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Operator: Good morning, and welcome to the American Express Global Business Travel Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note today's call is being recorded. I'll now turn the call over to Vice President of Investor Relations, Jennifer Thorington. Please go ahead. Jennifer Thorington: Hello, and good morning, everyone. Thank you for joining us for our third quarter 2025 earnings conference call. This morning, we issued an earnings press release, which is available on sec.gov and our website at investors.amexglobalbusinesstravel.com. A slide presentation, which accompanies today's prepared remarks is also available on the Amex GBT Investor Relations web page. We would like to advise you that our comments contain certain forward-looking statements that represent our beliefs or expectations about future events, including industry and macroeconomic trends, cost savings and acquisition synergies, among others. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. More information on these and other risks and uncertainties is contained in our earnings release issued this morning and our other SEC filings. Throughout today's call, we will also be presenting certain non-GAAP financial measures such as adjusted gross profit, adjusted gross profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, free cash flow and net debt. All references during today's call to such non-GAAP financial measures have been adjusted to exclude certain items. Definitions of these terms and the most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the supplemental materials of this presentation and in the earnings release. Participating with me today are Paul Abbott, our Chief Executive Officer; and Karen Williams, our Chief Financial Officer. Also joining for the Q&A session today is Eric Bock, our Chief Legal Officer and Global Head of M&A. With that, I will now turn the call over to Paul. Paul? Paul Abbott: Thank you, Jennifer. Welcome to everyone, and thank you for joining our third quarter 2025 earnings call. In the third quarter, we delivered outstanding results. Here are the highlights. Total transaction value or TTV grew 23%. Revenue growth accelerated to 13%. Adjusted gross profit margin was 60%. Adjusted EBITDA grew 9%. We generated $38 million of free cash flow, and we continued to win share with $3.2 billion in total new wins value over the last 12 months. Finally, year-to-date through November 6, our strong performance has enabled us to return $54 million to shareholders through share buybacks. These results reflect 2 things. First, continued strong execution within our core business, which performed in line with our expectations and is tracking in line with the midpoint of our previous full year guidance. Second, incremental growth from the acquisition of CWT, which closed on September 2. This is an important milestone for growth and value creation. As Karen will discuss in more detail, we are raising our full year 2025 guidance. This reflects the acquisition of CWT, and we are reaffirming the midpoint of our previous guidance range for our core business. Importantly, we also have the confidence to provide preliminary expectations for 2026. Before we get into the quarterly details, I want to explain why this is such an important moment for our business with multiple levers for growth and value creation in place. We continue to demonstrate the strong execution in our core business. Proof points include our very high customer retention rate, significant new wins value, disciplined operating leverage and strong cash generation. We are consistently delivering on our commitments. We have made bold moves to transform Amex GBT into a software-driven leader in travel and expense. We've now reached an exciting moment with several significant milestones achieved that we expect will accelerate growth and margin expansion. First, we closed the acquisition of CWT, a global business travel and meeting solutions company. This transaction immediately grows our top line substantially, and we are already executing on the $155 million synergy target to create significant shareholder value. Second, we recently announced a long-term strategic alliance with SAP Concur to strengthen our value proposition, accelerate growth and develop a larger expense revenue stream. Third, we expect to launch a next-gen Egencia Travel and Expense solution in Q1 2026, including full integration into SAP Concur Expense and a new AI-powered booking experience. Fourth, we have an enormous runway in the SME space with even stronger products and distribution to continue to win share. And finally, we are driving AI to further accelerate the digital transformation of our business. Putting it all together, we have a significant long-term opportunity for consistent double-digit adjusted EBITDA growth and margin expansion, and we look forward to sharing more at our March 2026 Investor Day. Turning to CWT. We are delighted to welcome CWT customers and employees to Amex GBT. This transaction grows revenues by approximately 30%, grows our SME business by approximately 20% and brings in new industry verticals to Amex GBT. This is a highly accretive transaction. We expect to deliver approximately $155 million in net cost synergies over the next 3 years, and we have a proven track record of achieving synergy targets. Our experienced integration team has made good progress in the first 60 days, and we expect to achieve $55 million of synergies in 2025 and 2026. Importantly, this transaction diversifies our shareholder base. CWT shareholders, which are primarily investment funds, now own approximately 10% of the combined company, and our leverage stays within the target range of 1.5x to 2.5x. Turning to our new long-term strategic alliance with SAP. Let me first describe how significant this alliance is, and then I will share 2 new ways that our customers and suppliers will benefit. SAP is the world's largest provider of enterprise application software. To put some numbers on it, 98 out of the 100 largest companies in the world are SAP customers and approximately 80% of SAP's customers are SMEs. SAP Concur is the world's largest travel and expense software solution with over 104 million users. By joining forces, we will deliver a step change in our travel and our expense capabilities. First of all, we are co-developing a new solution called Complete, a new flagship solution for travel and expense that will offer an AI-powered user experience. Complete features include richer content, a booking experience that will feel like shopping on your favorite website, one app for everything end-to-end and a seamless customer support from industry leaders. We launched last week to the first customers, so the impact is already starting now. Second, we are integrating SAP Concur Expense with Egencia. This is exciting because it will provide our Egencia customers a seamless travel and expense experience. And additionally, the strategic alliance creates the opportunity to accelerate our growth by marketing a new flagship solution to the large SAP customer base. In Q1 2026, we plan to launch a next-gen Egencia Travel & Expense solution. It will feature SAP Concur expense integration, new Agentic AI search capabilities and a redefined customer experience. Egencia is our all-in-one travel and expense platform that continues to compete very effectively against other software solutions. Egencia is already operating at scale with approximately $8 billion of TTV in the last 12 months, over 90% online transactions and approximately 7,000 corporate customers, all supported by world-class service from American Express GBT. Furthermore, it has gross margins that are higher than our average and very importantly, it is profitable and generating cash. We have an unrivaled value proposition for SMEs. savings, control and service. This strong value proposition drives profitable growth in the over $800 billion SME segment and an estimated $625 billion of the global SME opportunity is unmanaged, representing a long runway for future growth. Over the last 12 months, excluding CWT, our SME new wins totaled $2.2 billion. With the enhancements that we're making to our products and our sales strategy, we think we can further accelerate new wins and capture more share with SME customers. Our overall total new wins value also remained strong at $3.2 billion with an impressive customer retention rate of 95% over the last 12 months, excluding CWT. Finally, when it comes to AI, we are a clear beneficiary. AI is delivering results, increasing revenue, conversion and productivity. Let me give you some examples. The Egencia AI experience is solving customers' needs faster and delivering savings. Egencia Chat powered by AI is driving a 23% reduction in the need for human intervention in chats. Our AI-powered hotel dynamic rate cap delivers average savings of approximately $60 per booking for Egencia customers. And AI is increasing hotel attachment rates, which provides increased revenue opportunity with 85% of booked hotels chosen from the top 10 AI-driven display. We're also driving AI to deliver cost savings and margin expansion. We've previously spoken about the significant opportunity with travel counselor productivity. Excluding CWT, over 40% of our calls are now assisted by AI, driving efficiency gains. And we've seen a 40% quarter-over-quarter increase in daily users of our internal AI productivity tool called AI Assist. This results in a 60% adjusted gross profit margin in the third quarter with significant runway for continued margin expansion. And we continue to increase the share of digital transactions, which now totals 82% with over 60% on our proprietary software platforms. Now let's turn back to the third quarter and the financial highlights. Last quarter, we talked about green shoots that gave us confidence in an improved corporate travel demand environment, and that is exactly what we saw. TTV, which reflects both volume and price, grew 23% to reach $9.5 billion, driven by CWT and 9% growth in the core business. The core growth was driven primarily by higher average ticket prices and hotel room rates in addition to transaction growth and a favorable FX impact. Transaction growth was up 19%, driven by the 1-month contribution from CWT post close and 4% growth in the core business. Within the 4%, same-store sales were up 2% and our net new wins drove 2 percentage points of growth. Revenue was up 13% to reach $674 million. Excluding CWT, revenue growth of 3% was in line with our expectations and largely in line with transaction growth, which drives the majority of our revenue model. Finally, adjusted EBITDA grew 9% to reach $128 million. Excluding CWT, underlying adjusted EBITDA growth was 5%, which was in line with expectations and outpaced revenue growth as a result of our continued focus on driving margin expansion and operating leverage. Going forward, Amex GBT and CWT are one business. But we wanted to give you the breakout between our core business and the impact of CWT this quarter to help you understand the underlying performance. And now I'd like to hand it over to Karen to discuss the financial results and the updated outlook in more detail. Karen Williams: Thank you, Paul, and hello, everyone. Before we get into the specifics for the quarter, I want to reflect on the progress we have made in Q3. I am incredibly pleased with our continued momentum in driving the business forward. We delivered financial results for the core business that were in line with expectations. We closed on CWT and are already making outstanding progress on the integration. And we executed on our share repurchases to deploy capital in a disciplined, value-accretive manner. We continue to deliver on our commitments. So let's turn to our financial performance in more detail. Revenue reached $674 million, up 13% year-over-year. Travel revenue increased 10% due to the acquisition of CWT, underlying transaction and TTV growth and favorable foreign exchange impact. Product and professional services revenue increased 23% from the acquisition of CWT as well as strong growth from dedicated client revenues and consulting. Excluding CWT, transaction growth of 4% was in line with our expectations. TTV growth of 9% had an additional 3 percentage points benefit from higher average ticket prices and 2 percentage point benefit from FX. As a reminder, transactional growth drives 50% of our revenue and TTV drives 30%. The core revenue growth of 3%, was very much in line with our expectations for the quarter. Now it's important to note that our core business revenue guidance of 5% at the midpoint for the second half, which we're reiterating today, assumed lower growth in Q3 versus Q4 due to phasing. If you look specifically at our revenue yield, it declined 40 basis points year-over-year, driven by the prior year baseline, hence, why I would encourage you to look at H2 rather than the quarter in isolation. And from a year-to-date perspective, revenue yield is trending in line with our full year guidance, which is down less than 20 basis points, excluding CWT due to the intentional continued shift to digital transactions and the fixed components of our revenue. So moving to expenses. We continue to drive strong momentum with our focus on driving efficiency and increasing productivity. We are introducing adjusted gross profit margin as a key metric this quarter, which we believe helps measure the success of our automation and AI initiatives and makes us much more comparable to other software-led companies. Adjusted gross profit margin was 60% in the quarter, down modestly due to the impact of CWT, but up 70 basis points for the core business. Importantly, we believe there is a runway for this to go up significantly over time. Adjusted operating expenses were up 14% year-over-year, largely reflecting incremental costs driven by the acquisition of CWT. Excluding CWT, adjusted operating expenses were up 3% in the quarter. And on a constant currency basis, adjusted operating expenses grew slower than revenue for the core business, reflecting our continued focus on driving productivity and efficiency gains. And as a reminder, we expect to drive $110 million of cost reductions in 2025, partially offset by the $50 million in investments we are making to drive growth, and I am pleased to say we are on track with both of these. Putting it together, adjusted EBITDA grew 9% to $128 million. Our adjusted EBITDA margin was 19%, down 70 basis points year-over-year due to the impact of the CWT acquisition. Although the combination with CWT's lower-margin business will temporarily step down our margins on a blended basis, we are confident in the path to return to and then far surpass prior levels, thanks to the significant synergies, additional efficiency potential and scalable revenue growth for the combined businesses. Excluding CWT, our adjusted EBITDA margin was up 40 basis points. And again, I encourage you to look at core business margin expansion of 120 basis points year-to-date instead of the quarter in isolation due to phasing. As Paul mentioned, we wanted to provide this financial detail on the core business versus CWT impact to be helpful. However, going forward, we will be operating reporting as one business. We generated $38 million of free cash flow in the quarter, which declined year-over-year, largely due to the impact of CWT. Free cash flow generation for the core business, excluding CWT, was $54 million, down modestly year-over-year due to investing in the business. Finally, I am incredibly proud of the strength of our balance sheet, our leverage ratio or net debt divided by last 12 months adjusted EBITDA is 1.9x, up slightly from last quarter, given our funding of the cash portion of the CWT acquisition, but still below the midpoint of our target leverage range of 1.5x to 2.5x. With such a strong balance sheet, we are in a position to continue executing on our capital allocation priorities, including additional opportunistic M&A while returning cash to shareholders through share repurchases. Year-to-date through November 6, we have repurchased $54 million of shares. Our share buyback reflects our confidence in the underlying strength of the business and our commitment to driving long-term shareholder value. Now taking a closer look at CWT, this is an incredible synergy story. We have a clear path to a bottom line synergy opportunity of $155 million, entirely driven by what we can control, which is costs. We have significant savings by consolidating the cost base of CWT and Amex GBT, including a large opportunity with AI and automation. This is a highly accretive transaction with a 3.5x multiple on synergies alone. We have previously shared we expect to achieve approximately 35% of our total $155 million synergy target in year 1. While I'm pleased to share we are tracking in line with the expectations we have previously shared. We expect to deliver $55 million in synergies across 2025 and 2026, split between $5 million and $50 million, respectively. These actions primarily include workforce reductions, real estate consolidation and vendor savings. We have a clear and established playbook for M&A. I will now share 2 examples of that track record of highly accretive acquisitions and significant value creation. With HRG in 2018, we added approximately 24% incremental revenue with approximately $80 million in synergies. And with Egencia, in 2021, we added approximately 24% incremental revenue with approximately $110 million in synergies. This proven track record gives us confidence in our ability to deliver the identified synergies from CWT. Now moving to guidance. We are very pleased to raise and narrow our full year 2025 guidance to reflect the acquisition of CWT, which closed on September 2, 2025. There are no changes to our expectations for the core business. We are confident in the midpoint of our previous guidance. We are now guiding to full year 2025 revenue of $2.705 billion to $2.725 billion, which reflects approximately 12% year-over-year growth and adjusted EBITDA of $523 million to $533 million. Versus our previous guidance midpoint, this is $227 million increase in revenue with a $5 million increase in adjusted EBITDA, all driven by the CWT overlay. CWT assumptions for Q4 included an impact on our government business from the current U.S. government shutdown and a continuation of current trends for domestic travel. Please note that CWT is not currently baked into consensus or any sell-side analyst estimates. So this is all extremely exciting top line growth that is not currently reflected in any of the numbers out there and therefore, entirely incremental. Looking at free cash flow, we now expect to generate free cash flow of $90 million to $110 million. At the midpoint, the $50 million change in free cash flow guidance is driven by the cash impact of CWT. Excluding the cash impact of CWT and approximately $60 million in onetime M&A-related cash costs, we would expect to generate approximately $210 million in underlying free cash flow for the core business. And so turning to next year, we also want to share our preliminary expectations for full year 2026 to help you set up your models now that we have closed the CWT acquisition. We have made bold moves to transform Amex GBT into a software-driven leader in travel and expense. We have now reached an exciting moment with several significant milestones achieved that we expect will accelerate growth. We expect to continue to demonstrate strong execution in our business with significant new wins, disciplined operating leverage, delivering on the CWT synergies, introducing our new flagship complete T&E product with SAP, rolling out our industry-leading next-gen Egencia T&E solution and continuing to drive productivity and efficiency across the enterprise whilst investing in the business. Our guidance philosophy continues to be based on the trends that we have seen. Our preliminary expectations for full year 2026 is 19% to 21% revenue growth and adjusted EBITDA of $615 million to $645 million, which represents growth of 16% to 22% year-over-year. And as usual, our official full year 2026 guidance will be provided on our next earnings call in early March. I want to end on why we are so excited about our future and the long-term outlook for the company. We have reached a critical moment with the CWT acquisition and the additional levers for long-term growth and value creation. We have a clear path to consistent double-digit adjusted EBITDA growth, margin expansion and free cash flow conversion, which we will use to drive continued shareholder value. We look forward to providing more detail on the opportunity we see ahead at our Investor Day in March. So we can move into Q&A. Paul and I are joined by Eric Bock, who is our Chief Legal Officer and Global Head of M&A. Operator, please go ahead and open the line. Operator: [Operator Instructions]. First question comes from Lee Horowitz with Deutsche Bank. Lee Horowitz: Two if I could. Maybe as it relates to your 2026 outlook, I wonder what you're hearing from your customers in terms of their expectations on what the big beautiful bill could mean for corporate spending broadly and how that perhaps informs your preliminary outlook? And then maybe one on the new SAP Concur relationship strikes is quite interesting. I wonder how you're thinking these tools may serve to help unlock the unmanaged segment in SME more greatly so that we could see that part of your business continue to come online and take share there. Paul Abbott: Well, thanks, Lee. Thanks for the questions. First of all, in terms of the outlook for 2026, the most recent survey that we did, showed either the same or moderate improvements in terms of the travel budgets for 2026. So I would say we're cautiously optimistic about a slight uptick in organic growth in 2026. We're also seeing a noticeable increase in the number of Meetings and Events. I know I've mentioned before, Lee, that that's an area of our business where we get a longer-term view given the booking patterns for Meetings and Events. And in the last quarter, we've actually seen a double-digit increase in the number of forward bookings for Meetings and Events into 2026. So again, that's an encouraging sign as well. So we'll provide more details on the '26 outlook when we give formal guidance in February. But I would say that we are cautiously optimistic about a moderate improvement in organic growth in 2026. Yes, on the SAP Concur partnership, I think I mentioned in my prepared remarks that 80% of the SAP customer base are actually SME customers and we have over 100 million users. And so with this new flagship solution that we are co-developing with SAP Concur, we will have the ability to market that solution into the SAP customer base, which obviously, as I said, a very, very large established SME customer base. So we do think that, that's going to really help us to accelerate SME growth. And then secondly, Egencia has been our primary product for bringing customers in within the SME segment and also more specifically the unmanaged segment and the ability to integrate now Egencia into Concur Expense, so that it becomes a seamless all-in-one travel and expense solution for those 100 million users is also a significant step forward in terms of our value proposition in that segment. So both those developments should help us to accelerate our SME new wins in 2026 and beyond. Operator: We now turn to Duane Pfennigwerth with Evercose ISI. Duane Pfennigwerth: You touched on it with your comments just now. But can you comment maybe just on where we are in the underlying macro for business travel? We were having a pretty vigorous recovery in the U.S. off of the tariff shocks into the government shutdown. Now it appears the clouds are maybe parting on that front. How would you characterize business travel demand trends now versus maybe the lows of this year back in April or May, and I'm not sure if you agree with that as a trough period. Paul Abbott: Yes. I think we said last quarter that we were expecting to see an improvement in demand into Q3, and that's frankly exactly what we saw. And you see that in the numbers that we've just shared. If you look at our sort of guide for Q4, we're also expecting to see some improvement in the organic growth rate into Q4. So I think what we signaled last quarter in terms of an improvement in the demand environment is exactly what we have seen. Duane Pfennigwerth: Okay. Great. And then on CWT, obviously, you're acquiring customers, a deeper presence in some industries and a significant synergy opportunity. But I wonder if you could just remind us, is there anything on the technology front or on the software front where you feel like they may have had a relative advantage? Paul Abbott: I think there are some areas of the business, particularly in the hotel space and also some of the traveler care, travel counselor tools that we are looking at that we think are interesting and that may help us to create more value for customers and also help us to improve productivity in our servicing teams. But when you look at the software solutions, obviously, the main software solutions that we will be going to market with, will be the Egencia solution, which, of course, now will have full integration into SAP Concur Expense, the Neo suite of solutions and of course, now the flagship product that we are developing with SAP Concur, which is complete, which again will be an integrated travel and expense solution. So those will remain the 3 core software solutions in addition to, of course, third-party software that we integrate with as well. Duane Pfennigwerth: And then just on Concur, I'll sneak one more in. Sorry about that. Just on Concur, obviously, you've worked with Concur for some time. Can you just maybe highlight what is different now about this partnership? Paul Abbott: Yes, sure. So I think what's different about this is that we are now actually co-developing a new flagship solution that will lead the industry for travel and expense. We have teams that are working together to fully integrate the solutions. And that is going to mean improved content for customers. It's going to mean improved savings for customers, and it's without question, going to be an improved experience. We're bringing the expertise of both teams together in travel and expense to create a more integrated experience for the user. That experience will be