the third quarter this year with 30% margin, where did that come from? If you look at Omda's history, 18 acquisitions have been made and most of them actually with not a profitability history behind them. So why is it that Omda put together acquisitions like that, and in a proven way, can perform 30% EBITDA and also guide for that the coming years? Well, that is our buy-integrate-and-build philosophy, where we acquire customer code competence. We get to the best type of targets that fit into our industrial plan in addition to, of course, having the methodology to secure that we get into profitability. So on top of our already successful organic business, we have a very active pipeline these days. And of course, this database we've had for 20 years and a lot of those companies are relevant to us, some of them as these 2 on the graph to the left with qualified targets and targets that we have analyzed or working with. And the 2 on the right-hand side represents the way we have been working for years. We have sometimes dialogue over years and sometimes more active dialogues with specific targets. And I think you have to understand that Omda, of course, will continue the growth journey in addition and as an add-on to the successful organic business just presented. So that means we are quite confident that we will reach our goals, when it comes to M&A as well, not only in our organic business. So I think we should be precise. It has been a target for the next years that we will add roughly between 10% and 20% in inorganic growth on top of our current organic business. And for the next year, I think you also should expect it as a guidance that this 10% to 20% also applies as an addition to our NOK 500 million to NOK 525 million organic sales, as we just presented. So all in all, I must say that when we go through with a 30% EBITDA margin, 14% growth, and a guidance that stands strong, and with another set of extremely interesting opportunities on the M&A side, I think we are in a better position for Omda now than we've ever been. And is also a safe haven in a way for us, not affected by all these uncertainties in the world since our hospitals and specialists, our customers are really needing these solutions. So all in all, I have to conclude that the third quarter 2025 marks a very good performance as one, but also of course, a platform for the journey going forward. So next step now is that we will, of course, go into other topics. And Einar, it's now time to go through the financials. It's an even, you also have some ideas about the value creation plan going forward. Einar Bonnevie: Yes, I do. Thank you, Sverre. Let's take a look at the financials, a deep dive. First, the revenues, and as Sverre presented, the 14% increase from same quarter last year, split evenly between acquired growth and organic growth. That said, the recurring revenue, they grew 15%, and the strong momentum on Professional Services continued, up 27% compared to the same quarter last year. But speaking of Professional Services and recurring, recurring is more in software. We are taking a closer look at the Professional Services. And in the past, we have referred to this as semi-recurring, but taking a closer look, 92% of the customers in the third quarter, they were also customers of Omda a year ago on Professional Services. And year-to-date, the same number is 86%. So we can also view these customers since they have been customers for a very long time, and even more than a year ago, as recurring. They keep -- they are there, they want services from us. So applying this logic, we get a different picture and perspective of what is really recurring. So the real recurring year-to-date using the lowest number now, see that it's actually 94%. If I take the software recurring and the Professional Services recurring, we reached 94%. That gives an unprecedented predictability for us for this year -- for the guidance this year and for next year. Okay. M&A, Sverre mentioned M&A, and he mentioned the margin, the 30%. A quick recap there on the buy, integrate and build. We said this takes 12 months, 18 months, 24 months. And our focus has been and is on what we call turnaround or turn better candidates. And this is nothing new. This is a slide from when we IPO-ed 5 years ago. So we've been speaking of this all the time, we had a different -- slightly different time perspective, but this is nothing new. It's very integrated Omda for all the acquisitions we've done to acquire subperforming businesses, turn around, turn better. And this is how we present it today. So it has been with us all the way. And the thing is, the last 3 candidates they are -- that we acquired last year in the fourth quarter, we announced them, Predicare, Dermicus and Aveia. They are all in this category. And they were acquired in the fourth quarter. We closed them in the first quarter. So they have been with us, say, 6 to 9 months. And the first target in our bio-integrate-build philosophy is always to bring them to breakeven. That's the first target. So they're not bleeding cash. And using this logic, we see that how did it impact us. The sales from these 3 businesses, they amount to approximately NOK 30 million, out of this approximately NOK 360 million in total. So if I look then at the 2025 total, and look at the -- what would have been the margin excluding M&A, so they contributed with NOK 30 million in sales, but nothing