AI-powered. It will be more integrated across travel and expense. There will be one app essentially for everything. And there will be an improved [ UX and improved ] retailing experience for both travel and expense. So those are the key changes that customers can expect going forward on the Complete product. And then, of course, what's also new is Egencia will have that integration into Concur Expense. Our Egencia customers really likes the user experience on Egencia, the content, the AI-powered experience. But some customers that are operating in that SAP environment want full integration into SAP Concur Expense, and that's what we're going to give them going forward. Operator: We now turn to James Goodall with Rothschild and Co-Redburn. James Goodall: So firstly, just coming back to the SAP Complete and Egencia T&E solutions. What are the key metrics or milestones that you'll be watching and hoping to achieve as these products roll out to the market? Paul Abbott: I am sorry, would you repeat the question? I think we lost you at the beginning. James Goodall: Sorry, sorry. So just coming back to the SAP Complete and Egencia T&E solution. What are the key metrics or milestones that you guys are going to be watching and hoping to achieve as these products roll out to the market? Paul Abbott: Yes. I think what we're expecting, frankly, from the new strategic alliance with SAP is to accelerate our growth. And we're going to have a flagship product that gives us competitive advantage. And therefore, we're expecting that to accelerate the growth of our business. We're obviously going to be cross-selling both the Complete product and the Egencia product into the SAP customer base. So again, we'll be looking for increased growth. We'll also be looking for improved customer retention because we're going to be able to deliver customers with a better experience. We're also going to be bringing more content to customers and more savings. So looking at the savings that we're delivering to customers as well, will be an important metric to track. And then, of course, it tracks very much to the overall digitization of the business and continuing to increase the share of digital transactions, which we referenced in the presentation is now at 82%. And obviously, we expect that metric to continue to grow. And that ultimately feeds into improved gross margin and overall margin expansion for the business. So those are the key metrics that you should expect us to track and report. James Goodall: Great. And then just secondly, just thinking about the synergy number of $155 million. I mean that number hasn't now changed for 2 years, I guess, since you first almost 2 years since you outlined the acquisition. But now that you've got a bit more under the numbers with CWT, I mean, do you see any potential for incremental synergies to be unlocked, whether that's incremental cost savings or revenue synergies as well? Paul Abbott: Well, I think what we've been able to do really post close is to obviously pressure test that synergy number in more detail. And when you own and operate the business, you have the ability to do that. And so we now have just a very high confidence level of delivering that $155 million of synergies. That, just as a reminder, is 100% cost synergies. So that is a net cost synergy number. There, of course, can be opportunities to increase revenues, and we're certainly looking to cross-sell our products and services into the CWT customer base, but we have not baked any of those revenue synergies into our business case or our outlook. But we absolutely have a very high confidence level on $155 million of synergies. And as Karen mentioned in her remarks, $55 million of that, we already have been able to identify an action. And of course, $100 million in additions still ahead of us. Operator: [Operator Instructions]. We now turn to Stephen Ju with UBS. Stephen Ju: So on the Egencia TTV disclosure, I think, trailing 12 months of about $8 billion, has this segment more or less recovered back to the pre-pandemic levels? And I think secondarily, at the same time, the $8 billion of TTV is on potentially an addressable market of $800 billion plus. I mean that's just 1% of the market. So availability of online and software solutions for travel is something that's probably not lost on anybody. So I mean, between Egencia and competitors, we're probably still at less than 10% penetration. So what do you think the unlock here is to get the SMBs onboarded and using Egencia? Paul Abbott: Yes. Thanks, Stephen. Good question. And it's worth remembering that Egencia is a very important part of our SME segment, but our SME segment is approximately 50% of our overall SME volume. So our SME volumes are also on other solutions outside of Egencia. But your point is absolutely correct. There is a significant runway for growth in the SME segment. The investments that we're making in Egencia to evolve that product into a travel and expense solution will obviously, I think, be an opportunity for us to accelerate growth in the SME segment. If you look at the partnership that we just announced with SAP Concur, that gives us the ability to sell our solutions into that SAP customer base that I mentioned earlier. So we expect both of those developments to help us accelerate growth. But look, your point is absolutely valid. There is a huge opportunity to grow in what is still a very, very large and very fragmented segment. Stephen Ju: Okay. And secondarily, I get that there's probably a relatively higher failure rate among SMEs, but has Egencia and indeed your entire portfolio now, has there been any signs that you've been able to hold on to some of these SMEs as they grow and continue to become bigger companies? Paul Abbott: Yes, absolutely. You're right, there is more churn in the SME customer base. Our retention is around 94% in SME versus global multinational is around 98%, which obviously brings us to our average, which has been tracking around 95%, 96%. So you're always going to have more churn within the SME customer base. But our retention rates are very high. And I think what we did see at the back end of last year and the beginning of this year is we did see some softening in the organic performance, the same-store sales in SME. And I think it's been well documented that, that's driven primarily by macroeconomic conditions. And I'm pleased to say that we have seen a steady improvement in that organic performance as we've gone through 2025. So again, we're cautiously optimistic about Q4 and into 2026, continuing to see an improvement in the organic performance, but also the investments we're making in our sales and marketing channels, plus the investments we're making in Complete and the investments in Egencia set us up to accelerate our growth in the SME segment. Operator: We now turn to Toni Kaplan with Morgan Stanley. Toni Kaplan: And thanks for your comments on the AI stuff in the prepared remarks. We've been seeing some new platforms in the space. And we're wondering where do you see the place for sort of those platforms in the market versus -- and I know that you have AI embedded in yours as well. But do you expect that the AI platforms will be more sort of targeted in the SME part of the market? And what type of customer would benefit from using a platform that is like essentially AI forward versus Egencia, for example? Paul Abbott: Well, I think what's really exciting about where we are now on AI and our digitization program is that we're seeing real results, both in terms of revenue performance and cost performance, and I referenced some of those results in my prepared remarks. We're seeing an impact to revenue and conversion through the AI-enabled features that we have in Egencia. We're also seeing cost reduction from the AI solutions that we're implementing across our servicing channels. And so I think AI is very much a tailwind for us in both improving revenue and conversion, improving the customer experience and also taking cost out of the business. And as I said, I think we are starting to see results and real P&L impact on both fronts. In terms of how the broader competitive environment is going to evolve, we are already developing our own Agentic AI capabilities and also working with third-party Agentic solutions, and what we're seeing is that Agentic AI is definitely going to start to become an important channel. But it's going to be one of, I think, many channels that customers use, and they're going to want Agentic AI to be integrated into whether it's chat, whether it's voice and all of the other channels that those customers use to interact with us. And it's going to be important for all of those channels to make sure that they are connected up to the same marketplace and the same content, the same traveler data and traveler preferences, the same company data and company policy data. And what we're finding is that the fact that we essentially orchestrate all of that end-to-end, and we are the ones that actually hold and manage all of that data that it's actually our technology stack and data that is incredibly important in order to actually make that Agentic experience work, whether it's our Agentic AI experience or third-party Agentic AI. So I think you're going to see it grow as a channel. I think you're going to see many different versions of Agentic AI that are powering that channel. But I think you're going to see that effectively all integrate into the technology stack and data that we have, so that customers have a fully integrated and entirely consistent experience across all channels. Toni Kaplan: Great. And just thinking about -- you shared preliminary expectations for 2026. The adjusted EBITDA growth there, are you embedding cost savings from AI in that number? And could you actually do better than that? It's a nice number, but can you do better than that if you are able to find even more AI efficiencies next year? Karen Williams: So thanks for the question, Toni. We've given the preliminary expectations based upon what we see today. And there is margin improvement along with obviously then the synergies embedded in them that we've mentioned from a CWT perspective. So it is based upon everything that we feel confident about at this point. Operator: This concludes our Q&A. I'll now hand back to Paul Abbott for any final remarks. Paul Abbott: Well, look, thank you very much to everyone. Before closing, I do want to thank our team for their tremendous commitment to our customers and the strong results that they have delivered throughout this year and including the third quarter. Thank you to all of you for joining us today and your continued interest in American Express Global Business Travel. Thank you, everyone. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Hello, and welcome to the Organon Third Quarter 2025 Earnings Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Jennifer Halchak, Vice President, Investor Relations. You may begin. Jennifer Halchak: Thank you, operator, and good morning, everyone. Today, we will be referencing a presentation that is visible during this call for those of you on our webcast. This presentation will also be available following this call on the Events & Presentations section of our Organon Investor Relations website. Please reference Slides 2 and 3 for some brief reminders. I would like to caution listeners that certain information discussed by management during this call will include forward-looking statements. Forward-looking statements can be identified because they do not relate strictly to historical or current facts and use words such as potential, should, will, continue, expects, believes, future, estimates, believes and other words of similar meaning. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the SEC. This includes our most recent Form K and Forms 10-Q and those amended forms that we filed earlier this morning, as well as our October 27, 2025 Form 8-K. These statements are based on information as of today, November 10, 2025. And except as required by law, Organon undertakes no obligation to update or revise any of these forward-looking statements. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. Descriptions of these measures and reconciliations to the comparable GAAP measures are included in today's earnings press release and conference call presentation, both of which are available on our Investor Relations website and have been furnished to the SEC on a current report on Form 8-K. I note that while our full year 2025 guidance measures other than revenue are provided on a non-GAAP basis, Organon does not provide GAAP financial measures on a forward-looking basis, because we cannot predict with reasonable certainty and without unreasonable effort, the ultimate outcome of those legal proceedings, unusual gains, and losses, the occurrence of matters creating GAAP tax impacts and acquisition-related expenses. These items are uncertain, depend on various factors and could be material to our results computed in accordance with GAAP. On the call today, Carrie, Joe and Matt will address certain information about our internal investigation. Additional information about the investigation is available in our SEC filings. Beyond the statements today and the information in our filings, we will not be taking questions on the investigation. Today, the team will discuss our business, third quarter results and guidance, and they will take questions on those matters after their prepared remarks. And now I'll turn the call over to Carrie. Carrie Cox: Thank you, Jen. Hello, everyone, and thank you all for joining us today. I've had the privilege of serving as Board Chair of Organon since 2021. I've been in the pharma industry now over 4 decades. And about half of those years were spent in global leadership roles, which required navigating businesses through periods of transformation and growth. A good part of that experience was leading Schering-Plough Global Pharmaceuticals until the merger with Merck. So I have a deep understanding of many of our products and markets here at Organon. Since Organon's inception, our mission has been to deliver impactful medicines and solutions for a healthier every day. there is a shared passion at Organon to advance the complete health of women at all stages of her life, and that's what drew me to Organon from the beginning. While we focus on Women's Health, we also have a diverse portfolio of Biosimilars and Established brands that are important in markets around the world. I'm here today because I have assumed a new role at Organon as Executive Chair. Following the Board's investigation into the company's improper sales practices with two distributors with respect to U.S. sales of Nexplanon. I will be supporting Joe Morrissey, who I will speak about in a minute as our interim CEO. The Board has formed a search committee and will be conducting a search for our permanent CEO. In this role, my focus will be on working closely with our leadership team to ensure that we align our resources to our highest priorities and drive operational performance across the portfolio. I will be deeply engaged in monitoring progress, addressing challenges quickly and ensuring that every part of the business is working towards our shared goals. The independent internal investigation relating to the company's Nexplanon sales to wholesalers in the U.S. is complete. And our remediation efforts are underway, including enhanced control, certain personnel actions, additional training and expanded written procedures. The company's wholesaler sales practices identified through this investigation have ceased. And we have new leadership at the company and in our U.S. commercial sales area to ensure this does not happen again. The Board and I are confident that Joe is the right person to assume the role of Interim CEO of Organon and to oversee the remediation measures. He brings integrity, a strong focus on operational excellence and a deep commitment to executing our strategy. Joe came to Organon from Merck, where he spent more than 30 years. At Organon, he was already a member of the executive leadership team and has served as Head of Global Manufacturing and Supply Chain since Organon's inception, leading the company's efforts to deliver medicines and solutions around the world. We appreciate Joe agreeing to step in at this critical juncture. Importantly, I want to stress that our drive for operational excellence and meeting our goals to move our company forward into the future remains unchanged. With that said, I'll hand it over to Joe so that he can talk a bit about his and Organon strategic priorities. Joseph Morrissey: Thank you, Carrie. I appreciate the introduction and the opportunity to speak with everyone today. As Carrie mentioned, I spent more than 3 decades at Merck, where I led a number of manufacturing businesses, as well as corporate strategy. That experience combined with my deep understanding of our products, our markets and our supply chains made joining Organon a natural step as I was excited to build something meaningful from the ground up, leveraging our strong history. We have faced many challenges in these first 4.5 years, but we have a resilient and capable global team. Our diverse product portfolio and footprint help us to generate meaningful revenue and deliver real value to patients and communities around the world. As Carrie has said, our strategic priorities have not changed. Moving forward, we remain focused on executing against these priorities. As we've previously shared, these include deleveraging the business, driving cost savings and achieving revenue growth. I am -- I believe deeply in Organon's mission, our values and our people around the world. I'm fully committed to helping Organon succeed. And with that, I hand it over to Matt. Matthew Walsh: Thank you, Joe. Beginning on Slide 4. Third quarter revenue was $1.6 billion and adjusted EBITDA was $518 million, representing an adjusted EBITDA margin of 32.3%. Before I go deeper into a discussion of third quarter results, I'd like to spend a minute walking through some specifics about the company's U.S. wholesaler sales practices, that Carrie referenced. It's important that investors understand this issue properly. There is limited revenue impact and no financial restatement is necessary. All revenue was properly recorded in accordance with U.S. GAAP. On Slide 5, you'll see a summary of the revenue impact from these practices for the recent quarterly periods identified by the investigation. The revenue that we're highlighting is that of Nexplanon sales to two U.S. wholesalers with specific emphasis on revenue transactions occurring close to quarter end. Certain revenue transactions were advanced or pulled forward into the current quarter in excess of estimated patient demand and/or contractually agreed inventory holding levels. For example, for the third quarter of 2024, on the left-hand side of this chart, the sales practices in question resulted in approximately $5 million of pull-forward revenue from the fourth quarter of that year. In the fourth quarter of 2024, there was approximately $15 million pulled forward from the first quarter of 2025. So the net impact in the fourth quarter of 2024 was $10 million. Importantly, because we're talking about the pull forward of sales, these quarterly numbers are not cumulative. Our financial statements have been consistently reflecting the net impact, which is clearly not material to our consolidated revenue. Three other important points to make here. First, revenue recognition in all cases was appropriately recognized in accordance with U.S. GAAP, specifically Section ASC 606. Two, during these periods, product returns were at or below historical levels and three, in every relevant period, the units that were pulled forward occurred late in the third month of that quarter, and were absorbed through patient demand by approximately the end of the first month of the following quarter. Since this practice has ceased and will not continue in the future, we will see the most significant impact in the fourth quarter of this year because the $17 million pull forward in Q3 2025 will not have an offsetting buy-in in Q4 2025. As a result, the pull-forward dynamic rolls off in the fourth quarter and will be contained within the 2025 fiscal year with no carryover impact to 2026. One last point on this topic. In the 8-K filing on October 27, the financial impact of these practices for the relevant periods was described as being less than 1% of consolidated revenue for the full year of 2022 and full year 2024 and less than 2% of consolidated revenue for the relevant quarterly periods. Subsequently, we have completed our testing and detailed reviews, resulting in the more narrow estimates that you see here on Slide 5, which are clearly within the ranges disclosed in the 8-K. Now moving to a discussion of third quarter 2025 results. To be clear, when I refer to revenue and revenue variances, unless otherwise noted, those references are to revenue recorded in our financial statements without adjusting to back out the pull forward. So let's go franchise by franchise, and then we'll move to a discussion of revenue by driver. So turning to Slide 6. The Women's Health franchise declined 4% at constant currency in the third quarter of 2025 compared with the third quarter of 2024 with growth in contraceptives Marvelon, Mercilon and NuvaRing, partially offsetting a 9% decline in Nexplanon at constant currency. Global Nexplanon sales in the third quarter were $223 million. In the U.S., Nexplanon declined 50%, while internationally, the product grew 7% ex-exchange. The biggest challenge facing Nexplanon this quarter was unfavorable U.S. policy, which emerged in Q2, accelerated in Q3 and had the biggest impact in the budget constrained public segments. Planned Parenthood and federally qualified health centers, where Nexplanon has a leading market share among long-acting reversible contraceptives. In the second quarter, we cited U.S. policy decisions that impact Title X funding and Planned Parenthood. In the third quarter, formalization of these policies intensified budget and access constraints with the greatest impact being realized in Planned Parenthood. On the commercial side, our Nexplanon business is primarily comprised of integrated delivery networks and to a lesser extent, independent health care clinics. In the independent commercial clinics, we've seen a shift away from both purchasing or buy and bill towards single unit specialty pharmacy fulfillment of these claims, as these small businesses try to preserve cash. This is also largely macro-driven and related to inflationary and economic factors with independent health care clinics are facing. We see these headwinds persisting in the fourth quarter in the U.S. and likely to result in full year U.S. Nexplanon sales that are down mid- to high single digit for the full year. We expect international sales of Nexplanon to grow mid- to high single digits ex-FX this year. Putting that together, that means we expect global Nexplanon sales will be down low single digit in 2025 compared with full year 2024 on an ex-exchange basis. In the fourth quarter, that implies global Nexplanon sales will be down by mid-teens ex-exchange compared with the fourth quarter of 2024. The discontinuation of the wholesaler practices I mentioned will likely explain about 2/3 of the year-over-year variance in the fourth quarter. Turning to other components of our Women's Health business. Our fertility business was flat in the third quarter and up 13% year-to-date, ex-FX. For the full year, we expect high single-digit growth driven by the U.S., which represents about 40% of our global fertility business, as well as market expansion outside the U.S. And rounding out Women's Health. On November 6, we announced that Organon has entered into a definitive agreement to divest the Jada system for $440 million plus another $25 million contingent on 2026 revenue targets. Since acquiring Jada 4 years ago, the Jada team successfully launched the product in the U.S., secured approvals across multiple countries and managed design iterations as part of continuous improvement activities all leading to Jada being recognized as the standard of care in postpartum hemorrhage management. With this divestiture, Organon can delever faster by applying the proceeds to debt reduction, and put Jada in the hands of a med tech company well positioned to build on our great work and the very successful launch of the product. Turning now to Biosimilars on Slide 7. Year-to-date performance is largely driven by Hadlima, which is up 63% ex-FX globally through September and continues to rank among the leading Biosimilars in terms of total prescriptions in the U.S. This performance reflects the strong clinical profile of Hadlima, which includes the recent interchangeability approval in the U.S. Hadlima has also benefited from the effectiveness of our low-price strategy as well as expansion into Canada and Puerto Rico. The third quarter also benefited from an international tender for Ontruzant and to a lesser extent, contribution from our new denosumab biosimilar, which was approved by the FDA and launched in the U.S. in late September and Tofidence, which the company acquired in the second quarter of 2025. Wrapping up the franchise discussion with established brands now on Slide 8. Vtama revenue in the third quarter was $34 million and $89 million year-to-date. Our ongoing focus here remains to differentiate Vtama in the market. We have the largest addressable market with a single product in both indications across all severities. Vtama is notable for its safety profile, powerful skin clearance and rapid effective itch relief. It's once-daily dosing regimen and lack of restrictions on duration of use or percentage of body surface area affected further illustrate Vtama's potential for disease management in adults suffering from plaque psoriasis and adults in children down to 2 years of age with atopic dermatitis. The launch has had a flatter curve than we expected, but we are further investing behind the brand to effect a more rapid uptake in the atopic dermatitis indication. We still believe this product could get close to $0.5 billion globally at peak, even if our $150 million target for this year is now likely out of reach and closer to $120 million to $130 million. Elsewhere in Established brands, the third quarter marked the last quarter of significant impact from the LOE of Atozet since we lapped that event in September. Importantly, we saw a continuation of softening in our respiratory business. Performance in the respiratory portfolio was primarily driven by declines in Singulair, resulting from lower demand outside of the U.S. The montelukast molecule is losing share to newer respiratory products, especially in pediatrics and is facing mandatory price reductions in Japan and China. Dulera was also down significantly in the quarter, primarily due to increased discount rate pressure in the United States, coupled with temporary supply constraints and the negative impact from the loss of a customer contract early this year. As you know, our respiratory business can be seasonal. And given the historical stability of these offerings at midyear, we believe this business would rebound. Based on Q3 results and current projections for the remainder of the year, we anticipate that erosion in the respiratory business will persist through this year and into next year. Moving to Slide 9, where we detail the drivers of our 1% as reported revenue increase year-on-year for the third quarter. Starting on the left, loss of exclusivity was about $50 million for the quarter, which primarily reflects the impact of the LOE of Atozet in Europe, which occurred in September 2024. As we lap that LOE, we anticipate a relatively smaller impact in the fourth quarter. Year-to-date, we're tracking at the high end of the $170 million to $190 million range we provided last quarter. And so we now estimate LOE impact to be about $200 million for the full year 2025. VBP in China was de minimis in the third quarter and year-to-date. We now expect Fosamax's inclusion in Round 11 to be an early 2026 event, so we expect very minimal impact from VBP in 2025, less than our previous estimate of $30 million to $50 million. There was an approximate $30 million impact from price for the third quarter or about 1.9%. That was mainly driven by the mandatory pricing revisions in respiratory that I mentioned, competitive pricing pressures in fertility and the LOE of Atozet. We expect the full year impact from price to be in the range of $135 million to $145 million or about 2% with those same Q3 drivers of price being the most significant. This is an improvement over our prior range of $155 million to $185 million. Volumes increased $70 million in the third quarter, representing growth of about 4.5%, driven by the addition of Vtama to the portfolio, continued growth in Emgality and solid performance of Hadlima. Given year-to-date performance and our view into the fourth quarter, we estimate that volume could grow about 2.5% for the full year 2025, a revision from our former estimate of 6% to 7%. This would imply low single-digit decline in the fourth quarter and is reflective of continued softness in the respiratory portfolio, persisting policy headwinds in U.S. Nexplanon and a flatter-than-expected ramp of Vtama. In supply other, here, we captured the lower-margin contract manufacturing arrangements that we have with Merck, which have been declining since the spin-off as expected. And lastly, foreign exchange translation had an approximate $40 million favorable impact in the quarter or about 200 basis points, which reflects the weaker U.S. dollar versus the majority of foreign currencies in which we transact. For the full year, we now expect the impact for FX to represent about a 50 to 70 basis point tailwind to total revenue. Now let's turn to Slide 10, where we show key non-GAAP P&L line items and metrics for the quarter. For reference, financials and reconciliations to the non-GAAP financial measures are included in our press release and the slides in the appendix of this presentation. For gross profit, we are excluding purchase accounting amortization and onetime items from cost of goods sold, which can be seen in our appendix slides. Adjusted gross margin was 60.3% for the third quarter compared with 61.7% in the third quarter of 2024. This year-over-year decline in the non-GAAP adjusted gross margin is primarily attributable to pricing pressure, unfavorable product mix and unfavorable foreign exchange on our inventory turns. Adjusted EBITDA this quarter was $518 million, representing a 32.3% margin. Year-to-date, adjusted EBITDA margin is running favorable in part based on the timing of SG&A spend. There are planned increases in our SG&A spend in the fourth quarter as we support growing products such as Vtama and Tofidence. Year-to-date, non-GAAP SG&A as a percentage of sales is 25.4% and given the investments I just mentioned, our latest estimate is about 0.5 point higher than that for the full year. Turning to free cash flow on Slide 11. Year-to-date, we've delivered $813 million of free cash flow before onetime costs. Onetime costs related to the spin-off were completed in 2024, following the rollout of our global ERP system. What remains are margin-enhancing restructuring and manufacturing separation activities for 2025, which were $244 million year-to-date. In line with our expectation of $250 million to $300 million for the full year. Year-to-date, these break out as follows: approximately $100 million relates to cash payments associated with the restructuring initiatives that we're executing to deliver $200 million of operating expense savings this year. $20 million relates to the final payment on the Microspherix legal settlement and the remaining $120 million relates to the planned exits from supply agreements with Merck. These are activities that will enable Organon to redefine our appropriate sourcing strategy and move to fit-for-purpose supply chains, while focusing on delivering efficiencies in terms of gross margin expansion, which we expect to begin realizing in 2027. Below the free cash flow line, our estimate of business development cash investments for 2025 is approximately $240 million related to contractual milestones for Vtama, Emgality and the Biosimilar programs with Shanghai Henlius. Through the first 9 months of the year, the majority of those payments have already been made. Turning now to leverage on Slide 12. Net leverage as of September 30 was approximately 4.2x, down from 4.3x at June 30. Earlier in the year, we took action to realign our capital allocation priorities and target a net leverage ratio of below 4x. To that end, in the second quarter, we repaid approximately $350 million in principal of long-term debt instruments. As I mentioned, once the Jada transaction closes, which we estimate will be Q1 of 2026, we will apply the net proceeds after taxes and transaction costs to lowering our debt balance as well. Given our revised guide, we will likely end the year in line with Q3 with proceeds from the Jada sale helping to move the needle on leverage in early 2026. Now turning to 2025 full year revenue guidance on Slide 13. Given year-to-date performance and risk adjusting the fourth quarter for what we see as persisting U.S. policy in Nexplanon and the challenges in the respiratory business, we're lowering our full year range to $6.2 billion to $6.25 billion from $6.275 billion to $6.375 billion, which represents a year-over-year nominal decline of 3.2% to 2.4% negative. Given the approximate $35 million to $45 million tailwind we expect from FX for the full year, that means we're revising our constant currency revenue guide down about 300 basis points at the midpoint. We continue to expect adjusted gross margin to be in the range of 60% to 61%. Year-to-date strength in adjusted gross margin is likely to be partially offset in the fourth quarter due to product mix. For OpEx, as I mentioned earlier, given expected investments in Vtama, we expect full year SG&A spend as a percentage of revenue to be about 0.5 point higher than the year-to-date figure, which puts us in the 26% area for the full year. We continue to expect R&D as a percentage of sales to be in the upper single-digit range. The math on all those components gets you closer to the lower end of the 31% to 32% adjusted EBITDA margin range we laid out in August of this year. So we are revising our adjusted EBITDA margin to approximately 31% for the full year. For below-the-line items, our estimate for full year 2025 interest expense remains at $510 million. The lower interest expense from voluntarily retired debt is essentially fully offset by higher euro-denominated interest expense due to FX translation, and an acceleration of noncash amortization of capitalized fees related to the early debt retirement. As we think about next year, we would expect the interest expense to be closer to a $450 million to $475 million run rate as a result of the voluntary debt repayments completed, lower variable interest rates and applying the net proceeds from Jada to debt repayment. For 2025, we continue to estimate our non-GAAP tax rate to be in the range of 22.5% to 24.5%. The uptick from 2024 is largely due to the impact of the 15% global minimum tax rate required under the OECD's Pillar 2. Depreciation of $135 million remains our estimate for the full year 2025. At a very high level, next year pro forma for the Jada divestiture, we would expect consolidated revenue to be about flat as Vtama and Emgality and Biosimilars growth offset the headwinds across the respiratory portfolio. For Nexplanon, assuming existing headwinds in the U.S. don't worsen and factoring in the volume and price variables associated with a 5-year launch in the U.S. and continued growth internationally, we expect global Nexplanon revenues could be about flat next year. We remain confident in our ability to continue to delever the balance sheet through disciplined expense management and prudent capital allocation, all of which will strengthen Organon's financial position and support greater financial flexibility in the future. Importantly, even in a challenging environment, our diverse portfolio continues to generate strong cash flows and provides a solid foundation for long-term value creation. We are committed to navigating the current headwinds, investing behind our growth drivers and delivering for patients, customers and shareholders. And finally, while the issue raised around certain of the company's wholesaler sales practices is receiving a lot of focus, the financial impacts are small. Remediation is well underway. And as an organization, we are moving forward. With that, operator, let's open the line for questions. Operator: [Operator Instructions] Your first question comes from Jason Gerberry with Bank of America. Jason Gerberry: My question is mainly, given the Jada divestiture, are there opportunities within the portfolio for additional divestitures as you look across? And then as my follow-up, just on Vtama, I appreciate the update as it pertains to the growth dynamics into year-end. When should we start thinking about a growth inflection? Do you feel like next year when the access barriers improve that 2026 is the time point to really evaluate whether or not the growth inflections achieved with the AD label? Matthew Walsh: Thanks, Jason. We'll start with question. So to be clear, we've got nothing that's been announced or is definitively planned on asset divestitures, we're constantly from a strategic basis, looking at all of the assets in our portfolio. and anything additional would be opportunistic. I think in the case of Jada, we looked very hard at what is the economic value created in a hold and invest scenario and compare that against the opportunity to put that product in the hands of a better owner and the right economic answer in the math indicated that divestiture was the right answer in that case, but that is the kind of rigor that we'll put across all the assets in our portfolio. And as regards Vtama, Vtama has grown nicely this year, will grow again next year. To your point, we have -- we have made significant strides to improve access in 2026. And so I think full year 2026 will be a very good basis for us to be judging where we are on the growth trajectory to achieving long-term peak revenue of that roughly $0.5 billion that underpin the investment for us in the first place. So yes, 2026 will be a key year. Operator: The next question comes from David Amsellem with Piper Sandler. David Amsellem: So a couple for me. Firstly, can you talk more about the pressure on respiratory? And should we think of this long term as a declining business, not just '26, but beyond? And then secondly, how are you thinking about other potential trouble spots, I should say, regarding Established brands? So that's number one. And then number two is on Vtama. Just wanted to get your thoughts on competitive dynamics here. Is there anything you feel like you're missing regarding the topical landscape vis-a-vis the roflumilast product in particular and how we should think about that and how that plays into your -- thinking regarding the product? Matthew Walsh: Sure. So we'll start with the respiratory piece of your question, David. So in the early part of the year, we were noting that the allergy season, specifically in the Asia Pacific region, including China, was off to a very slow start. That put a dent in our thinking about the full year performance of the respiratory business. But then as the year progressed, we were noting that competitively speaking, the age of certain products in the respiratory portfolio is working against them. Various health ministries around the world were starting to prioritize other molecules above, for example, Singulair. And then elsewhere in the portfolio, thinking about Dulera, we talked about that in the prepared comments in terms of the rate pressures that product is facing in the United States. And then rounding out just mandatory price downs in China and Japan and also just around the world, hit that business pretty hard this year. So as we said, we expect that softness to continue into 2026. We'll see what sort of allergy season we have with some of the other dynamics I've spoken about are more longer term in nature. Apart from that, the rest of the established brands portfolio is showing the stability that those products have demonstrated over long periods of time. But we've always said about the established brands business, it is a business that we felt, if managed very tightly, we could keep about flat or maybe very, very low single-digit rate of rate of decline. That is on a CAGR basis. Some years will be different than others. We've added to the established brands portfolio, having a global commercial infrastructure like we do is an asset. So products like Emgality tucked in very nicely. And Emgality continues to grow. And now the wave two markets now that we've added them, I think, are a case in point for what we can do with the infrastructure that we have. So no other trouble spots that we're managing at the moment. Vtama from a competitive standpoint, we are forced to market in the atopic dermatitis space with a nonsteroidal offering. So that has set the stage, I think, as what you -- what you would say about competition. The product, as we mentioned in the prepared comments, is really differentiated in terms of drug-to-drug interactions, no restrictions on use, no limitations on a percentage of a body air. So it's a very safe product. And we're looking to differentiate it with those patients for whom those characteristics are very important, including pediatrics. Operator: The next question comes from Umer Raffat with Evercore ISI. Umer Raffat: I wanted to start by commending you for getting the 10-Q out, but I realize we haven't been able to speak at all since the inventory disclosures a few days ago. So I feel like it's only fair that we don't limit to just one question. So here's what I wanted to address on this public call. First, the audit committee investigation focused on Nexplanon. How do we know that the behavior was just limited to Nexplanon? Because inventory visibility is always lower ex U.S. So how do we know? Second, the filings point to the CEO and the Head of U.S. Commercial as where divergence happened. But I also saw your Chief Commercial Officer left back in February last -- this year as well. Why was that? Third, for 2024, your net pull forward is only $10 million, but the discounts and rebates paid to the channel went up by $177 million in '24, which puzzles me. So could you elaborate on that? Additionally, 4Q '22 had some inventory as well, but I didn't see any color on that. And then finally, the scale of these issues seems fairly low, fairly manageable, $10 million, $15 million sub $20 million. But if that's the case, then why the need to start this divestiture plan? Carrie Cox: As I mentioned in my comments, the independent internal investigation around the improper sales practices with Nexplanon in the U.S. was with two wholesalers, and it's now complete. The investigation also looked other product areas and found nothing else at this time. So we believe that we are done with the investigation now and we're moving forward into the remediation efforts. Again, as I mentioned, that's things like enhancing our controls. We have taken certain personnel actions. We believe that's completed. We're doing additional training and we've got more written procedures and more training yet to come. So with the new leadership at the company, we're comfortable that we're moving forward, and we will continue to execute against our goals as stated. Matt, do you want to take the others? Matthew Walsh: Yes. So for the Nexplanon piece, as we stated in the prepared commentary, Umer, the marketplace for long-acting reversible contraceptives has gotten more competitive. And so we are meeting that competition partially on price. So that would result in some of the increases in rebates and discounts that you noted. This is just I would say, normal business and Nexplanon operating in a competitive marketplace where women have lots of options for contraception. Jennifer Halchak: And on the Q4 2022 disclosure here. We didn't -- it wasn't on our slide, but the amount is disclosed in the 10-K. Matthew Walsh: Umer, you had a number of other questions. I just want to make sure we get to them all. Can you repeat the ones that you don't think we've answered yet? Umer Raffat: Yes, sure. Maybe for 4Q '22, that wasn't disclosed also the Chief Commercial Officer, who left separate from the Head of Commercial, why was that? And then why do all the divestitures now? Matthew Walsh: So for Q4 of 2022, the revenue was impacted by -- I think it was about 1.5% on the quarter, 0.3% for the year. And the divestitures, I think we've already addressed that. Umer, we had an opportunistic chance to divest an asset for which the economic value received on an immediate basis was what was superior to the hold and invest option. And we had an employee retire towards the end of last year that was for that employee's personal reasons and not tied to the investigation anyway. Operator: The next question comes from Chris Schott of JPMorgan. Christopher Schott: Just two questions for me. Maybe, Carrie, can you just talk a little bit about the new CEO search and kind of what's the optimal background and profile you're looking for here? And as part of either the search or with the new CEO coming in, should we assume a review of the broader strategy at Organon as part of this process? And then my follow-up, just on Nexplanon. Thank you for the comments about the flat growth next year. Just can you add a little bit more and what that -- in terms of what that implies for these funding challenges and the impact of the 5-year launch on the U.S. revenue? Carrie Cox: Thanks, Chris. The board formed a search committee essentially immediately. The search committee has been hard at work. So we are in the process of conducting that search. And like any company at this point, we need someone who's got the global experience, the strategic experience, the operational depth and a deep understanding of the businesses in which we operate. So we are confident that -- we not only have a great interim CEO that will continue to find good candidates as we go forward. I think the strategic discussion obviously waits for a permanent CEO. But at this point, we've been reaffirming that we don't see any strategic changes. So I would say we are what we are right now, and we intend to continue that way and very much focused on driving towards our goals. Matthew Walsh: I'll take the second part of the question on Nexplanon. So in terms of our current view of Nexplanon being about flat next year, the components of that, we expect the product to continue to grow internationally. From a policy perspective, assuming things don't get any worse, what we would probably see is an annualization of the issues that we experienced in the second half. And then the 5-year which we are assessing the relative weighting of the impacts of volume growth as the product would be appealing to a larger segment of the addressable population with a 5-year indication versus 3. The volume decline that would come from lower reinsertions, right, as women who would be coming up to the 3-year limit can leave the rod in their arms now for longer. And then what we're able to do on the pricing front. So we'll have all of this sorted out more precisely when we guide in February. But these are the things, Chris, that would be pushing and pulling on the overall belief that revenue will be about flat next year. Operator: The next question comes from Terence Flynn with Morgan Stanley. Terence Flynn: I just had one follow-up on the CEO search. I was wondering if you can speculate on the duration of the search when you hope to have someone in place on a permanent basis? And then on denosumab on that product, obviously, one of your newer Biosimilars that you're launching. Amgen has expressed a lot of optimism about maintaining more share on the Prolia side versus XGEVA. Can you just talk through your expectations for fourth quarter, but then also into 2026? Carrie Cox: So on timing of the CEO search, you know it's always impossible to predict how long these things take. The Board did begin right away. So I'm confident we're doing what's necessary to go as fast as we can. But we also feel very good about putting Joe in as our interim CEO, and I've stepped in to assist him along with Matt, of course. So we're confident we can continue to run the company well in the interim, and we'll be moving through the search as fast as appropriately we can go. Matthew Walsh: And on the denosumab piece, we're obviously very excited about that product. It's launched now. We don't guide to specific products, as you know. But what we are excited about is we continuously are adding products to the bag in our U.S Biosimilars business and that's giving us increasing commercial presence and access advantages that we look forward to 2026 for Tofidence and for all of our U.S. Biosimilars. Operator: The next question comes from Navann Ty with BNP Paribas. Navann Ty Dietschi: I have some questions on capital allocation. If you could discuss the future BD in Women's Health biopharma, only I understand and the timing of business development versus deleveraging progress? And second, if you could also discuss your pipeline versus the cost discipline strategy, including lower R&D? Matthew Walsh: Yes. Thank you, Navann. So our business development activities in Women's Health continue. To the question that you're asking, we -- just because of where the balance sheet is, we've had to focus on later-stage assets or currently marketed assets. You can see that clearly in the kinds of deals that we have announced that we've announced recently. And the challenge in Women's Health is there aren't a lot of those assets that are available late stage are currently marketed. A lot of the truly exciting things in Women's Health are preclinical or generally speaking, much earlier in the development cycle. So we are somewhat constrained in our ability to go after those, and that's one of the reasons why we've been prioritizing leverage reduction, debt repayment in our capital allocation strategies so that we can free up the ability, balance sheet and P&L to bring on the clinical programs, especially in Women's Health that are preclinical or early stage. Once again, because of the financial challenges facing the company, we've applied that same rigor, not just to the BD we're looking at, but also to the pipeline that we are managing in-house. And we've had to trim some programs. Those weren't restricted to Women's Health. We've got life cycle management activities across a number of products in the portfolio, but it's incumbent upon a supply that same kind of financial rigor and discipline to things inside the company as well as any capital deployments we might do externally. Operator: The next question comes from Mike Nedelcovych with TD Cowen. Michael Nedelcovych: I have one actually something of a follow-up on the BD response you just gave, I think with today's updates, it's fair to say that business development track record is somewhat mixed. So I'm wondering what you could do from here to improve it, especially given how important BD is to potential growth for Organon. And could that options that include expanding to therapeutic categories well beyond Women's Health? Matthew Walsh: So thank you for the question. I think we've shown success in the BD program, especially with later-stage assets where we've got synergies with our existing commercial capabilities. So the broad strategy just doing more of what we already do well. I think Emgality is a terrific example of that. With the addition of Dermavant, we actually did already add a completely new vertical in the United States with dermatology. Right now, the Dermavant team that we added, which is now Organon's dermatology sales force is selling just one product. So we would have synergies going forward as we look to add additional derm products to that team. And we're already in, when you look at the Established Brands business, we're already in a pretty broad range of therapeutic categories outside the United States. So we believe that we've got lots of opportunities with the therapeutic areas we're already in with what we've already added with Dermavant so that we wouldn't necessarily need to add another therapeutic category in order to be successful with capital deployments, although we certainly wouldn't rule it out if it capitalizes once again on some functional expertise that we already have, whether it's the global commercial network or perhaps there's something that aligns particularly well with our manufacturing capabilities, for example. Operator: This concludes the question-and-answer session and will conclude today's conference call and webcast. Thank you for joining. You may now disconnect.