in EBITDA. So excluding this, the margin would have actually been 2 percentage points better. And if I look at the Q3 in isolation, we see that the reported and the effect from the acquired businesses, they actually hurt us by 3 percentage points, or something like that. So the strong -- the 30% margin, the underlying on the business before we did the acquisitions is actually stronger than what we show you. Okay. So then you can say, why do we acquire subperforming businesses? The reason is very simple. Over the next 12, 18, 24 months, we will bring these businesses up to the same level as the rest of the -- rest of Omda. And the initial underperformance is part of the business case, is part of the plan, it has always been like that. And all the other acquisitions, the 15 acquisitions we've done before have been exactly the same. So this is what we do. And we think that for the long-term perspective, for the long-term investor, if you have a long apply, long-term perspective, this makes a ton of sense. And this is also where on the -- probably differentiates -- differs from the other serial acquirer or compounder or whatever you want to call us, that always say, we buy good businesses that perform well, and we pay them well, and we incentivize management, et cetera, et cetera, a very financial approach. We have a financial approach too, but we also have an industrial approach and industrial advantage because we know how to run this businesses. We think we have learned a thing or 2 after 20 years in this business and 18 acquisitions. So what we do is, we buy -- we look for turnaround or turn better candidates as we call them. It's a core element of our M&A strategy, and we think it makes a ton of sense. And I think we demonstrate today that we can indeed -- we indeed master this skill of improving these businesses, and again, we're not buying the performance of the past. We're buying the potential of the future because that is where we're going to stay for the rest of our lives. Okay. Now about M&A. Cash, you probably noticed that cash is on the -- is low, and it always is. It's a seasonality effect. It's always at the lowest point at this point in the year, but just want to assure you that in addition to the cash in the bank, we have an RCF -- access to an RCF, all of you that participated in the bonds. Know this that's a carve-out there, so for NOK 45 million. And cash like is the treasury shares we have also more than NOK 40 million, NOK 50 million. So in real accessible cash and cash-like instruments were more than NOK 100 million, and that is at the lowest point of the year. That said, those who have followed us, you know the seasonality effect, the net working capital effect. We are always very cash-rich at the end of the year because we invoice our customers annually or semiannually. So we -- so you saw the effect last year, you should expect that effect to be as pronounced or maybe more this year. So we'll be very cash-rich at the end of this year. And also you see that we haven't really -- we are not -- we are now cash breakeven on performance. So at an EBITDA of 20%, we are performing cash breakeven at 30%, of course, better, and that includes paying the interest. So the cash position, just like insomnia, nothing to lose sleep about. Okay. That was where we are. Let me take you through some of the long-term thinking. And I just want to be very clear here that I'm going to present you some long-term targets and the targets and I realize we haven't really been clear enough in the past on this, but the target is where we see ourselves so 3 to 5 years from now, right? The guidance as a milestone on that value creation journey. So the guidance is where do we -- on this value creation journey, long-term journey, where will it be one year from now? That's guidance. The long-term targets is exactly that. That is where we aspire to be. Okay. We see some opportunities on this long-term thinking. And the 3 main components here. Personnel expenses and continued margin expansion on other smaller things, and then CapEx, how much do we need to invest in our own software in order to have the 5% to 10% organic growth and to expand on other cost elements. And we couple that with continued organic growth, 5% to 10% and to continue to grow through M&As. Let's have a look at personnel expenses first. On the right there, you see a graph showing the development from 2018 to 2025. And you see a strong growth in revenues. That is, of course, that is organic growth. But first and foremost, it is acquired growth. Several acquisitions, several people coming along with those acquisitions. And also, we had, as you will remember, a centralized organization. Then in 2022, we announced that we would go from a centralized to decentralized operations, and that was very, very important for Omda. And we did that in 2 steps, as you will remember, one for everyone else. And then in 2024, we did the same for the business area emergency. And you see a clear reduction in personnel there and the orange line is personnel expenses in percent of revenues. One investor commented tongue in cheek that the only thing that seems to be more sticky than the recurring revenues were salary and personnel expenses, funny comment, but not quite true, as you can see, and it is coming down, and the trend is coming down. And we restate that salary and personnel should comprise 50% of total revenue, and