Margarita Chun: Good morning, ladies and gentlemen. This is Margarita Chun YPF IR Manager. Thank you for joining us today in our Third Quarter 2025 Earnings Call. Today's presentation will be conducted by our Chairman and CEO, Mr. Horacio Marin; our Finance VP, Mr. Pedro Kearney, and our Strategy, New Businesses and Controlling VP, Mr. Maximiliano Westen. During the presentation, we will go through the main aspects and events that shape the quarter results. And then we will open the floor for a Q&A session together with our management team. Before we begin, please consider our cautionary statement on Slide 2. Our remarks today and answers to your questions may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these remarks. Our financial figures are stated in accordance with IFRS, but during the presentation, we might discuss some non-IFRS measures such as adjusted EBITDA. I will now turn the call over to Horacio. Please go ahead. Horacio Marin: Thank you, Margarita, and good morning, everyone. Let me start by highlighting that this was another quarter in which we continued to deliver solid operational performance. Despite the contraction in international prices, we maintained strong profitability levels compared to last year, gaining further operating efficiency and consolidating the tremendous progress that has been achieved in our Shale operations. Revenues amounted to $4.6 billion, 12% below the previous year, in line with the 13% year-on-year decline in the Brent price in addition to other offsetting effects. Adjusted EBITDA reached approximately $1.4 billion, representing a sequential increase of more than 20%, while remaining flat versus the previous year. The sequential improvement reflects higher shale production, coupled with the successful strategy of reducing exposure to conventional mature fields. The year-on-year comparison shows YPF's ability to maintain its profitability despite the contraction in international prices, driven by an improved production mix with a higher proportion of shale and continuous improvement in operational performance. That exit strategy led us to an impressive lifting cost reduction of 28% quarter-over-quarter and 45% year-over-year. During the third quarter, our shale oil production increased by 35% internally, reaching 170,000 barrels per day. More recently, in October, preliminary figures indicate shale oil production expanded by another 12% over the average of the third quarter, totaling around 190,000 barrels per day. This production level is fully aligned with our annual target of shale oil production of roughly 165,000 barrels per day. Moreover, it will enable us to slightly exceed the December 2025 production target of 190,000 barrels per day. Furthermore, the higher shale oil output that generate a remarkable shift in our production mix has allowed us to improve our EBITDA by around $1.3 billion on an annual basis versus 2 years ago. CapEx activity continue to be focused on developing our unconventional resources, representing 70% of our total quarterly investment. At the same time, we maintain our focus on achieving further operational efficiency in our shale operation. In that sense, let me highlight that during the quarter, YPF completed the drilling of the longest well ever in Vaca Muerta, exceeding 8,200 meters with a horizontal length of nearly 5,000 meters at our Loma Campana block. Moreover, during September, in La Malga Chica, we completed the drilling of a 4,000-meter horizontal well in just 15 days, setting the record as the fastest well ever drilled in Vaca Muerta. Lastly, in early October, we drilled one of the fastest well in the Rio Grande block located in the south half of Vaca Muerta. This well has a lateral length of more than 3,000 meters and was completed in just 11 days. Moving on to our downstream segment. During the third quarter, we achieved strong operational performance, reaching the highest processing level since 2009 at 326,000 barrels per day. This processing level was 9% higher than last year, representing a solid utilization rate of 97%. In that sense, we are pleased to announce that La Plata Refinery was named Refinery of the Year in Latin America by the World Refinery Association. Additionally, La Plata refinery ranked in the first quartile across several KPIs in Solomon global refinery benchmarking based on 2024 results. This recognition represents the result of the successful implementation of the third pillar of our 4x4 plan, our efficiency program based on operational excellence and technological innovation. On the financial side, free cash flow was negative as expected for a total amount of $759 million. This negative free cash flow position is mostly explained by the extraordinary effects related to the recent acquisition of the Shell asset from the Total Austral for $523 million and the impact of the mature field exit strategy. As a result, net debt increased to $9.6 billion, pushing our net leverage ratio up to 2.1x. However, excluding the acquisition of total assets and one-off costs related to mature fields, the negative free cash flow pro forma would have been $172 million with a net leverage ratio pro forma at 1.9x. Additionally, a few days ago, we have successfully retapped our 2031 international bond issuing $500 at 8.25% yield, the lowest interest rate for the international bond of the last years, replacing and improving our average life and financing costs. On a final note, let me briefly comment on the recent announcement regarding Argentina LNG project. In early October, within the Stage 3 of the project, we signed a technical FID with Eni for a full integrated LNG project of 12 million tons per year expandable to 18. Moreover, recently, last week, we signed a preliminary framework agreement with a new partner, the Arab company, ADNOC. In addition, we continue working with the Phase 1 and 2. All in all, the project continued to demonstrate the interest of international players in long-term investment in Vaca Muerta, which is essentially for creating a solid structure for the development and financing of the project. In summary, during the third quarter, we continue progressing to achieve the ambitious target set for the year, delivering solid financial and operational results while we continue to strengthen and prepare YPF for new and even more challenging goal in the future. I now turn to Max to go through some details of our operating and financial results for the quarter. Maximiliano Westen: Thank you, Horacio, and good morning to you all. Let me begin by expanding on Horacio's comment about the evolution of our oil and gas production. During the quarter, total hydrocarbon production averaged 523,000 barrels of oil equivalent per day, declining 4% on a sequential basis and 6% on a year-over-year basis as a result of the divestment program of mature conventional fields, partially offset by the expansion of our shale production that accounted for approximately 70% of the total output, increasing its portion once again and as expected, vis-a-vis the previous quarter. Oil production reached 240,000 barrels per day 3% below the previous quarter and 6% down against last year. Nevertheless, it is worth highlighting that shale oil production recorded an impressive growth of 35% against last year and 17% versus the previous quarter, almost neutralizing the conventional production decline driven by the successful exit strategy of our mature conventional fields that accounted to only 14,000 barrels per day in the quarter. Beyond crude, natural gas production totaled 38.4 million cubic meters per day, down 3% on a sequential basis. This decline reflects an 18% contraction in conventional production from mature fields, partially mitigated by an expansion of 5% in shale gas production. Regarding prices within the Upstream segment, crude oil realization price averaged $60 per barrel in the third quarter, essentially flat on a sequential basis and contracting 12% year-over-year, aligned with the variations of Brent. Natural gas prices increased by 6% quarter-over-quarter to an average of $4.3 per MBtu, supported by the seasonal factor included in the planned gas program between the months of May and September. Now let me dive into the evolution of our shale oil output. YPF reinforces its leading position in the development of Vaca Muerta oil, accounting for roughly 1/3 of the country's share. In the third quarter, we continued to deliver a solid performance driven not only from our key core hub assets, but also from contributions from the North and South hub blocks. In the third quarter of 2025, shale oil production delivered an impressive growth rate of 55% when compared to 2023 levels. Based on preliminary figures, October production reached an all-time high of 190,000 barrels per day, representing a strong increase of 70% vis-a-vis November 2023 and ahead of schedule. As Horacio previously mentioned, based on the current production levels, we expect to comply with the average production target announced for the full year 2025 of around 165,000 barrels of oil per day, and we expect to slightly exceed the exit rate of 190,000 barrels of oil per day as of December 2025. In the third quarter, we continued with the strategy of developing Vaca Muerta beyond our core hub blocks. In this context, let me point out the success story of La Angostura Sur, our flagship South hub block 100% owned by YPF under an unconventional concession valid through 2059, underscoring the long-term potential of the south of Vaca Muerta for YPF. Over the past 12 months, shale oil output from this block has jumped from only 2,000 barrels of oil per day in October of last year to more than 35,000 barrels per day in October this year, representing in financial terms, a field with a pro forma annual EBITDA of more than $500 million. The results achieved so far are impressive. Moreover, the block expects to reach a production plateau of over 80,000 barrels of oil per day in upcoming years with a very competitive breakeven price below the $40, demonstrating resilience amid evolving global dynamics. Finally, wells drilled in the block during the initial stage of development have demonstrated promising productivity levels that underscore their long-term potential, recording an estimated ultimate recovery of around 1.3 million BOE per well, including oil and natural gas. Furthermore, the high potential is also driven by a total inventory of roughly 350 wells, of which less than 15% has been developed. Regarding our upstream cost structure, let me point out that the combined strategy of divesting mature conventional fields and growing our shale business has enabled us to generate significant savings in our average lifting cost of more than 40% over the last 2 years, moving from $16 per BOE in the third quarter of 2023 to $9 per BOE in the third quarter this year. This remarkable cost improvement was achieved due to the significant shift in our production mix where unconventional production increased from about 45% of the total output in the third quarter of 2023 to nearly 70% in the third quarter of 2025, while conventional production portion fell from around 55% to 30% in the same period. As a result, since shale lifting costs remained at a very competitive range of $4 to $5 per BOE, YPF was able to improve its cost structure and therefore, its annualized savings would amount to approximately $1.3 billion. YPF will continue and deepen this strategy, supported by the completion of the sale and reversal of mature conventional blocks by the end of 2025, the AndNDEes-1 project and the sale of the rest of the performing conventional fields, the ANDE 2 project, which initial results are expected by the end of this year. Consequently, YPF will become 100% pure shale player with an efficient lifting cost structure of around $5 per BOE in the near future. Now let me walk you through the performance of our shale activities. In the third quarter, we drilled 54 horizontal oil wells on a gross basis, primarily in operated blocks with a net working interest of 58%, bringing the year-to-date to 159 horizontal oil wells on a gross basis. This keeps us on track to achieve our full year target of 205 wells in 2025. In terms of completion and tie-in of oil wells during the quarter, we recorded modest level of activity compared to last year, but year-to-date, we continued growing. In the third quarter, we completed 63 horizontal oil wells and tied in 64 on a gross basis. However, in the first 9-month period of this year, we completed 186 wells and tied in 187 wells, growing around 20% compared to the same period of last year. In terms of efficiencies within our shale operations, during the third quarter, we continued setting new records on drilling and fracking performance. We averaged 337 meters per day in drilling in our core hub, while we recorded 279 stages per set per month on fracking in unconventional blocks, increasing by 7% and 16%, respectively, when compared to the same quarter of 2024. As we have been flagging in previous calls, this constant improvement in operation metrics is the result of the implementation of our real-time intelligence center and the joint efforts of our technical team and key contractors that work relentlessly to introduce further efficiencies to our operations. Finally, regarding the CapEx composition within the upstream business, it is worth noting that how YPF managed to significantly transform the portfolio by reallocating investments from conventional to shale activity in the last 2 years. In this regard, in 2023, investments in conventional business represented 35% of the total upstream portfolio, while in the last 12 months of September 2025, CapEx in conventional assets only represented 5%. Furthermore, within the shale portfolio, investments in facilities represented a significant portion of total CapEx over the last 2 years, which is expected to remain steady in 2026 and begin to gradually decline starting in 2027. Switching to our Midstream and Downstream segment, the third quarter processing levels averaged 326,000 barrels per day, a record high since 2009 with our refinery utilization at 97%, representing an increase of 9% and 8% versus the third quarter 2024 and the second quarter 2025, respectively. This remarkable success is mainly driven by the record processing levels of 208,000 barrels per day achieved in September at La Plata refinery, combined with record production of middle distillates reducing to almost 0 full imports. Domestic sales of diesel and gasoline remained strong in the quarter with dispatch volumes rising 3% quarter-on-quarter and 6% year-over-year, reflecting higher demand across all commercial segments, retail, agribusiness and industrial. Moreover, we managed to modestly expand our leading market share to 57%, which increases up to 60% considering gasoline and diesel produced by YPF and dispatched at third-party gas stations. Furthermore, in the third quarter, YPF achieved an improvement in the premium mix in both gasoline and diesel sales. In terms of prices, during the third quarter, local fuel prices remained broadly aligned with international parities, albeit dropping against the previous quarter based on a very volatile environment. More recently, October preliminary figures show a narrowing of the gap between local fuel prices and import parities while recovering on a healthy midstream and downstream adjusted EBITDA margins of nearly $70 per barrel. Now let me briefly comment on the progress of the quarter regarding the efficiency program for the upstream and downstream businesses. Thanks to the supervision of our upstream real-time intelligence center, we managed to drill 100% autonomously more than 30 horizontal wells in real time using AI complemented with traditional techniques. While in fracking, we became the first company worldwide to perform 100% autonomous fracture remotely from our real-time intelligence center using predictive algorithms. Additionally, we have successfully executed 24 hours of continuous pumping in our fracking operation during 63 hours, fully supervised by our upstream real-time intelligence center. Regarding the downstream segment, as Horacio already noted at the beginning of the call, our La Plata refinery was awarded as the refinery of the Year in Latin America. Also, this refinery achieved the first quarter in several KPIs of Solomon's benchmarking, such as net cash margin, return of investment, operational availability and personnel efficiencies categories. Finally, the record high processing levels in our refineries have started generating a surplus of gasoline and mid-distillates, allowing YPF to export refined products to neighboring countries and replace imports of YPF and other local refineries. For instance, in the third quarter 2025, YPF exported around 30,000 cubic meters of jet and gasoline to Uruguay. And during the first 9 months of the year, we replaced more than 230,000 cubic meters of gasoline and middle distillates imports. Now let me share further details regarding the Argentina LNG project. As briefly anticipated by Horacio, regarding the Phase 3 of the project in early October, we signed a technical FID with Eni for a fully integrated LNG project of 12 MTPA expandable to 18th MTPA. And more recently, during the last week's APEX conference in Abu Dhabi, we signed a preliminary framework agreement with a new partner, the Arab company, ADNOC, that formally announced their intention to join the Argentina LNG project. Moreover, during the quarter, we continued working on the Phases 1 and 2. The project considers the development, design, construction and operation of a fully integrated natural gas LNG plus natural gas liquids NGLs project based on wet gas upstream fields located in the Vaca Muerta reservoir. The infrastructure involved in the project includes a liquefaction capacity of 12 MTPA expandable to 18 MTPA through 2 or 3 floating LNG vessels of 6 MTPA of capacity each, a dedicated 520 kilometers gas pipeline, a dedicated 650 kilometers Y-grade pipeline for NGLs and onshore facilities, including fractionation, storage and port facilities. The CapEx for the entire project is estimated at around $20 billion with a potential expansion to $25 billion in both cases, including the financial costs. Leverage of the project is expected to be around 70% on the total project cost in addition to the upstream investments required to accelerate shale natural gas production. Consistent with present LNG transactions, the project is intended to be financed through nonrecourse financing with multiple sources of funding, including ECAs, development banks and commercial banks as potential anchors of the financial structure. The FID is expected by the first half of next year, while the commercial operations for the first floating LNG is estimated by 2030 and following ones from 2031 and 2032. In summary, Vaca Muerta has the scale, the quality and cost competitiveness to position Argentina as leading global LNG exporter and Argentina's LNG project will unlock Vaca Muerta's full potential, enabling exporting its unconventional shale gas production to the world. Now I will turn the call over to Pedro. Pedro Kearney: Thank you, Max, and good morning, everyone. On the financial front, the third quarter ended with a negative free cash flow position as expected that amounted to $759 million, mainly explained by the recent acquisition of the shale assets La Escalonada and Rincon La Ceniza blocks to Total astral, closed at a purchase price of $523 million by the end of September. Moreover, despite the third quarter adjusted EBITDA surpassed CapEx deployment and regular interest payment, we recorded negative working capital associated with the discontinued operations in our mature fields, income tax payments from our subsidiaries and longer collection days from natural gas clients and blank gas program that started to normalize during October. It is worth noting that excluding the one-off items related to M&A transactions and the negative impact of the mature fields exit strategy, our negative free cash flow would have amounted to $172 million in an environment of lower international prices. Finally, on the liquidity front, our cash and short-term investments totaled at $1 billion by the end of September, remaining essentially flat vis-a-vis the previous quarter. In terms of financing, during the third quarter, we continued progressing on our financial program by securing local loans obtained from relationship banks and by tapping the local capital market at very attractive financing costs. In that sense, during the third quarter, we issued 2 dollar net bonds for a total amount of $300 million at an interest rate of 7.5% and a tenure of 2.5 years. In addition, we issued $225 million from dollar capital bonds with a 5-year tenure and an interest rate of 8.5% tendered in the international market to local investors. That, combined with a $300 million international bridge loan allow us to find the recent acquisition of shale assets. More recently, during October, we issued $100 million net bond with a 15-month tenure at an interest rate of 6%. Considering this last bond issuance, we issued new local bonds for a total amount of $625 million with an average tenure of 3 years and an interest rate of 7.65%. Moreover, aiming to reduce the cost of carry and taking a proactive approach towards debt investors, we scheduled for this month, the prepayment of $120 million of our secured notes due 2026, paying in advance the last amortization, which matures next year and thereby redeeming in full the bond ahead of schedule. Finally, let me share 2 very important news regarding YPF financial strategy. First, during October, we reopened the syndicate corporate cross-border loan market. We signed an export back loan for $700 million with 10 international banks with a 3-year tenure and a 6-month availability period as a prefunding strategy for the financing of our 2026 maturities. This transaction was possible after several months of work, showcasing YPF ability to access cross-border funding. Moreover, the loan was oversubscribed and attracted participation from new banks from Central America and Asia, demonstrating the market support and confidence in YPF. Finally, as Horacio previously mentioned, 2 weeks ago, we successfully returned to the international capital market. After 2 days of virtual meetings with more than 40 international investors, we led the recap of our 2031 international bonds of $500 million at a yield of 8.75%. Demand for this reopening exceeded all expectations with international and local investors oversubscribing orders 3x, reaching a peak order book demand of $1.5 billion. The proceeds will be used to fully repay the bridge loan for the acquisition of Total astral shale assets and to finance YPF investment plan. This issuance represented YPF tightest new issue yield on an international bond issuance in the last 8 years and improved the maturity profile of itself, extending its average life. So with this, we conclude our presentation and open the floor for questions. Operator: [Operator Instructions] Your first question comes from Alejandro Demichelis with Jefferies. Alejandro Anibal Demichelis: Yes. Congratulations on the quarter. Production has been very strong, particularly on the shale oil side of things. Could you give us some indication of how you're seeing production growing into 2026, 2027? That's the first question. And then Horacio, you mentioned all of the improvements that we are doing on the refining side and so on. We have seen you recently taken full control of the revenue asset. So could you please give us some indication of how you see that asset developing on the rest of the refining portfolio? Horacio Marin: Okay. Thank you very much for the question. Regarding the production, we see -- you can expect the same that we talk in line what we see in New York this year but at average for next year in the order of 215 and '27 in order of 290. We can give you a better number in the next call. But we think that we are going -- we are in line with all the program, okay? Regarding the refining side, [indiscernible] what was important was for the [indiscernible]. The [indiscernible] was very, very important for YPF because they give us a very good logistical advantage comparing with our, I would say, our competitors. And that's why it was that we decided to take that step because it was a difficult situation with the partner in that matter. For the gas stations, there is no difference because we were supplying those gas stations. We are going to take the best one with the YPF brand and we maintain the other with [indiscernible] as is today. And on the other side, in the refinery, which is in Campo Durán is close. But our idea is to make value for all the shareholders by doing something of this sort that we say in Santa Fe Bio, okay? So we are working on in that direction. Operator: Your next question comes from Leonardo Marcondes with Bank of America. Leonardo Marcondes: I have 3 from my side. My first question is regarding capital allocation and M&A. We have seen YPF quite active on the M&A front, right? In this regard, what should we expect from the company going forward? I mean, does the company continue pursuing new M&A opportunities? Or is it time to focus on the development of the assets within the portfolio? My second question is regarding the divestments and capital allocation as well. So could you share your plans for Metrogas and also YPF Agro? And when could we expect to hear more news on these matters? And lastly, my third question is regarding the LNG projects. I mean how do you expect to fund this project? And if we should expect any sort of project finance evolving there? Horacio Marin: Okay. Thank you very much for the question. For the first Okay. Thank you very much for the question. For the first one, Pillar 2 of our YPF 4x4, is active portfolio management, that means buy and sell. It depends where you can make more value for shareholders. We were active out with the bat field, and we see -- there was a big opportunity this year for the, I would say, core assets in Vaca Muerta. And that's why we decided to buy the total asset of Vaca Muerta. What you are going to expect, I don't see that there will be a lot of changes in our