that is in the not-too-distant future. Maybe we're already there in '26, but that is not a 5-year perspective. That is the reasonably short-term perspective it will come down. And you see the trend is very clear. It has been coming down from 2022. So a lot has happened already, and there's more to come. But that is not all. We can also look at the 2 other cost elements, cost of goods sold and other costs. Cost of goods sold. We have guided on -- for a long term, we have a target communicated 95% gross margin, 5% COGS total sales. If you look at the graph on the right there, you will see that it -- comparing to the third quarter '23, '24. And then this quarter, you see it is coming down, both in nominal kroner and in percent of total revenue. And this is nothing new, if you look back and look at the trend from 2018 to today, you see a very clear trend. Now the COGS that you can divide that in two. And one part is hardware like tablets for ambulances where you install the ambulance software, that will always be there. And then you have the second part is a third-party software that is part of a bigger delivery project. And that is typically inherited from when we acquire businesses. We often see a potential to replace it with our own software, but sometimes contracts need to be renegotiated. The customer needs to have time, or maybe we have to develop something. So part of the CapEx is also to develop functionality to replace COGS. It is done overnight, but as you can see, there's a clear trend there, and we expect this trend to continue. There's more to come. And then the other costs, we had a target, it used to be 20%. They had a target to bring it down to 15% of revenue. We've reached that target, and we've been there for a number of quarters now. So now we revise our target. We want to bring it down to 10% of total revenue. And this is driven by general cost reductions. The centralized operations is much cheaper, it's more efficient to run. We need fewer people centrally and also on top line growth. And the combined effort of this is not like -- it's not going to change the world. But it will contribute to a margin expansion. So 4% out of sales of approximately NOK 500 million, just to use a number -- round number, it amounts to NOK 20 million, and that is an EBITDA, and it's also a cash EBITDA, cash earnings. And how much that, pays for the interest on the bond loan for 5 months, for instance. So it matters. CapEx. That is another thing. If you look at the CapEx in percent of our total revenue, you see that has also been coming down. So in 2018, approximately 14%, and you see the trend is going down. And we think that CapEx can be compressed. It has come down from 14% to 9% in 2024. And we think this trend should continue, and it will continue. And why can we continue this trend. This answer very simple, increased development efficiency. So that is the decentralized model, makes it more efficient. It makes ourselves more efficient. We are more focused. The home sourcing, bringing the developers' testers closer to home, that makes it more efficient. And use of AI makes it more efficient. So the long-term target now is to bring CapEx from the previous guiding of approximately 10% of total revenue, down to approximately 5% of total revenue. How quickly can it happen? We've just showed you one example here. So say we spent 5 years to do that. We'll be there in 2030. Maybe we can speed it up. We shall see, but the main point is, we probably spend less time, invest less money in development, and we will maintain the organic growth target of 5% to 10%. So it will it will not impact the organic growth negatively. It will just impact the cash EBITDA, but in a positive way. Okay. So that is our long-term targets. So we are delivering good results for the very -- for the third quarter, but we think long term, they will -- there may be more to come. So let me wrap it up. On the margin delivery 30%, good growth, 14% and strong underlying growth on recurring. We maintain the guidance. We increased the guidance for the fourth quarter. We maintained the guidance for 2026. M&A, there's a lot in the pipeline, and we guide on 10% to 20% inorganic growth going forward. Very healthy financials, and on value creation, we have a plan for the future. As King said, we have a dream. Okay. Now we are ready for Q&A. Einar Bonnevie: And let me check if there are any questions here. And indeed, there are. Just we will attend to them, but if you have any more questions, just type them in, and we will attend to them. So there's one here on Professional Services. And I think this one goes to you, Sverre, and that is Professional Services has shown very strong year-on-year growth, but compared with the past 3 quarters, were at 23, 24, it declined to 18 in Q3. What explains this decrease relative to the strong level seen in the earlier year? Is there any seasonality that may be the key words, Sverre? Sverre Flatby: Yes, I think maybe answer to your question is actually in your question. Yes, there is a seasonality. And as you all know, if you look at the workforce we have with the Nordic employees is the most strong part of our business. And of course, the holiday makes this a seasonality thing. So yes, it is. Q3 contains the holiday months of the Nordics. So that is actually the simple answer. Einar Bonnevie: Okay. And then there's a question on the bond here. And the question is from Matt. Congratulations on a strong quarter. Thank you. The main item that now stands out in the P&L is the level of financial expenses, stated profitable in -- particularly in the light -- sorry, a little glitch on my screen here on my part, sorry. The main item that now stands out in the P&L is the level of financial expenses. Can you confirm that you will be able to refinance the bond maturing in November 2026? Okay. The bond, that is refinanceable, but not right now, it has a make-whole clause until December next year. So -- but we have every indication that it will absolutely be able to refinance on the back of much improved financial performance. We see that also the bond has been trading very well recently. So from -- it has -- the spread has come down to, say, 150, 200 basis points from where it were? So it is a huge interest for the bond. And so we absolutely think it will be able to do a tap issue, and we should be able to do refinancing of the bond. But the first real opportunity is approximately 1 year from now. Okay. And then we have a question -- another question here on the targets here, partly to me, this and partly to you, it says of the targets where you are in active dialogue, and I assume that is M&A, can you comment on the combined revenue and cash EBITDA of these opportunities? Additionally, how will the acquisitions be financed? So maybe you can -- what can you say about the targets without saying too much, and I can comment on maybe on the financing of them. Sverre Flatby: I think that's a good question and it is, of course, very important when you look at the targets, how they will impact our current operations. Part of our history, we've done many acquisitions at the same time, underperforming and then have very bad results in total that has been part of the history. However, as you saw from our numbers this time, the amount or the volume of our sales is, of course, changed dramatically and 10% to 20%, as I mentioned, as the guided target for 2026, will not impact us negatively if we look at those type of targets. We are -- it will be the companies that do not perform well when we take over, but then again, the size of that portfolio we're talking about is, of course, not big enough to rock the boat to put it that way. So all in all, there are very good targets with good recurring revenue, high-quality products, the same that we have, and we will use the buy, integrate and build to integrate them and secure that they get to 30% not overnight. But then again, very important. It will not dilute us very much. And the funding Einar, is your game. Einar Bonnevie: The funding. Yes, okay. There are many ways to skin the cat. So -- and you have seen in the past that we have paid in cash up front. We have paid through the seller credits and through earn-outs. And we think that a combination of all these 3 is how we will finance them. On the cash side, so one thing is our cash position will strengthen going forward, I mean, operationally, as we just explained to you. So that is one thing. But we also have access to -- we're able to do a tap issue on the current bond. So financing is available. It's available to reach the goal. And -- so not a question about M&A since we're on that topic, and that is just to use inorganic growth, contribution seems to be lower compared to the 2 previous quarters. What is the reason for this? Sverre Flatby: Well, organic growth is to look at our business, even if it's our own that we had for 20 years or its recent acquisitions, it's always in our business with the long-term customer relationships that we cannot measure those quarterly. So but if you look what happens with organic growth over time, it has always been between 5% and 10%. And in some quarters, you might end up having a negative organic growth because you had a very nice milestone that the customer paid for in one quarter last year. And then you compare it, and it looks very strange. So I don't think this is, think about Omda, other than all the types of systems we acquire and all of those we have from before, they will have a 5% to 10% growth on average in the years to come anyway. Einar Bonnevie: Okay. A question here about cash. So let's focus on taking a session on the cash. And the question is, can you clarify the drivers behind the persistently high quarterly cash burn, particularly, in light of the company's stated profitability. How should investors interpret this divergence? So first, there isn't a particularly high cash burn in each quarter, but as I said, if you look at the cash burn, if you like, this year, you must take into account that we have had -- so a 20% EBITDA, we are cash breakeven, if you deduct knock off 10% CapEx and then 10% interest, we are breakeven. 