strategy, but we don't see that we will be active next year for major acquisition in Vaca Muerta, not in the others, okay? So that is what is our thought. Regarding Metrogas, Metrogas, we are in the process of the extension, the 20-year extension of the company, the contract. More than contract is the concession. They tell me concession here because remember I am an old man, I don't remember all the words as there are people here that they say you are wrong iss a concession, okay? So it's a concession. And our idea there is that after that, we start with the bank, and we are going to sell as soon as possible, okay? And for the law, we have to sell because of the -- I don't know how the -- I ask Herman that is the lawyer [Foreign Language] the vertical integration that they have the company, we have to sell before the plant gas is out. And so we are going to sell that. And YPF Agro is not necessary capital allocation. What is there is that we are -- YPF wonderful commercial channel that was built by YPF say, 20 years ago or so and it's extremely extremely successful. That's why there is the other company that refinery also they call with the name. So they copy the YPF. Our idea is because we have the knowledge of selling on the other things is that to have a strategic partner that can make more value for us and for all the shareholders and to have like a mixed company where we put the CFO inside, and we will have 50% and 50%, okay? That is the idea, and they will be very close now. That is on the stake right now, okay? And that is the second question that you asked. Regarding the LIC, you're right, it's a project finance that we are going to do with our partners. You're right. Operator: Your next question comes from [indiscernible] with Morgan Stanley. Unknown Analyst: First one on my end is, could you give us more color on what drove the working capital losses this quarter? And what should we expect in terms of working capital gains or losses in the coming quarters and how this should contribute to free cash flow generation into 4Q? Second one is if you could give us more color on what drove the lifting costs. Was it just higher shale output? Or are there any other factors which explain this decline and how this -- how should we should expect this into 4Q as well? And if I may, a third one, if we should expect an acceleration of 4Q '25 CapEx? And how should your CapEx stand versus the guidance? Horacio Marin: The first question after I will pass to Pedro, so they can explain in more detail than me. But I can tell you the more general, but I will pass to Pedro. For the second one in the lifting cost, remember that we are going out of mature fields and reducing the production from there, but you are increasing a lot of the production as you see in the presentation in the Vaca Muerta fields. So there is several reasons why we reduce. First, we have a clear in Pillar 3 that we have to make efficiency every day in our life. The second thing is when you increase a lot of the production, you reduce the fixed cost. And so you have to expect that we are going to maintain or reduce. But I think to maintain is a good number that we have, I think we are in a very low lifting costs, okay, is very low. Which more you asked any other factors explain this decline? I expected, I explained that. I think I answered that. In the fourth quarter '25, the CapEx, no, we think that we are going to end up in the year with a little less CapEx than we said at the beginning of the year. And the production, if you see the -- while you see, you don't see that, but I see the report, the daily reports, we are -- they -- now we are in more than 190. Today -- yesterday it was more than 284. We have someday 199.94. So I start discussing with the guy why it's not 200, but it doesn't matter. So we are close and we are in better shape than we thought at the beginning of the year. So we are focusing in looking at the results and looking at the best places to drill. That's why we are expecting those results. And with the CapEx, I say. I pass to Pedro so they can explain about the working capital. Pedro Kearney: Thank you very much for your question. So as you noted, during the third quarter, we recorded a negative working capital by about $360 million, and that was driven by multiple reasons. The first, the seasonality of the natural gas sales that was -- that were accrued in the third quarter and are expected to be collected in the fourth quarter. That's approximately $100 million. Second, we recorded in the third quarter longer collection days from the natural gas clients and from the plan gas program that started to normalize during October and November. That's approximately $50 million. Third, in the third quarter, we recorded a positive stock variation in the downstream business for about $60 million. That's the result of higher oil purchases to third parties to restock inventories given the inventory drawdown that we recorded in the second quarter. Then we recorded a particular lag in the OpEx and the CapEx from the mature fields that were out from YPF financial statements since the end of June, and those payments were phased during the third quarter. And finally, this negative free cash flow includes a decrease in the mark-to-market position of our sovereign bonds, which increased and changed fortunately during October and November. Operator: Your next question comes from Daniel Guardiola with BTG. Daniel Guardiola: I have a couple of questions here. The first one is on costs. And I would like to know if you can share with us how do you envision the trajectory of your lifting and D&C costs for 2026 and eventually, if possible and onwards, it will be great, especially considering the asset sale you did of conventional assets and the potential renegotiation of contracts with some of the service companies. My second question is on leverage, given the fact we saw an increase in leverage during this Q to 2.1x. And I would like to know if you can share with us what is the maximum leverage at which the company feels comfortable operating at. And in that sense, given that leverage has been going up in the last couple of quarters, I would like to know if you guys have ever considered to hedge your exposure to oil prices to offset any potential volatility in oil prices. So those would be my 2 questions. Horacio Marin: Okay. With the listing and the drilling and completion cost, I can give you more details in the next call. We are working very hard to reduce the unit cost with all the service company, and we are in negotiation during the week, okay? So I cannot tell you exactly, but I think we are going to reduce the unit cost very important because Argentina is another country. So that's why we are going to work on that. In the listing, I think I answered that, okay? You have to expect that we are going to be in that region, okay, that we say. Regarding, that were -- you say our debt in -- I think you have to take into account that last year, we bought 2 assets, okay? That's why the ratio goes up. We don't go -- we are not going to increase. It's not our goal that we think that we are in the maximum that we want to be. And during '23, you are going to see a reduction. But taking into account what is that we bought 2 good assets in Argentina, the best in gas and the -- I don't say the best in oil, but one of the core that is very important. That's why we thought that was important to buy those assets and make more value in the future in the near future for all the shareholders. Operator: Your next question comes from Guilherme Martins with Goldman Sachs. Guilherme Costa Martins: [indiscernible], is a strong ramp-up of shale operations being seen in the second half of the year. I have 2 quick questions here. My first one is on downstream. I understand you guys were not able to price prices in line with international parity in 2Q, right? I would just like to get a little bit more color on what happened in the competitive environment. You mentioned a volatile dynamics, but any additional color would be grateful. And my second question, if you guys could please provide an update on the ongoing divestment of Metro fields. When we should see next divestments being concluded? When we should see production continue to decline following the exit of those assets? And whether we should see additional cash outflow from the exit of those legacy assets? Thank you. Horacio Marin: Sorry, okay. Talking about prices, we have a policy that I cannot open -- be totally open because it's not we are going to say to our competitor. But we have moving average because there was -- in the last -- this quarter, there was a lot of volatility in prices. And remember that we have the exchange rate, the oil price, the biofuels and the taxes. And so in our country, the consumers need to, we are not accustomed to have changes on prices every day, okay, and big changes. So we have a moving average. And I don't know if you remember that we built a new real-time [indiscernible] center in the commercial side that is unique. I don't know if you are making, I don't know if you are making [indiscernible], okay? We have there everything that you can imagine with use AI and a lot of things. And from there, we are working with the new policy of prices that is micro pricing. And we are working and always trying to maintain our policy in -- but the last quarter was the big volatility in -- also in Argentina. You know that there was a lot of volatility. And that's why it was very difficult to go up because sometimes goes up, sometimes goes down. But now we are in a good shape. And the second one was about the -- I think and all that stuff. Today in the afternoon, we are going to sign [indiscernible] that was the last one. And we have only one area that is in Rio Negro that we are going to sign very quickly. But after that, we are out [indiscernible], okay? It was the most important for the value of our shareholders. But we understood, we are in the process of negotiating now to go out from conventional. Those conventional are areas that make value for all, but it's very important because we have the determination to go to be unconventional -- integrated unconventional company. So that is our goal, and we are going to negotiate in the next month to be out more than we can lots of assets and to be next year or if we can to be totally unconventional company. Operator: Your next question comes from Tasso Vasconcellos with UBS. Tasso Vasconcellos: I have 2 here on my side. First one, Horacio, can you remind us what legislations, I mean, either new legislations or adjustments on existing ones that YPF still relies on to move forward with and projects. As far as I remember here, there wasn't many new regulations that the oil and gas industry as a whole depend on, but there are some specific timing on some projects to be included under the region. So not sure if there is -- actually not check there is any kind of discussion on the 8% export taxes for the industry. So I think it would be great to have a broader recap on this political or regulation landscape. And the second question, actually a follow-up on the domestic fuel prices. You just mentioned about what did you notice in terms of upside or downside potation since the established a more dynamic pricing model, the real-time center and so on? And what can you tell us about the recent news saying that some politicians in Argentina wanted to create a law which you need to give a 72-hour notice advanced before adjusting fuel prices? Those are my 2 questions here. Horacio Marin: Okay. Thank you for the question. I don't know, thank you for the question. But beyond, the -- really is -- if you are refrain to the export duty for conventional, there is something new. I know exactly what you say on the new because remember, we are YPF, we are a private company, and we are not in the, I will say, regulation side. So really, I don't know. And conventional, remember that is not our -- now is not our core, okay? But I read in the news they sent to you that they are negotiation on that, but I have no idea what will happen. Regarding resi, for sure, the resi will be apply for LNG and if supply for infrastructure for LNG. And for LNG, we expect that to be in all the chain. The second one that you say that is -- yes, I read in newspaper the same to you, but that is regulation. I have to answer the same. I'm not working on regulation at all. Operator: There are no further questions at this time. I'll now turn the call back to YPF management team for closing remarks. Horacio Marin: Okay. Thank you very much for your attention, for your questions, and you are always very polite with us. So I would like to say thank you for that. And you have to expect that this is a company that will change a lot the way of management, the way of working every day. I'm very proud for all the work that all the employees is doing now and the energy that we are putting. And so you have to spread '26 a very clean year of the results. The problem of this year, and I imagine for you, it is very difficult to see because there is dirty with mature fees with taxes, with deferred taxes that only account I can understand. And when they explain, they are confused. So it's difficult to understand what you are saying. And so you have to 26, a very clean one, and you will see there how we are making the value for our shareholders that you can see in this quarter. I relate to for you because there are some people that are confused we say that the production is increasing operation where you're making value because we are reducing the conventionals. And if you annualize the value so far only to change the mixture is $1.3 billion. And this quarter, you can see that. So we are really very proud of we are doing all the people that we are an executive committee and all the people that are working there. Thank you very much for all of you. Operator: This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the LEM Holding S.A. half year results 2025-'26. [Operator Instructions] Let me now turn the floor over to your host, Frank Rehfeld, CEO. Frank Rehfeld: Thank you very much. Good morning, ladies and gentlemen, and a warm welcome to the presentation of our half year results '25-'26. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm here together with Antoine Chulia, our CFO. For those who are not yet familiar with LEM, LEM is providing sensors for measuring electrical parameters, namely current, voltage and energy, and with those help our customers and society to transition to a sustainable future. Here, you see the agenda for today's presentation. After my opening remarks, I will give you more detail on the business performance of LEM. Antoine Chulia, our CFO, will then introduce the financial results. And I'm going to outline what we expect in the future as well as talk about the adjustments we did with respect to our midterm ambitions. As you might remember, we had a tough start into '25-'26. Flat sales at constant currencies in comparison to the previous year. However, both the gross margin and consequently also the EBIT margin were under pressure in Q1. Despite not seeing a significant improvement on the top line in constant currencies in Q2, we managed to improve in Q2, both before mentioned KPIs and Antoine will go here in greater detail. For the first 6 months, the 5.3% decline in our top line can be fully attributed to FX losses, whereas the segments growing and those declining were balancing out each other. We were in particular happy with the development in Automation, Automotive and Track and saw good momentum in China. We are also happy to share that we are fully on track with our Fit for Growth program that helps us to trim our indirect costs. You might also remember that we reported a CHF 12 million negative cash flow a year ago and managed to improve the cash flow to CHF 5.6 million in '25-'26 first half. We will come to the guidance for this year that you see here in the numbers as well as the updated midterm financial ambitions at the end of the presentation again. Now with that, let's move on to the business performance in more detail. Following our business structure, you see here the development of the 5 businesses in comparison to the same period in '24-'25. I will focus on the numbers in constant currencies, as you know, that LEM is doing about 40% of its business in renminbi. That has been strongly depreciating after the announcement of the tariffs by the U.S.A. We are happy to share that the Automation business that started to slightly grow again after 4 rather flat quarters. Our Automotive business with strong focus to China has been growing by 9% H1 versus H1 last year, and saw an even more significant volume growth. And the Track business was growing even stronger. However, we also saw weak segments like Renewable Energy and Energy Distribution that I will explain in greater detail in the following slides. On this page, you see the distribution of our businesses relative to each other. What becomes clear is that there has been movement in all businesses. Looking at our 2 biggest businesses first, Automation grew, in particular, in the second quarter nicely by more than 4% since inventories normalized and Automotive, despite seeing a shrink in Q2 in CHF, continued to grow in renminbi. The businesses in the smaller segments have been changing position. The very strong development of our Traction business has been making it our third biggest business, whereas Renewable Energy has been shrinking by 2 percentage points, similar to the Energy Distribution & High-Precision business that also lost 2 percentage points relative. Now let's go through the businesses one-by-one, starting with our biggest business, the Automation business that almost represents 30% of our global business. You see a small growth in Q2 against Q2 last year, linked to normalized inventory levels, as already mentioned. This growth materializes mainly in power levels above 1 kilowatt for LEM and happens across all regions. Nevertheless, this a 3% reduction 6 months on 6 months that is to be attributed to currency -- in constant currencies, this business has been growing by 3%. Our Automotive business saw a nice growth of 9% in constant currencies, 2% in CHF. Growth areas were China and Europe, where in particular, the Americas suffered from the policy changes the U.S. administration has been implementing. We continue improving our market position in China. We are working mainly with Chinese OEMs and Tier 1s that we are expecting to further expand globally. We also saw positive momentum in Europe with increasing new energy vehicle sales and the ramp-up of some of our automotive products in the market. Rest of Asia depends very much on exports that were weak, in particular, towards the Americas, and we don't see a short-term change coming. Renewable Energy representing now 14% of our global business declined in constant currencies by 15%. Despite growing photovoltaic installations, the average content of current sensing by inverter is going to further decline step-by-step and the price pressure is going to remain high. We are expecting this to remain a segment that is as competitive as Automotive. The developments in Europe go into 2 directions. Domestic solar will be completely dominated by Chinese players and therefore, served by us in China, whereas large commercial projects will see European sources, and we expect that we are restarting to grow in this subsegment with our European customers. Notable are the positive developments in Rest of Asia, both in Japan and India with local government investments that we expect to continue. The Energy Distribution & High-Precision business became our smallest segment with 13% of our total turnover, and it also continued to shrink at 15% 6 months on 6 months. The lion's share in this segment is the DC metering for fast chargers that remained challenging both in Europe and the U.S. as the new energy vehicle sales developed below the installation rates on the one hand. On the other hand, some of our customers also lost market share. The Chinese export business for DC fast chargers remained stable. The High-Precision subsegments were rather weak due to lower demand in automotive EV testing, whereas the UPS, the uninterruptible power supplies were nicely picking up with the increasing installations in data centers. Looking at the Track business was the surely biggest [ fund ] in this quarter. This takes up now 17% of our total business and developed with a growth rate of 15% in constant currencies very positively. The development happened across all regions based on the ongoing investments into public infrastructure and the increasing standardization of regulations across Europe. The consequence of the standardization is that this requires to retrofit energy meters across all of Europe. Projecting this business now from a regional perspective, we see important changes in comparison to last year. Our business share in China remained stable at constant currencies, however, shrank due to the depreciation of the renminbi. Therefore, it takes now 37% of our total business, 2 percentage points less than for the first 6 months last year. The segments Automation, Automotive and Track contributed, as previously mentioned. The Rest of Asia business showed a slight growth 6 months over 6 months and an even nicer growth in Q2 with more than 12%. The main contribution was coming here from traction. Just to report here the progress of our plant in Malaysia. We are meanwhile producing the same volume than in Bulgaria despite the fact that the sales share is still substantially lower, and we see an increasing demand of customers who look for either a dual sourcing both from China and Malaysia or even a relocation of their production towards Malaysia. This confirms our strategic decision to set up this new site and that, on the other hand, is still burdening our P&L since it reduces the overall loading of our manufacturing footprint. Clearly, disappointing sales in EMEA shrinking 7% 6 months over 6 months, where the reduction in EDHP and Renewable was balanced out by Automotive, Traction and Automation. The Americas numbers are including the tariffs that we are passing on to our customers, and the business is overall stable, albeit below expectation looking at the development in Automotive. Nevertheless, the successes with catalog distributors give us positive signals for the future. With this, I would like to hand over to Antoine for the financial results. Antoine Chulia: Thanks, Frank. Good morning, everyone. Thank you for joining our Q2 earnings call, and I'm Antoine Chulia, Chief Financial Officer. I'm happy to walk you through LEM's financial performance for the period ending September 30, 2025, broadly showing a welcome recovery trend after some challenging results recently. As Frank explained, at CHF 148 million, our sales declined by 5% in the first half of the year, which translated to a positive growth of 0.5% at constant exchange rate. Q2 saw a slightly higher performance at minus 4% or plus 1.2% at constant exchange rates. Our gross margin dropped by almost 15% to CHF 59 million in the first half, mainly due to Forex, price and mix, but Q2 showed early signs of recovery at CHF 30 million, down roughly 10% from Q2 last year. Thanks to a large reduction in operational expenditures under the Fit for Growth program, EBIT reached CHF 11.4 million in the first half, of which CHF 7.2 million in Q2, an increase of more than 7% from the prior year. This represents about 7.7% of return on sales for the half year and just south of 10% for Q2. Now before restructuring costs, this margin is topping 11%. As we reported in Q1, our gross margin slipped in H1 from prior year's level, just out of 40% of revenue. This is a 400-bps drop. Now we observed a 150-basis point recovery in Q2 following the Q1 drop due to price pressures pretty much across the business spectrum, but driven by China in renewable and industry in particular. We've explained some of these pressures by overcapacity in some of these markets, combined with an aggressive commercial stance since the end of last year but we've started to adjust towards a more selective approach. In addition, supply activity in Q2 is coming with better manufacturing and sourcing variance contribution. Our SG&A spend landed on CHF 31.5 million for the first half, a sharp decline from the prior year by 13% and with further sequential savings in Q2. These savings are heavily concentrated on the general and admin expenses, both in personnel and non-personnel, leveraging reduction in force as well as productivity gains from our [ Pulse ] program with our recent ERP implementation. In addition to the SG&A reduction, savings in R&D were achieved with Fit for Growth through a reduction in overall R&D personnel, but more importantly, an alignment of our footprint towards Asia. This yields a reduction of more than 20%, which is enabled by constant prioritization of R&D efforts as we aim to increase the overall R&D efficiency and time to market. Our financial results improved by CHF 1 million to a CHF 30 million loss for the half year period. The loss is mainly driven by the service cost of our debt, but the improvement from last year stems from a more favorable Forex drag. Income tax-wise, we're back to our historical effective tax rate performance around 18%, on par with last year's, especially in the second half. The first half performance last year was lifted by a favorable onetime affecting the country tax mix, both in expected and effective rates. So our overall P&L performance in H1 showed an overall compression from the prior year, landing on a net profit of 6.8% of sales, representing a 90 basis points drop. This flipped in Q2, though, thanks to a recovery on all lines, except for revenue. Margin rate improved and both operational expenses and financial expenses decreased further, yielding to both operational and net profits well above last year at CHF 7.2 million and CHF 4.8 million, respectively. Working capital inflated due to large catch-up payments since March, including severance and separation costs in the context of the Fit for Growth program. Our net debt position improved in the meantime as we continue to derisk and deleverage this balance sheet and aiming for and lending above 40% equity ratio. Aside from cost control, we focused our efforts this past semester on cash management, generating CHF 5.6 million in free cash flow to the firm from a large burn of CHF 11.6 million in the prior year. On a lower profit and EBITDA than last year and in spite of large restructuring outlays, we managed to stay on top and lift our operating flows and reduce our capital expenditures and tax flows. This cash flow focus will remain one of our core priorities in the current environment. So with this, I'll hand it over to Frank, who will explain on how we see this environment moving forward. Frank Rehfeld: Thanks a lot, Antoine. So let me now share our outlook for the business. Overall, the business environment is not substantially changing. We hear anecdotically about some positive outlook expected for 2026 in some segments. However, we don't see those reflecting in our bookings yet. Therefore, we remain prudent considering the volatile business environment as well as our -- and as the possible exchange rate developments and the fact that historically, the second half of our business was always weaker than the first. Consequentially, we guide towards a sales range of CHF 265 million to CHF 290 million and a high single-digit EBIT margin as a result from the Fit for Growth efforts. We've decided to update our midterm financial guidance reflecting the developments in our market. As a reminder for all of us, LEM's core market of current sensing has been going through different phases. For a long time, LEM has been acting in a niche market in which we had a rather dominant position. This was a small market with limited growth potential, however, very stable. Things changed once sustainability gained importance around 2018, where the market size as well as the growth potential increased. But at the same time, the market became also more attractive for additional competition. We saw faster growth in this phase and we were accordingly more optimistic with reference to our outlook. COVID, the semiconductor crisis and the strengthening of Chinese competition was ending this market phase, and we find ourselves back in a new reality, a new market reality for us, our customers like the machine building industry or automotive as well as our peers to which we reacted with our Fit for Growth program that was launched a year ago. So we expect now a market adjustment and stabilization to continue through '26-'27 and afterwards, an annual growth rate in the corridor of 4% to 7% in constant currencies. We target an EBIT margin corridor of 10% to 15%, depending on currency and market development since we will maintain strict cost discipline and focus on financial resilience. What remains unchanged, however, is the base on which our strategy has been built. We are convinced that the trend to sustainability is going to continue despite the headwinds that we are currently seeing. We are well positioned to capture the growth that is eventually coming back from this megatrend towards electrification, renewable energy generation and energy efficiency. The important R&D investments that we made towards integrated current sensing, TMR as well as forward integration like the DC meter get encouraging customer feedback that gives us confidence that those investments will pay back. The importance to be close to our increasingly Asian customers as well as being fast is reflected in our footprint and the time-to-market improvements that we are seeing. And the manufacturing footprint, strongly Asia-based but balanced between China and outside of China enables us to flexibly react to geopolitical shifts. I close here and would like to thank you all for your attention. Before opening the Q&A, I would like to invite you already for the 9 months earnings call on February 6, 2026. With this, we are ready to take your questions. Operator: [Operator Instructions] And the first question is from Charlie Fehrenbach, AWP. Charlie Fehrenbach: My question regards your midterm guidance. A year ago, you postponed your goals already for 2 years. You still mentioned there a sales level of CHF 600 million and an EBIT margin of 20% and more, which should be able to reach, I think, after the year '29 and 2030. Now you have the new guidance, 10% to 15% margin, and this growth perspective of 4% to 7%. So the old goals, can we forget about them, this CHF 600 million and this 20%? Frank Rehfeld: Yes. Thanks a lot, Charlie for your question. So let's first understand that the business realities have been further, let's say, burdened by geopolitical decisions, tariffs. So the market reality has been changing. So do we -- you said, can we forget about the CHF 600 million? I would clearly say no. However, the time until this will be achieved is probably even longer than what we were believing a year ago. What is for sure not helping is that on the one hand, our core markets move more to Asia, but at the same time, we report our growth in Swiss francs, right? And every depreciation of the renminbi basically costs us several percentage points in our growth story. So I hope this answers the question. Charlie Fehrenbach: Okay. Yes. You mentioned the sales now the EBIT margin of 20% also is something which could be reached far in the future? Frank Rehfeld: I mean, let's be careful to talk about far in the future, in particular for EBIT because here the question is how the markets are further developing. As you've been hearing, business in China is, for sure, confronted with higher competitiveness levels and higher price pressure. So therefore, we've been moving 5 percentage points down at least for the foreseeable future. Whether this is possible again it's probably possible again to reach 15% to 20%, probably a bit too early to say. Operator: And the next question is from Tommaso Operto, UBS. Tommaso Operto: So a couple of questions. I'll take them one-by-one. Firstly, maybe on Nexperia, I mean, there's been lots of headlines. Could you share if this has impacted you as well as the supplier? Frank Rehfeld: Yes. Tommaso, so we were in the lucky position to be, for the time being, not affected. Obviously, we've been starting a lot of actions to see also how vulnerable we would be, what sort of second sources we have. And as you know, we do more than 60% of our manufacturing in China and Nexperia supplies out of China, out of Dongguan, and we were basically not affected and believe that potentially this remains like this because what I hear is that the situation becomes less critical than we were expecting still a couple of days ago. Tommaso Operto: Okay. And then maybe on your margin guidance, those 10% to 15% EBIT margin, what kind of gross margins does that imply? I mean you -- in Q2, you managed to go back to above 40% gross margins. Is that more or less what you can expect? Basically that would enable you to reach those 10% to 15%? Or is gross margins further improving from here in order to achieve those 10% to 15%? Antoine Chulia: Tommaso, I'll take this one. Yes, we're expecting 40% to be kind of the new floor moving forward. As we grow, and you heard our cautious stance here on future growth. As we grow, we should be able to expand on this one a bit. But remember that we're facing kind of structural headwinds here, especially if growth happens in Chinese markets and/or automotive markets, right? So we'll battle both these headwinds as we grow. The 40% is probably the new benchmark moving forward and anything north of this. Tommaso Operto: So better capacity utilization basically compensating for higher price competitiveness? Antoine Chulia: Right. Tommaso Operto: Okay. And last question on the full year guidance for sales, I mean, in H1, you achieved CHF 148 million. If I just would annualize that, it would be already clearly above the top end of your guidance range. Frank, you mentioned some seasonality impacting here. Is that really the main driver why you think H2 is going to be so much lower than H1 at the midpoint? Or is that also taking into account further FX headwinds or even potentially deteriorating end markets? Frank Rehfeld: Yes. I think a very good question. And so in particular, one end market will be surely deteriorating, and this is the renewable end market because here, the feed-in tariffs will have -- or the abandoning of the feed-in tariffs in China will have a negative impact on growth for the Chinese market, for sure, not for the export from China, but at least for the local market. So there, we will -- we basically expect weaker numbers. And we also have indications that the Chinese market overall will potentially develop in the second half and less strong than it was in the first half. Operator: And the next question is from Bernd Laux, ZKB. Bernd Laux: Two questions I have left. One is regarding free cash flow. You have achieved the turnaround in the first half. Do you expect that to be continued, so free cash flow to also be positive for the second half of this year? And the second question is regarding your investment in integrated current sensing and in TMR in particular, you slightly mentioned you have made progress. Can you be more specific here and tell us about how far away are you from maturity so that these products can really be sold in large quantities into the market? And do you expect cannibalization of existing applications? Or is this only or almost only new applications that can be entered? Antoine Chulia: Thanks, Bernd. I'll take your first question on free cash flow. We're definitely expecting free cash flow to be positive moving forward. Thanks to a lift in our working capital performance as we keep focusing on these actions. And that's a very high-level summary, but it's been the focus of our efforts in the first half. So we're expecting to see more results in the second half from this. We're staying very cautious from a capital expenditure standpoint as well. So overall -- and we're expecting also probably less cash outlays from restructuring, right? So overall, we're cautiously optimistic here free cash flow for the second half. Frank Rehfeld: Good. And I take the ICS TMR question. And for sure, you basically had a multitude of some -- sub-questions. Maybe allow me to quickly summarize the picture here. So this is the activity that we do in cooperation with TDK. And the products that we've been developing there together has now been sampled to several customers, both in the automotive and in the non-automotive business, and we've been receiving overwhelmingly positive feedback. Do we expect cannibalization? Rather not because our today's business in the area of integrated current sensing is rather small. So therefore, there is majority growth, growth, growth. Talking about launch, so we will launch the product in 2026. However, looking into, let's say, the typical qualification cycles that we have at our customers, we should not expect now an enormous sales contribution in '26. Even '27 will be probably still a bit slow until really the applications are then picking up and getting launched and getting them in mass production. So I think here, we need to be a bit more patient. This market is not an, let's say, iPhone market where suddenly everybody switches to a new iPhone. These are rather slow ramp-up processes. Operator: And the next question is from [ Raymond Renahon with Asaybanc] Unknown Analyst: Yes. Looking at your midterm new growth target in sales of 4% to 7% in local currencies, not in Swiss francs. I mean, given that you are moving more and more into volume markets, mass markets, there must be an underlying assumption here about volumes and prices. The only conclusion can be that volumes have to go up much more than the 4% to 7% that prices, of course, then on the other hand, will continue to go down. Is that the correct assumption? Frank Rehfeld: Yes. I think -- thanks for the question. I think this is precisely the correct assumption. By the way, not a surprise for a component business, where you see regularly a price down per measuring point like we also see. And the more this business becomes in Chinese business, and the more volume increase you need to see a bit of increase in the sales eventually, yes. So that is exactly the right assumption. Unknown Analyst: Okay. Now could you share these assumptions with us? I mean there must be numbers behind this 4% to 7% on volume assumptions and price assumptions you have baked into that? Frank Rehfeld: Unfortunately, we cannot share them. You can imagine that these are also relevant, not only for you, but also for competition. And let's be honest, we have seen certain developments in the past and for sure, taking them, extrapolated them into the future, whether all that holds true, it also depends a little bit on the product mix, the more, let's say, high-value products like a DC meter come in, that also distorts the picture. So it will be not that easy to construct here a picture. Unknown Analyst: Okay. when looking at the margins, I mean, taking out the restructuring costs, you should basically already be around 10% EBIT this year. I mean if you say high single-digit EBIT margin, but there are restructuring costs still there. So basically, net of restructuring, you would already be at the lower end. So from that perspective, you should reach the lower end clearly next year, right? That is the first one. And then the second question, looking further in the future, it is a race between catching up the lower price levels, which will go down further versus operating leverage. I mean, higher utilization rates. They have to overcompensate the price pressure. That is basically what then results in the margin, right? Frank Rehfeld: Yes, that's right. You're basically confirming the bottom and the floor of our guidance. So that's exactly what we're seeing. So we expect to be at 10% post -- well, post and pre restructuring actually moving forward, right, at current levels. There's -- the uncertainty here on the price front is actually -- we're looking at the net contribution of price and cost, right? So basically, the difference between what we're able to save on throughput costs as opposed to how much we're giving away. I mentioned that we can extract from the market. And we expect that to be a slight negative moving forward. Obviously, in the scenario where we're growing in more competitive markets, it's going to be more of a negative. But that's basically the main reason why we don't want to signal too much of an upside from the bottom, right, from the floor of 10% as well as you noted, there's upside if the content of that growth is favorable. Remember also that we are quite highly leveraged from an operational standpoint, which has affected us in the short-term since our investment in Malaysia. It is actually a good thing moving forward as we expect to leverage on that fixed base of manufacturing costs, right? So that's one, that's another driver that would offset some of this negative net cost impact. Operator: [Operator Instructions] I would like to hand over for the questions from the chat. Unknown Executive: We have a question from [ Jose Veros ] who is asking if he could give some color regarding the restructuring program going forward and what cost base we target in the next 2 years? Antoine Chulia: So we -- thanks for the question. We intend to fully execute Fit for Growth. We're not quite there yet, even though we've seen some strong contribution to the P&L so far. So we will -- first, we will execute Fit for Growth as intended in the coming months. Our objective is to defend the current profitability level, as I was explaining in the previous questions. Hence, adjust our cost footprint depending on the sales development. And that's the key here, right? Everything depends on sales development moving forward. So we've shown that we're able to adjust to lower volumes and be cautious and selective with our spend. So we'll continue doing so. But no one knows at this stage what the future holds, right? So we will continue to be extremely nimble and flexible with our cost base. Unknown Executive: Then we have a second question from Jose Veros who is asking if you could speak a bit about competition, how is LEM differentiating vis-a-vis other players? And if there would be a way to target more niche markets like in the past in order to avoid high competition? Frank Rehfeld: I think a very good question for sure, referring a bit also to the strategic reflections that we have in the team. So LEM differentiates clearly by having the widest portfolio in application, having customer closeness across the world with all our American, European, Chinese customers, and having the application experience and basically having probably overall the biggest scale that we have in terms of applications, products, but also volumes. And this brings us into the privileged position that the products that we are defining are really very close to the customer needs and allow us to basically deliver really what customers expect that the rounds of optimization are reduced. And we clearly see this reflected in the feedback that we are getting from our customers. Now talking about the niches versus, let's say, the big volume. I think in the past, LEM has been always playing in both areas. And I think we also have to -- and on the one hand, the level of competitiveness that you need in order to be successful in the Chinese market, I think, is a must and an important reference or benchmark to understand where we are. And at the same time, for sure, you try to discover more growth areas, be it in smart grid, be it in new technologies like TMR, where we also basically then see the next level of development. To only do niche business will not allow us to be really on a competitive scale. So I'm deeply convinced we need to do both. Unknown Executive: Then we have a third question from Jose Veros regarding M&A. Would LEM consider M&A? And if yes, how would this be financed? Frank Rehfeld: Maybe I take this. We've been saying in the past, we would not go for M&A in order to increase our sales turnover. And I can tell you that there are a couple of competitors on the market where basically the mother companies look for alternative solutions, but we don't really consider this as the right way moving forward because we would in the midterm lose their business because customers would then look for other alternatives when that all goes to them. So here, our customer strategies actually speak against such a growth option. However, what we said is when we see technologically and that partnering or M&A would make sense, then we would move forward. And you've seen this when we, for instance, been acquiring R&D teams in Munich in order to strengthen our ICS capabilities or when we moved into the partnership with TDK in order to bring the ICS business forward. Unknown Executive: Then we have received a question from Gian Marco Gadini from Kepler Cheuvreux. Could you give a bit of color on the impact of volumes and prices on revenue in Q2 and H1 of '25-'26? Antoine Chulia: Yes. Thanks, Gian Marco. So this has been a hot button here since Q1. And I think not just for them, by the way. We've seen a large price drag in most markets in the past 6 months, but it's been led by our Chinese business, especially in Automation and to a lesser extent, in Automotive. So this impact has somewhat slowed down in Q2 as we've been more selective and prudent in our commercial efforts. Also remember that there was a demand trough in Renewable in China following the end of the feed-in tariffs, and that resulted in overcapacity in the market and the corresponding price pressures. Now overall, you can think of our flat revenue performance as a 4% to 5% volume increase, offset by 4% to 5% price drag in the first half. We expect this level of delta price to reduce moving forward to improve moving forward as we're learning to operate in this kind of environment. I hope that answers your question. Unknown Executive: There's a second question from Gian Marco, whether we are able to reallocate production capacity from one segment to another to offset negative developments of specific segments like Energy Renewables? Frank Rehfeld: I would answer the question with partially yes. So we don't have -- or we try when we plan product and plan our new developments to allocate those products not only to a single market. This sometimes works, not always. And this -- in these cases, we have the opportunity to basically shift demand between different segments. However, with increasing volumes, the -- let's say, specific solutions that you need in order to be competitive and that eventually also create payback, this is increasing. So also the more and more specific very segment directed products need to be developed in order to be competitive. Right. I hope this answers the question. Unknown Executive: And then we have a question from [ Thomas Boorie ], who's asking whether the goal for R&D is still 8% to 10% of sales? Frank Rehfeld: Yes. So that's still the sort of range in which we operate. Obviously, when you suddenly see a dip in your top line, it looks like an artificial inflation of your R&D cost. We obviously don't then trim digitally the percentages down. But we believe that for a company active in the high-tech sector, that is a healthy amount that we need to invest in order to remain competitive and prepare for the future. Unknown Executive: So operator, we have no more questions in the chat. So there are more questions in the telephone conference. Operator: There are now new questions in the phone conference. One is coming from Miro Zuzak from JMS Invest. Miro Zuzak: Can you hear me? Frank Rehfeld: Yes. Miro Zuzak: I have a couple of them. I take them one-by-one, please, if I may. The first one is regarding the range that you have given for sales in the current year. It's quite a range. So CHF 25 million from CHF 265 million to CHF 290 million. And if I try to model the lower end now in the segments, it's really hard to model the lower end in the sense it would be really a collapse more or less in the sales. Is it fair to assume that the lower end is really like really the lowest that you could imagine? Or are there scenarios where you think could be even worse? I'm also reflecting on the comments that you made on China and also on the fact that China was flat on a constant currency basis year-to-date? Frank Rehfeld: Good. So thanks, Miro for your question. Now true, the range is a rather big range. Now unfortunately, we've been seeing a lot of rock and roll in the market in the past. And unfortunately, 2 weeks ago, we were even not clear whether the whole electronics business would not see a more severe hits based on a player like Nexperia basically not being able anymore to deliver. So we were considering all this, considering the uncertainty from the exchange rate and therefore, came up also with a guidance that rather have this big range. But it's true. We work every day on actually rather being at the higher end if this is possible. So that's where we are standing. But unfortunately, the last probably 12 years have been teaching us that we were also probably sometimes a bit too positive in our expectations what is still possible in this market. Miro Zuzak: Okay. Very clear. And connected to that, and second question regarding the EBIT guidance. So high single digit implies 7%, 8%, 9%, something in this range, which is not such a large range. So it seems like there is not much operating leverage in the top line regarding your incremental margin. Is it because like the less secure or the areas with the least visibility has the lowest margins? Antoine Chulia: It's a good question. Look, I think it has to do also with the -- again, the content of the growth, right? We are being cautious here price-wise. We are defending our price levels. The top end, the high end of our sales guidance I think might assume some or it may include some more, I'd say, aggressivity price-wise, right? And so obviously, we would benefit from the volume, but this would be a scenario where we're operating at current prices or even or slightly lower prices in some segments. So that would -- the tailwind on volume and on operating leverage would be partly offset by the price drag. The other around, it works too, right? So the low end of the range is -- we would definitely defend our profitability and defend the low volume and the low cost coverage through more selectivity price-wise. Miro Zuzak: Very clear. And third question, if I may, you elaborated on the 40% as a floor for the gross margin. Now looking into the upcoming 2 years where you gave guidance on EBIT, it's almost unthinkable to or even possible to model 15% EBIT margin, taking only 40% gross margin? Or is the cost lines, the G&A cost really to decline even significantly further than it already did in Q2. I mean you did a great job. We can see that in the numbers. But is it -- can you elaborate on that? Would the 15% imply a higher gross margin than 40%? Antoine Chulia: Yes, there's -- definitely, yes. Miro Zuzak: Okay. Antoine Chulia: To reach 15%, we would have to generate more than our floor for margin, yes. Miro Zuzak: And the last question regarding cash flow and net debt. So your net debt went down by CHF 5 million more than the cash flow statement would imply. And you can see that on Page 13, if I'm not mistaken, in the report, the fair value changes and others, CHF 4.8 million negative number, which declined or decreased your interest-bearing debt. Could you please explain what that is? Antoine Chulia: There's a Forex lift on this one. I mean, lift -- some of the improvement is coming from Forex, the same way it's impacting our sales the other way, right? So that's the biggest contribution. Miro Zuzak: But that means that would be, for example, U.S. dollar liabilities or Chinese renminbi liabilities that you have? Antoine Chulia: Yes, there would be non-CHF liabilities. Miro Zuzak: And which currencies is it U.S. dollars or Chinese renminbi? Antoine Chulia: It's a blend, and it's -- yes, some of that is renminbi, yes. Operator: And the last question is a follow-up from Tommaso Operto, UBS. Tommaso Operto: Just a quick follow-up on the Fit for Growth program. I mean this cost program was -- so I mean, I apologize in case this is repetitive. But what I didn't quite understand, it was announced a year ago when you still had a different midterm ambition or a guidance of the CHF 600 million. And now you kind of adjust to this new reality. So my question is, does this mean -- does this new top line guidance indicate that potentially there would be an additional cost program? Or are you still fine even with the new market reality with the current Fit for Growth program? Frank Rehfeld: Right. I think very, very good question, Tommaso, I think probably one cannot be repetitive on this question because it's one of the -- let's say, really complex topics. So you remember, we basically started to implement the program in -- planned it in November and then basically saw some effects in Q4 where we saw the restructuring cost and the positives we started to see in April. Now this program runs according to plan, and we clearly see that we are saving the planned range in this financial year and also go for further savings. You remember, we said CHF 18 million to CHF 22 million in '25-'26 and an additional CHF 15 million then in the next financial year. So that's what we currently plan, and that's what we are all aligned about. Now it depends for sure how the market is developing. At the moment, we don't -- clearly don't foresee any further restructuring necessary because we do have a base that will allow us to go forward in the way we've been planning this. But again, therefore, also, you remember we were cautious with '26-'27. On the one hand, we hear positive, I called it anecdotically evidence that maybe '26 comes better, but our bookings don't show that yet. So therefore, we rather talk about the stabilization this year and then a pick up and then after '26 and '27. So that's basically the current planning base. But when this, for whatever reason, would be again put into question because geopolitically short-term something happens, then a potential further restructuring could not be excluded. Tommaso Operto: Okay. Got it. And then a last question on order levels. And I mean, in Q2, orders were sequentially down quite significantly, right? And at the beginning of this fiscal year, you started to take into account different shorter-term orders as well, and yet they have declined so significantly. So could you maybe elaborate where that cutoff is and how we can kind of compare the current order levels to the levels a year ago? Frank Rehfeld: I mean looking at orders, and you remember what we already exchanged in previous discussions, the times where you can mathematically take order levels and then extrapolate them and mathematically say that is then exactly the sales is getting increasingly difficult. I give you a couple of examples, what we saw when, for instance, the tariffs were announced is that some important OEMs, car OEMs were canceling certain new energy vehicle car lines or pushing them out. We saw suddenly drops in our Rest of Asia business that is mainly guided towards exports into the Western market. So we saw quite some surprising effects that then also were reflected in the order book with negative orders of pushouts and cancellations. So therefore, unfortunately, lead times are a bit difficult to simply extrapolate out of the orders what then the real sales is going to become. Hopefully, you can live with this level of uncertainty as we have to. Antoine Chulia: And Tommaso, things are technically comparable, right, year-over-year. I think what we're looking at here is -- this is a reflection of the subjective part of how we book orders. And here, the keyword is caution, right? We've learned from the noise in the market and in customers' behavior in the past 6 months. We are being very cautious with how much orders we're capturing in our book and especially as the long-term visibility is very, very muddy, very blurry, right? So overall, we're seeing less visibility. So we're being more cautious in how we're capturing orders. Frank Rehfeld: Right. Looking at the time, I would like to thank each and everybody of you for your interest in LEM, for your time, you've been invested to follow us here, and looking forward that we stay in touch and that we latest talk again on the 6th of February. Thanks a lot and have a great week. Thank you. Bye-bye. Antoine Chulia: Thanks, everyone. Bye.