10% interest that is where we are currently. And then, in addition, this year, we paid almost NOK 20 million in acquisitions. So you need to adjust for the investments. So -- and then as I said, there is a seasonality in the working capital. If you look in the report, you see a graph on working capital. Actually, it has improved this year and this quarter as well, so we're consistently below our 10% or minus 10% target. But there is a huge seasonality. We're always more cash-rich at the end of the year and the beginning of the year because we pre-invoice our customers. So that is really the reason, but you need to look at the seasonality, the net working capital profile, and it also knock off any investments on M&A, and that's really how you do it. Okay. And then another question here on debt and EBITDA, so it very much relates to the same. The question is, what net debt-to-EBITDA ratio are you expecting for this Q4 and the end of 2026? And does the guidance includes acquisition? Or is it based on just organic growth? Okay. So first thing first. The net debt to EBITDA, what you should expect, as I said, we are going to invoice a lot at the end of this year and get it paid probably before the year's end, but if it isn't paid before New Year's Eve, it will be paid shortly thereafter for all practical purposes, the same. We will be very cash-rich at the end of this year. And how much? I think take a look at 2024 last year, and use that as an example, and add the added revenue and you can do your estimate. So it will be -- should expect at least the same or probably somewhat above the same quarter last year. And for 2026, we have -- when we have guided though 28% to 32% EBITDA, and we said that the CapEx of 10% or less because we have an ambition to bring it down, and sales of NOK 500 million to NOK 525 million, you can do the math. So if you use 30% as an example, and you knock off 10% for CapEx and 10% for interest, that leaves 10% in the bank. So that's -- so take that as a starting point. And does the guidance include acquisitions or just organic growth? The guidance of NOK 500 million to NOK 525 million is pure organic growth. So any acquisitions would come on top of that. Okay. And now some artificial intelligence. This goes to you, Sverre. So congrats on the margin expansion. Thank you. Please comment on how you address artificial intelligence, AI in a decentralized setup, both internally and customer-facing, how many AI projects are your subsidiaries working on currently? And what's to come, please? Sverre Flatby: That's a good question. And of course, AI is real. It might be looked upon as a hype in many ways, but it's definitely real. But on the other hand, you have to think about to start with our customers and our markets that these systems we have are critical. It's life and death, and the conservative part of our market, of course, they don't want to take any risk. So it's not going fast, when it comes to the customers' demand for AI functionality in all areas. However, some areas are very relevant. We had an example of collaborating with the university and designing an engine to, an AI engine to support the caller of the emergency calls to scan through millions of files to support -- give a support in a few seconds that you wouldn't get otherwise. So of course, we have such type of products in our areas where they are relevant. We have also specific products that uses AI, for instance, within the imaging to clarify and make a higher quality diagnostic use of those images, where you can use AI engines in our product as well. So some of those developments in some areas are going fast and are ongoing for us. Others are more future discussions with customers in a road map. So that's on the customer side. But of course, the question about decentralized use of AI, there is also of course, a central strategy that we help our business units with the methodology and the AI policies and also tools, of course, like Copilot, ChatGPT, et cetera. So we make sure that we have our own strategy to use these things. And we've seen that the highest efficiency, most important thing for us with AI has been the ability to give a much more efficient outcome of our development processes. We see that platform changes, et cetera, that you can get sometimes even up to 80%, 90% better outcome based on using tools like that, in some cases. In other cases, where we have advanced medical algorithms, we cannot do it that way. There are other things you have to do and work with the clinicians and researchers, et cetera, where you really not get that much help using AI. So there is a combination, and that is the good thing with Omda. We have the possibility to use AI as a positive engine and not as a threat. We don't foresee either because our systems are there for decades based on connection to the workflow processes. That means AI to us is, first and foremost, internal efficiency tool and also a development strategy for some functionality together with customers. Long answer to a complex questions. I hope that was okay. Einar Bonnevie: Okay. There's another question here regarding acquisitions and margins on dilution is very interesting from Matt. If you were to acquire a company representing 20% of your revenue, but generating 0% EBITDA margin, your consolidated EBITDA margin would dilute from 30% to around 25%. Is this a trade-off you are willing to make in order to accelerate growth? And that is a very good question, very relevant question because that's exactly where we are. And the simple answer is, yes, we are because we will only dilute the margin temporarily as we just presented on the buy-integrate-and-build strategy, we are acquiring something that at the time of acquisition as a margin of 0% and maybe they had that for several years before that. But during the coming 12, 24 months, we will improve the business. On the cost side, on the income side, on the way they do business, a number of ways. As we have on the 15 acquisitions we've done in the past, we've just shown you the 30% and the growth. And we'll do that with the recent ones, and we'll do that coming acquisitions. Again, we are not buying the performance of the past. We are buying the potential of the future, and we have a way to unleash that potential. So inside any of these businesses that we acquire that are subperforming and nonperforming. There's a little green frog, and his name is EBITDA, and he's just waiting to be kissed by the Omda princess. Okay. Another comment on the capital -- working capital and RCF. I'll take the working capital first. The question is, working capital was exceptionally strong in the fourth quarter last year. Should we expect a similar pattern amount this year? Simple answer, yes, you should. And then one more question here. We have 2 more -- 2 questions left. [Operator Instructions] Two more questions. One is related to the RCF. The question is the RCF available of NOK 45 million. This is an off balance sheet working capital facility. If I understood it correctly? Yes, it is. So in the third quarter, yes, we have just mentioned we have access to it. And what are the terms on the interest? A little less than the bond, just south of the bond. The current bond terms are around 10% and then a commitment fee of approximately 1%, and that is it. So that is the RCF. And then one more question, this one goes to you, Sverre, before I can round it off, if there's nothing else. And this is related to the number of employees or FTEs. The question is, you have reduced the number of FTEs from 293 last quarter to 260 this quarter. Should we expect FTEs to stay at this level? And how much increase in FTEs should we expect if you grow 10% organically and grow through M&As? What is a sustainable level? So one thing is how many people do we need to maintain and just maintain a 5% to 10% organic growth on this business. If we acquire another business, I mean, who knows if it's a small bolt-on, maybe there are no employees if there's a bigger transaction than maybe 50 employees. So that is a bit hard to say. But of course, let's focus on the current business. Is it sustainable with the current number of FTEs? Sverre Flatby: Yes, definitely. And it's even possible to have it slightly lower as well. I think the reason is the decentralization. And the way the new setup is definitely what we see. And that's why we guided as we did. We see that even for the years to come after, we don't think that there will be a lot of new FTEs because the efficiency we talked about, when it comes to AI, when it comes to development, but also the way that our business model is constructed, which is very, very important is that we deliver primarily binary software deliveries to somebody else that does the installation and put it into production in the huge area. So that means that since we are a software vendor, we are focusing on the copy and paste to put it that way, to sell software, one version of the software to many customers. So in that lies the fact that the current FTE level, and even with the potential to reduce slightly, would be the viable thing for our current business going forward with the current organic growth. And I agree with Einar that it's complex to answer what happened -- what will happen with the specific M&A target. What I can say is that we don't need any additional centralized resources to fulfill these additional 10% to 20% M&A that we have guided on for 2026. Einar Bonnevie: Thank you, Sverre. As a matter of fact, one thing I forgot to mention is that you also, through digitization of some working processes, say, in accountant, for instance, we are actually able to do more with less people at a higher quality and complete the tasks at a shorter time. So that is also something that we -- that takes down the need for employees, especially central employees. There's one more question that came in while you were answering this one. We still have 7 minutes. [Operator Instructions] But this is probably the last question. And it says it reads, congratulations on a strong quarter. Thank you. When looking out over the next 5 to 10 years, what do you see as the primary constraint on achieving your long-term targets? Is it the availability of suitable M&A opportunities attracting top talent? Or is it something else? What do you say, Sverre? Sverre Flatby: I think the answer lies in the question that you're quite right that the uncertainty, if there is any, is supposed related to our M&A strategy because you don't control, of course, although you have a lot of interesting dialogue going on all the time in the pipeline. And we are quite comfortable that it will be, as we said, when it comes to growth. However, that is the uncertainty. The organic part, we don't see any big challenges there given the fact that we have this low churn business with our counterparties of public customers in an uncertain world. So all in all, yes, the uncertainty, if any, is related to the M&A strategy. Einar Bonnevie: Okay. There seems to be no more questions. Let me give it just a second here. No. I think we're done. Okay. No more questions. Thank you for tuning in this morning. We hope you have enjoyed this presentation. So -- we will go back to work and continue to do what we do best and run this company. Tune in again on the 26th of February, when we will present the results for the fourth quarter of this year. And until then, take care, do your math and stay safe.

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