Jostein Løvås: Good morning, and welcome to DNO's Third Quarter 2025 Earnings Call. My name is Jostein LøvÃ¥s, and I'm the Communication Manager here at DNO. Present with me in Oslo on this morning -- in this morning are Executive Chairman, Bijan Mossavar-Rahmani; Managing Director, Chris Spencer; and outgoing CFO, Haakon Sandborg. At first, Bijan will give an introduction. It will be followed by a presentation of the results. And after the presentation, we will open up for questions in our usual Q&A session. And as always, shareholders first, but analysts are also welcome to ask questions. [Press-held ] will be dealt with afterwards. [Operator Instructions] With that, I leave the stage to Bijan. Bijan Mossavar-Rahmani: Jostein, thank you, and good morning, everyone. It's a pleasure to be back with you in all of these quarterly earnings calls or presentations. And we've had a very strong quarter, and we're going to be very pleased to report on it. And again, as Jostein mentioned, answer as best we can any questions that you have. Before I start, I'd like to introduce to you Haakon. Haakon needs no introduction to many of you who followed the company. He has been the company's Chief Financial Officer for the past 24 years. He is, I think, not the oldest DNO employee, but the one who's been here the longest. And he knows the company's history. He knows the company -- he's seen the company through many period ups and downs, the number of transformations over the past I think it's now 53 years of the company approaching 54. So as you know, as many of you may know that DNO has been Norway's oldest oil company, the first to be formed, the first to go on the Oslo Stock Exchange. And through much of that history, all of it and much of it, Haakon has been a major player in the company. We are -- he's decided to step down from his role. And it's been a privilege for all of us, myself, especially, to have worked with him in that role. I've learned a lot from Haakon, a lot about the history of the company, and he's been a very valuable colleague to me and a leader, one of the leaders of DNO throughout the period that I've been here and prior to my coming here as well. So we are sorry to see him go. We wish him well. He's probably best known outside of DNO for his -- as the person who initiated, led our very successful run on bond markets. That's not all he's done here. He's been involved on the stock side as well, the stock markets and shareholders and analysts, but he's perhaps best known for his stellar record of 21 successful bond raises over this period of time and he mentioned to me that he has raised through these bond raises over these periods, $5 billion, which is quite a large number for a company of our size. So thank you again, Haakon, for all of us. We wish you well, but I know Haakon wanted to have an opportunity to say goodbye to many of you who he's worked and stayed in touch. So I give the floor to Haakon to say those words to you. Haakon Sandborg: Yes. Thank you. Thank you, Bijan. Thank you for those very kind words. Everything in life has its time. And I think now it's a good time for me to retire from DNO after 24 years in the company. It's also at the age of 67, it's also a good time to do something else and go on to new chapters in life is my thinking. And looking back, it's been a great journey in many ways. And I'm very proud of all the growth we have achieved and the market value that we have built in the company during these years. And I now wish all our -- all my colleagues and all our investors the best of luck and continued success and progress staying with DNO. And I'm very happy to hand over to our new CFO, Birgitte, now taking over after me. And I know she will be doing a very good job. So again, thank you, everybody, and best of luck. Thank you very much. Bijan Mossavar-Rahmani: To continue, I would like to introduce Birgitte to you. We've already posted a notice about this transition. But I'll say a word about Birgitte. And of course, she will deal with the finance part of our presentation this morning and also moving forward. Birgitte Wendelbo Johansen has come to us from the shipping sector in Norway, the company Reach Subsea, where she was the Chief Financial Officer, and we had a long search process, a deep search and we're able to persuade her to join the company, and she's hit the ground running. And we look forward to many, many years, maybe 24 years here at Vienna. I look forward to that Chris and the rest of us. So welcome to the company. We had a very, very strong quarter in many respects. And my colleagues will have a chance to go into detail on those and I'll be available to add some color and answer questions. But I'm very proud of the performance of our teams, both in Kurdistan and in the North Sea. In Kurdistan, we've continued to ramp up production. When we last met a quarter ago, we were coming out of the period of damage to our surface facilities in Kurdistan, particular Peshkabir field, but we were able to ramp up production pretty quickly from 0 to I think we had -- we hit 55,000 barrels a day between Tawke and Peshkabir fields in our last quarterly presentation. And I indicated to our team, I was in Kurdistan, I said we're going to have our quarterly presentation. I want to have 55 -- hit the 55,000 barrels a day figure. We're going to announce that when we meet in Oslo, and they jumped to the challenge, and we were able to do that. For this quarter, we challenged them again. I said when I had the presentation on the 6th of November in Oslo. I want to be able to announce that we've hit 80,000 barrels a day of production, so up from 55,000, which is up from 0 and 80,000 was where we were before the drone strikes and the damage to the fields. And I'm very pleased to say that we've -- that team has hit the 80,000 barrel a day figure, and Chris will go through the details as some more specifics about that. So I'm very, very proud of that team, and they do a terrific job. What DNO does and has done in Kurdistan, no other company has even come close. And we're very proud of that record and proud of the performance of that team. In the North Sea, we also have a fantastic team. We've announced today as part of our release, and then we'll go into the detail on the slides about how our team in the North Sea now is similarly getting off the sofa and developing -- being to develop the extensive discoveries that the company has made in the Norwegian continental shelf. And again, Chris will go into some details on our joint efforts with a like-minded company, Aker BP with respect to one of our discoveries, the Kjøttkake discovery. And we're very pleased. And again, we expect to bring that field on production to develop it in record time. We don't do it as fast in Norway as we do in Kurdistan for many reasons. Most importantly, in Kurdistan, we're onshore and the lead times are much smaller than they are with an offshore project, but we hope to be also do in Norway, what we've done uniquely well in Kurdistan. I expect our next quarter will be even stronger than this quarter and that it will reflect some of the recent developments. And I look forward to meeting again with you for our first quarter -- fourth quarter 2025 presentation in 2016 (Sic) . But before then, I'll turn first to Chris to go over our operational performance this past quarter with a bit of a look ahead as well. Christopher Spencer: Thank you, Bijan, and good morning from Oslo. So we now have our transformational quarter on the back of our transformational acquisition. So we were highly expected following the hugely important acquisition of Sval Energi back in -- which completed in June. And this is the first quarter that you see the full effect of that acquisition and that runs through all of the numbers that I'll be covering and really will be coming into on the financials. And of course, immediate visual impact on the production. We are now up to 115,000 barrels of oil today during Q3 and actually, Q3 will be a relatively weak quarter on the production front, both in the North Sea due to the summer maintenance season, but also in the Kurdistan region because of the -- we were recovering from the Kurdish attacks as Bijan has described. Similarly, the revenue follows the production, obviously, and even more so for us because the Sval acquisition, of course, is in the North Sea, where we have full exposure to global oil and gas pricing. We got back into the black with a $20 million profit. And then operationally, we continue to have successfully drilled it. And as we'll go into in some detail, we are now making great strides in terms of monetizing discovered barrels at a record pace in the North Sea. Happily, all of this allows us to continue making our shareholder distributions the way we've been doing for some years now and the increased -- increase in the quarterly dividend payment that we announced last quarter is maintained. If we go to the next slide then. please, I think that -- I hope that this slide sets the tone for many quarters ahead in our North Sea. We talked about this on the back of the acquisition of Sval, that we're taking a huge step up in the North Sea, and we are determined to not only maintain but grow our production in the North Sea over the next few years. And we will be doing that by continuing to explore and we've got 3 wells running at the moment and importantly, accelerating the development of discoveries into production. At the same time, we're going to be high grading and optimizing the portfolio we have and that is -- a great example of that in the bullet points here where we've done a nice swap transaction with Aker BP. Both companies are very happy with it. For us, we are strengthening in our core area around the Norne FPSO up in the Norwegian Sea and increasing our share of the Verdande field, which is tied back to Norne. Both of the projects that are coming on in the [ Andvare ] and Verdande are up in that area. And so the Norne area is going to have 8000 barrels of oil equivalent contribution just from those 2 projects by the year-end. In exchange, of course, we handed over some assets. And again, it really is a tieback to Alvheim. So that's a core area for Aker BP, non-core for us. So a nice rationalization for both companies. Lastly, here are the final pieces of the financing on the back of the Sval transaction being put in place. We were very pleased to announce the gas offtake agreement we had with associated financing last quarter, and we are copying that now on the oil side. Not quite, the ink isn't quite dry on the signatures here. So we can't give full details, but we're confident these will be in place very shortly. and well ahead of the 1st of January date when those sales will commence. And again, there's the prefinancing on sales similar to the gas arrangement at very attractive interest rates way below the type of interest rates you see on our bonds. So we will have once these 2 deals are completed, facilities of over $900 million on the prefinancing associated with oil and gas -- oil liquids and gas sales in the North Sea. If we move to the next slide, then this obviously is a key component now of our engine room for value creation in the North Sea. So we're going to continue to discover resources and then we are going to bring them on very rapidly. As Bijan mentioned over the past few months in the North Sea, we need to find like-minded partners or like-minded companies to be able to do this together. It's -- and we're very pleased to be collaborating very closely with Aker BP here to make Kjøttkake very fast in Norwegian continental shelf terms development going from discovery in Q1 of this year to production starting in Q1 of 2028, which is obviously 3 years. And that compares to 6 years or so as the average for subsea tiebacks that have been brought on stream so far this decade according to the data we have. So that underlines the acceleration that we are going to achieve together with Aker BP and Sval here. And indeed, the operator of the host that we'll be getting tied into, which is [indiscernible]. So we're very excited for that, and we are determined that this won't be a one-off. We will be discovering hydrocarbons, working with license partners to develop this sort of speed. And as we move forward, we're aiming to improve this further. We see internationally that, that is possible. and we're setting the bar very high for ourselves. For investors, why should you care? It's not just fun to accelerate developments, but obviously, in terms of the net present value on the original investment in exploration, it's quite transformational on the return on capital invested when you can reduce the time from discovery to production by 50%. And that, of course, is the value proposition behind the whole exercise. Next slide please. This is in the front end of that funnel. We've had an exciting exploration program this year. This, of course, is reflecting both the portfolios of DMO and Sval as they were as we enter 2025. And we've got results for 3 wells coming up very, very soon. And we have an exciting program ahead of us next year. In fact, we have a luxury problem of probably too many opportunities next year that we are working to high grade. Next slide. Turning to Kurdistan and Bijan touched on it, but we've been ramping up production here and -- the Q3 numbers are still, of course, impacted by the terrible experience we went through in mid-July, where we were hit by drones and that caused damage to critical processing equipment at the Peshkabir field, having rushed ourselves down over a couple of weeks, put in place new security protocols to protect our staff and so forth. The team got back to what they do best, and that is overcome challenges in an amazingly speedy fashion. And so within 3 months of the attack, we had replaced the damaged processing equipment by repurposing some redundant equipment we had over at the Tawke field and got back up to 75,000 barrels earlier this month. Well, actually, sorry, mid-October. And then as Bijan has announced this morning, they've pushed it even further, and we're back to the 80,000 mark as we speak. Of course, the big event in the quarter for Kurdistan oil and gas business in general was finally the reopening of the export pipeline through Türkiye to Ceyhan. That was after 2.5 year closure during which the entire industry, as you know, has been selling locally. from our side, we've been -- as we've been talking about quarter after quarter, we've not been drilling in Kurdistan to properly manage our reservoirs, and we need to get back to drilling and increase the production again. And so that means we are moving into a period of higher investment again in the Tawke PSC. And for us, therefore, the certainty of payment is even more important than it has been in the past. And that has pushed us to lean on continuing to sell our oil to local buyers. The other element with respect to restarting exports that was not addressed in the agreements with other companies have signed up to is also the significant debt that the Kurdistan regional government still has outstanding with us, and we continue to look for ways to resolve that with the KRG. So we're very pleased that exports have restarted. We're also very pleased to have the certainty of payment that we have with our arrangements. And on the back of that, we will be ramping up our investment, and we set another hairy target for our team. We're going to get to 100,000 barrels -- back to 100,000 barrels gross through restarting drilling on the Tawke PSC and as Bijan commented in September, we may look back a year from now and feel we have left a little bit of money on the table with respect to exports, but the value creation from getting back to drilling and pushing the reproduction up will exceed that in our view. With that, I've done my operational update, and I will hand over for the first time to Birgitte for the quick run through of the financials. Over to you, Birgitte. Thank you. Birgitte Johansen: Thank you very much, Chris, and good morning to everyone. As Chris and Bijan mentioned, we present a strong quarter where we now see the full effects from the Sval acquisition, which was completed in mid-June this year. So let's jump right into the financials and the details. Starting with the income statement. The strong contribution from Sval Energi, now included in DNO's North Sea business units is clearly visible. Revenue was $547 million, up 112% from the last quarter. As much as 92% of the group's revenue in the third quarter came from the North Sea business compared to 65% in 3Q '24. Our operating expenses have increased following the inclusion of Sval, which is natural, and operating profit ended at $222 million, up more than 100% from the last quarter. Net profit in 3Q back in black, as Chris mentioned, at USD 20 million. Next slide, please. So let's move to -- let's move to the cash flow. Yes. Thank you, Jostein. The high revenues led to a near threefold increase in cash flow from operations to a high level of $407 million in Q3, up from $135 million in Q2. This Q3 cash flow includes $53 million in positive working capital changes. Stronger earnings in the North Sea also means higher taxes, and we paid 2 tax installments in Norway, totaling $53 million in Q3. As you may recall, we indicated last quarter cash taxes of around $150 million in the second half of '25. The cash tax will increase in the fourth quarter. We again had substantial investments at $225 million in Q3, consisting of $183 million in CapEx, mainly for North Sea development projects and also $34 million in exploration expenditures. We also spent $10 million on decom in this quarter. Net finance outflow of $386 million primarily covers repayment of $300 million bank bridge loan that was part of our acquisition financing for Sval Energi. We also paid a dividend of $36 million in Q3, as you know. So with the investments of $225 million and $300 million in debt repayment, our cash balances were reduced by $257 million to $531 million at the end of 3Q. But again, the key takeaway here is the very substantial increase in our operational cash flow from the first full quarter with the Sval assets in operation. Next slide, please. Now as discussed in DNO's Q2 presentation, our balance sheet and capital structure were substantially changed through the Sval acquisition and related financing transactions. Compared with the Q3 last year, we now have quite diversified funding sources with a good combination of long-term bonds and short- and medium-term offtake financing. The size of the balance sheet, thereby increased by close to 70% in Q2, primarily through higher property, plant and equipment values as PP&E was up by 135% in the second quarter, as you can see on the slide. For Q3, the PP&E value remains fairly stable from Q2 as expected. Similarly, we went from a net cash position in Q1 to a net debt of $860 million in Q2, whereas we now show a reduction in the net debt in the third quarter. The key driver for the reduced net debt is close to $100 million in free cash flow, partly offset by the dividends paid. Total equity increased with the $400 million hybrid bond that we placed in Q2, and this metric also remained stable in Q3. All in all, it's a very strong quarter from DNO, no surprises or special items. So by that, I hand the word back to you, Jostein, for the Q&A session. Jostein Løvås: Thank you, Birgitte. That was a good run through, and we'll take questions now. Nikolas is with us, Nikolas Stefanou. Nikolas Stefanou: Congrats on the very strong quarter. And congratulations for a long and rewarding career with the company. And thank you for the engagement with the sell side this year. So I want to wish you all the best in your next step in life. So I've got 3 questions to ask, please. The first one is about Kurdistan. And the other one in kind of like broader on the balance sheet. So in Kurdistan, if you're ramping up production, drilling was there, but then you sell them locally and someone else is making this kind of like crazy sort of like margins on the exports. I'm just wondering what is the incentive from the KRG to make a deal with you in order to -- in first for you to kind of like sell the crude directly. So that's kind of like the first question. And if you can talk about how the negotiations there are going, that will be good. And then on the Sval assets and in general, the North Sea kind of like outlook, you've got these assets for a few months now, would you be able to give us maybe a production target for '26 and 2027 in the North Sea? And then finally, on the balance sheet, you have been quite conservative in the past few years. I mean, obviously, that was because of Kurdistan. Now that you have repositioned the business in the North Sea, how do you think about the balance sheet going forward? And more specifically, is there an optimal level of debt or leverage you guys target. Bijan Mossavar-Rahmani: Let me try to answer the question on Kurdistan. I'm not sure I fully understood it. You mentioned something about crazy margins and some other things. I'm not quite sure I understood it or I understand what you understand we've done. What we decided to do was to continue selling our entitlement crude to the buyer -- who have been the buyers who have been buying our crude at the same prices more or less as prior to the exports. The amount that we receive, again, is the same under the same mechanism when we are prepaid, we're paid in advance by these buyers and we deliver the oil to them. In the past, these buyers have sold the oil into the local market. We're not -- we don't follow exactly who that oil is sold to and on what basis, but we continue -- we had an existing contract with them, and we elected to continue that -- those arrangements. Our buyers have made their own arrangements as they had done previously to sell that oil. But this time, they've sold the oil onward into the pipeline that oil as we understand it, is exported with all the other oil from Kurdistan, whether it's produced by the other IOCs or other, what terms they have set into place with Kurdistan, we don't know. All we know is we continue to be paid in advance and at the price that's known to us, it's predictable. There are no delays. There's no calculation of price by an outside consultant. There are no issues we have about delay in payments and where those payments come from. We decided that we were better placed, continue to receive money in advance at predictable and set prices that we would be under the terms of the export that other companies have elected. This is important to us because we -- this allowed us and allows us now to make these very, very substantial investments, including the drilling of 8 wells next year, which will start right away. We've signed up a contract for a drilling rig. We're going to be deploying our own rig. And as Chris says, we believe that the investments we're making and the increased production that we will get from these investments will more than offset any money that we might end up leaving on the table. It's possible. We know that there is a formula. Everyone knows that there's a mechanism that the companies get paid, hopefully, by December it's $16 a barrel, less I think an estimated average $2 in transportation fees, that's $14 to then be supplemented at some point next year by additional monies to be calculated based on an outside consultant retained by the Iraqi government coming in and saying what the contractual number should be based on some other principles, fairness or otherwise that we're not privy to. It's possible that as we participated in this, we would eventually receive more than we're receiving now. We have announced what we're getting. We're getting paid per barrel, payment of -- low $30 a barrel for every barrel that we are putting selling based on our entitlement, which is now roughly, I think, 20,000 barrels a day with our share, we get paid in advance, and we are happy with that arrangement. Now perhaps if we participated in the export pipeline project, this number would have been higher. That's quite possible. And as we said last quarter and as Chris again said, we may end up looking back, see that we left some money on the table. Maybe we will have left some money on the table and maybe we won't have left money on the table. We don't know. But we thought that the predictable receipt of money would allow us to ramp up production. As I said, we've now ramped it up based on this thinking from 0 when we were -- just after we were hit by the drones to 55,000 3 months ago to 80,000 now and to 100,000 at some point next year. I think this is best for us. It's best for Kurdistan. It's best for Iraq since they're selling the oil. I think it's a win-win-win situation. If we find that the -- as we've ramped up production, that the terms and conditions and payments for the export arrangements are attractive that they continue beyond the end of this year. My understanding is that these arrangements were done until the end of this year and don't have to continue. There's an election in Iraq. There will be elections in Kurdistan. There'll be changes perhaps to conditions, we'll see. If we find that those terms are attractive to us, we will participate in exports. If we find that the current arrangements give us predictability, we will stay with our current arrangements. And hopefully, we'll be able to ramp up our prices. Already, our prices for our sales -- local sales as we call them, in November are higher than they were in October when we started, and we expect those prices will continue to rise. So we're happy with it, this arrangement, and we're happy to be drilling again. We're happy to be producing larger volumes. As I've said, DNO is great at this. And we have great fields, we have great people, and we're able to deploy $1 and get more value for it than other companies have. So we're very pleased with the way things are progressing. We hope exports will continue. We wish everyone well as part of the exports team and their success will eventually be our success as we'll participate in exports and some other arrangements that we might make ourselves. But in the meantime, we are investing in Kurdistan. We're the only company doing drilling and planning to drill as many wells as we are. And that's what we've always been. We've been the largest producer, the fastest mover. We've said this before -- sometime before the end of this year, we will produce our 500 million of barrel of oil from Tawke's license. That's a great achievement for us. It's been great for Kurdistan. And it's a record we want to improve on. And I think we're set well to do that. On the issue of what our North Sea production is going to be, I'll ask Chris to refer to that, but we haven't given that sort of longer-term guidance because our situation changes as much as it does. Historically, that's been the case in Kurdistan, but even the North Sea, a year ago, who would have thought that our production in the North Sea would quadruple, which it has for a small acquisition. And we shared with you our plans to fast track production. We've shared with you our record of discoveries, which has been quite significant. And you know from us, what we've been saying for quite some time and again repeat it today that we're going to fast track the monetization of our discoveries by bringing them into production quicker. So you can do some back of the envelope calculations. We are still on the lookout as we've been for some time for additional acquisition of additional production. We will ramp up production from our own discoveries, and we have long pipeline discoveries, but we'll be on the lookout to do swaps and as we've announced again and to acquire bolt-on acquisitions, smaller ones, we've been doing some of those in the past that we reported and maybe more significant acquisition as well. Our ambitions for the North Sea are as large as our ambitions have been for Kurdistan. That I can say with some confidence. But Chris, would you like to? Christopher Spencer: I think that's a good summary. We think that we have mentioned in our material this quarter that -- and as I said in my remarks that Q3 was impacted by the summer maintenance season and so forth, and we indicated an exit rate in the North Sea of 90,000 barrels of oil equivalent per day roughly. And that gives obviously a good sense, we feel of the scale of the business we have there. We've put -- and we've made similar comments in several presentations since we completed the acquisition. So yes, we feel we've given a good indication of what you can expect from the North Sea business. And then with the comments that Bijan has made and mine earlier, we're trying to help the market understand how we are planning to generate a lot of value out of this new portfolio that we have. We've used the term repeatedly, but the 2 portfolios went together like a hand in glove with the production strong portfolio of Sval combining with the exploration and development strong portfolio of D&O. And that's -- again, I think Kjøttkake is just the first example of that, where Sval have an increased -- a much stronger presence in the hosts and potential pieces of infrastructure that could be relevant for Kjøttkake development. We made the discovery, and that is going to be on stream in early 2028. This is something, as I mentioned earlier, we are going to be working hard to replicate. And not forgetting in the backbone that will maintain production as well is the type of legacy assets we have in the [indiscernible] area, which came with Sval is everyone who follows the Norwegian Continental Shelf activist just goes on and on, that type of asset, Martin Linge, the broader asset from the D&O portfolio, these also will provide a tremendous core of long-term production to which we're adding this machine of explore, develop and to create value for the shareholders. So I hope that gives you enough color on what we're aiming to achieve in the North Sea. Bijan Mossavar-Rahmani: On your other question about our balance sheet, let me say the following. Yes, you're right. We've been conservative. And we will continue to be conservative. We're not going to bet the company on anything. Part of that's been driven, as you said, by Kurdistan because of the movements up and down in payments in the past and other challenges. But that wasn't just about Kurdistan. It's not just about being conservative. The Kurdistan part is being prudent. I think generally, we're conservative in how we think about the business. But we've also been opportunistic. We built out large cash reserves, and we're looking for an acquisition several years ago, and we're able to deploy those cash -- additional cash through the acquisition of Faroe. We then started building up again our cash position, looking for another larger opportunity, and we used it in part to finance the acquisition of Sval. Right now, as we reported, we have something in excess of $500 million in cash on the balance sheet. We have $900 million in total availability of prefinancing. We've drawn down, I think, $340 million of that. Again, as part of the small transaction, the repayment of our debt, which Birgitte discussed, that we have another significant amount of money available to us if and when we need it, either for an acquisition or for some other purpose. So we build up these cash reserves. We'd like to always have a significant amount of cash on the balance sheet both because of the ups and downs of the market and the price of oil goes up and down, and we want to be prudent and in a position to continue to pay dividends to our shareholders. We continue to service our bond debt, which we've done now for 22 years and quite successfully. We're proud of that record. And our investors on the equity side or the debt side are really important to us, our credibility and our wish to perform is really important. So in that sense, too, we're conservative. Not all companies have these sort of targets of continuing to pay dividends and continue to service the debt we do. And for that, we need to have enough cash on the bank and be prudent and be conservative. And we're proud of that, but we do build up cash and we do look for opportunities. And we'll grab those when we can. We don't have a specific sort of target figure other than whatever is prudent and conservative and opportunistic, we will -- that will drive our thinking and our... Jostein Løvås: Next one up is another analyst, Teodor Sveen-Nilsen. Teodor Nilsen: A few questions from me. First, on Tawke, congrats on reaching the 80,000 barrels per day target. Regarding the 100,000 barrels per day, how should we think around timing of that and also potentially the duration that should we like expect from 100,000 barrels per day flat out for entire 2026? Or should we factor in a lower average production for next year? Second question, that is just following up on the export potential. As far as I understand, you now sell at local prices in Kurdistan, how does your route to export prices look like? Is it only a deal around the receivables so, that is between us now and you getting international oil prices? Or are there any other outstanding issues? And my third question is for guidance 2025. In your second quarter report, you gave some guidance on operational spend and CapEx for the Norwegian portfolio. I didn't see that in the Q3 report, can you just confirm that, that guidance is still valid? Bijan Mossavar-Rahmani: Thank you. I was amused when you and your back and forth about unmuting who's ever unmuted Teodor [indiscernible] but thank you for your question. You always have interesting and important questions. The easiest one is on 100,000 barrel target. For us to get from 80,000 to 100,000, that's about 5,000 additional barrels a quarter. That's not difficult for us. We were over 100,000 barrels a day, if you recall, before the pipeline was shut 2.5 years ago. So we know how to get there. As you know that in the 2.5 years or so that we weren't drilling any new wells, we were still able to maintain production by tweaking the wells and by doing workovers. And we really -- our tracked production team as we learned so much about the Tawke field and about the wells and how to with minimum amounts of spend and effort to keep those wells flowing. And this is really quite spectacular because as we've discussed many times in the past, these fields typically, these reservoirs have a 15%, 20% decline rate. How we were able to stop that decline rate without drilling any new wells is, again, an amazing achievement, but it speaks to the 20 years or so of DNO working in that field and learning how to optimize it. So with that base knowledge and understanding and they've already -- during this period, they've located other wells they want to drill at other locations, some of them are production wells, some of them are a bit of a step out and 1 or 2 of them have an exploration component that's quite exciting. And we're going to drill into those in 2026. When we're going to hit 100,000 a day, the target we set for them is towards the end of the next year, but they've surprised us pleasantly every time we set targets for them, they've achieved those targets and achieved in record time. So I wouldn't be surprised if we once again beat those targets. But let's give them a chance to do what they do very well as they get going. And as I said, we're bringing a rig back in again, and that's going to drill the deeper wells. Our own Sindy rig, which has been doing all the work over in the last couple of years, we'll focus on some of the shallower targets that we have and those are even shallower horizon in the target Tawke field. So we'll get to 100,000, we'll get to 100,000, we'll set new targets and see if we can achieve that. It will get harder over time. But if we can drill 1 or 2 of these exploration wells and are successful, we can have a step-up in production from the two fields. But to give us a chance to do it and our history is a good predictor of our future, certainly in the Southeast. On exports, how would we participate in exports, if it looks like the payments are greater than we can get in the local market. That's a good question. There are several avenues to that, that we were considering. We can sell our entitlement oil to whoever we want to sell it to for our new production sharing contracts. It was helpful for everyone for us to have this 3-way arrangement between ourselves, our local buyers and Kurdistan and Iraq for our oil to be sold under arrangements we were comfortable with, but find its way into the pipeline. And again, that DNO is 80,000 barrels a day, a very substantial part of the total production of Kurdistan. And without it, the pipeline project wouldn't have worked. So we didn't want to block the export project. That's an important project for many stakeholders. But we just want to make sure we were getting paid $30 or low 30s before we put the oil into the pipeline, then be paid maybe $14 -- $12, $14, maybe sometime in December to be topped off maybe sometime in the future or reduced maybe sometime in the future, depending on what an outside consultant would decide would be a fair price or a price that was somehow acceptable to other companies. That uncertainty, we didn't want to live with. And we believe that by, again, selling in the low 30s and getting paid in advance, we can invest and get more production and more revenue to offset any money we leave on the table, but there are several ways to get there. And because we're not signed up into the larger project, we have our rights under our PSC to sell the oil to wherever is the best buyer from our point of view in terms of pricing and payment terms of that oil. And we had said and all the companies that said that we would not participate in exports unless the arrears was resolved, we've kept to that. Our arrears are important for the other companies, maybe the arrears were less that we know there were less, our areas were the greatest. And we said consistently that we will not participate in that export project until our arrears were addressed. So we get comfort that we would receive those arrears. We have different mechanisms to achieve that and none that have been finalized that we can announce now. But we will get our arrears back one way or the other as happened in the previous time we built up even much larger arrears during the ISIS period, maybe you remember that period well. For us, they've always been good for all of the contracts eventually. We understand sometimes other squeezes, we work with them, but we expect one way or another and there are different ways of doing this. So we will get the arrears paid. And at some point, we hope to participate in exports. If not in the next few months, the export agreements between Iraq and Turkey end -- expire in July. We don't know what -- how that pipeline will be used by whom and under what terms and conditions. But things will change in July. And we haven't been participating in the export stream directly now. Perhaps from July, there will be other opportunities for us to participate in a different way in an export project and we're comfortable with that decision. And we have the cash to drill wells to raise production. So all that is, I think, on track as far as D&O is concerned. Jostein Løvås: It's okay and how time flies when you're having fun, we're approaching the 1-hour mark and unless there are any more questions from the audience, I think we'll wrap it up. And thanks for listening in, and see you around soon. Bijan Mossavar-Rahmani: Thank you. Birgitte Johansen: Thank you.
Operator: Greetings, and welcome to the American Vanguard Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Anthony Young, Director of Investor Relations. Sir, the floor is yours. Anthony Young: Thank you, operator. Good morning, and welcome to American Vanguard's Third Quarter 2025 Earnings Review. Our prepared remarks will be led by Dak Kaye, Chief Executive Officer; and David Johnson, Chief Financial Officer. A copy of today's release, along with supplemental slides, are available on our website. A replay of the webcast and transcript from this event will be available on our website shortly as well. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include non-GAAP figures and forward-looking statements, and actual results may differ materially. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website. It is now my pleasure to turn the call over to CEO, Dak Kaye. Douglas Kaye: Thank you, Anthony, and welcome, everyone, to our third quarter 2025 earnings conference call. When I joined the team 11 months ago, my directive was simplify, prioritize and deliver, and that is what we are doing. Our adjusted EBITDA increased from $1.8 million in the year ago period to $8.2 million in the current quarter, an increase of more than 350%. The third quarter is typically our weakest quarter, and the fourth quarter is seasonally our strongest. We expect a strong finish to this year. While we operate through the agricultural down cycle, we are controlling the things that we can control, such as lowering net trade working capital, lowering factory costs and operating expenses, while we've positioned the company to have substantially higher earnings when the agricultural market rebounds. I'll provide my overview of the current state of the agricultural market in a few moments. I am pleased with the progress that we have made so far. Gross profit margins have increased by 300 basis points over the year ago period. A significant portion of this improvement can be attributed to the operations team. Additionally, we are optimizing our manufacturing effort, for example, by transferring production from L.A. to Alabama to maximize production efficiencies. I anticipate that most of the cost savings that have materialized during this quarter will stick with the company for the long term. We have also taken steps to improve our operating expenses. These expenses have decreased by approximately $6 million as compared to Q3 of 2024 and by $14 million in the 9-month period. The reduction in spending is company-wide. While we are pleased with what we have accomplished so far, we are still laser-focused on watching our expenses. Controlling expenses should not be viewed as a short-term initiative, but as a change in culture at the company. While we still have transformation listed on our statement of operations this quarter, we are transitioning all of these activities to the internal team. We have the talent to continue with the transformation, and we will now be referring to these efforts as our business improvement initiative as we take full ownership. We had already decreased the spend in this area to $2 million from $8 million compared to the third quarter of 2024, but we anticipate decreasing the spend to negligible levels over the coming quarters. As we seek to simplify the business, we are renaming our non-crop business to be the Specialty business. We do not believe the non-crop nomenclature adequately reflects the technology, patents and innovation that are the foundation of this business. While the Specialty business is smaller than our Crop business, it has critical mass with important contracts for mosquito control and advanced technologies that are being used in home pest control, ornamental and greenhouse applications, golf course, lawn and landscape care. Our current financials still refer to this business as non-crop, but we expect our future financials will reflect the name change. While the business improvement initiative is well underway, I think it is important that we also spend a little bit of time talking about the growth opportunities that are in front of us. We have not talked about this much in past conference calls, but we are creating an impressive growth portfolio that will potentially contribute $100 million of net sales over the medium term. We will achieve this growth on top of our already proven products, which will be growing as well through geographic expansion and expanding into new crops and sectors. This additional volume should also help with our factory utilization, further lowering the cost structure for the company overall. The development team is focused on growing our crop protection portfolio now that SIMPAS is not a priority. Turning to what we are seeing in the agricultural economy. We are in the midst of a strong harvest in the U.S. However, trade tensions with China have created a cloud over the industry, particularly with U.S. soybean growers, where important trading channels remain unclear. While there are many reasons to be cautious, there are reasons to be optimistic, such as lower channel inventories of our products, a decreasing interest rate environment, recent news indicating that China is restarting soybean purchases and the possibility for additional subsidies for growers. Against this uncertain backdrop, we are confident in maintaining our full year 2025 adjusted EBITDA target of $40 million to $44 million. We have lowered our forecast for net sales to $520 million to $535 million in 2025 to reflect various market conditions, primarily in Mexico, Central America and Australia. We will continue to control expenses while ensuring that we are operating our manufacturing facilities as safely and efficiently as possible to maximize our gross profit margin. We are confident that we are setting the company up for success in 2026 and beyond. I will now turn the call over to our CFO, David Johnson. David? David Johnson: Thank you, Dak. Good morning, everyone. Our business improvement program is clearly having a positive impact on our financial performance, and we expect further improvements over the coming quarters. Our third quarter 2025 U.S. GAAP revenue was $119 million as compared to $118 million in the same quarter of 2024, a 1% increase. We should note that the third quarter of 2024 revenue was impacted by a nonrecurring item and that the adjusted revenue would have been $130 million in the prior year. Quarter-over-quarter, our U.S. crop business performed well and offset weaker performances for both our Specialty and International businesses. In U.S. crop, we saw a mixed bag with, on the other hand, continued weakness in the potato market that impacted our soil fumigant sales. On the other hand, we performed strongly on both herbicides, up about 50% and granular soil insecticides of about 5%. Generally, for our U.S. crop business, we believe that channel inventories are low, and we have seen pricing pressure ease. Within Specialty, we saw some weakness in our horticultural business which was, to a degree, affected by the product liability matter. Having started the quarter weekly, that business picked up as we progressed through the quarter as our customers trust began to return. Furthermore, our mosquito adulticide product saw slow sales after a weak season with fewer storms, leaving vector control districts in key states, slightly longer inventory. International sales were down, driven by our strategic decisions in Brazil to drop lower-margin business to allow our organization to focus on servicing higher margin customers and products. In Australia, we have seen significant droughts in key regions, resulting in lower sales. Similar weather patterns have impacted some areas in Central America, while the market in Mexico has not fully destocked. On a U.S. GAAP basis, gross profit margin increased to 29% during the quarter as compared to a gross profit margin of 15% in the year ago period. A few moments ago, I mentioned the nonrecurring item that affected sales this time last year. If I made the same adjustments to gross margin, we would have recorded 26% in the third quarter of 2024. We continue to have a tight grip on our operating expenses. We cut our selling expense for both the 3- and 9-month periods primarily as a result of implementing a more streamlined global organization structure. General and administrative expenses are also down following the organization redesign, however, those cost savings are masked by increased accruals for incentive compensation, reflecting our year-to-date financial performance. We have made larger cuts to our research, product development and regulatory costs, focusing on return on investment for product development projects and by cutting out the spending on the SIMPAS project. Overall, our operating costs are down 11% or $5 million in the 3-month period and $18 million or 14% year-to-date. Looking forward to the final quarter of the year, as Dak mentioned, we expect most cost savings that we have achieved to stick, although product development spending is historically higher in the fourth quarter. Having said that, the R&D costs are forecast to be below last year. Including in the 9-month saving just discussed, spending on transformation activities reduced by about $11 million. That was a planned reduction as we are now driving business improvements from in-house resources. Offsetting that saving, we incurred an expense in the third quarter of 2025 related to the product liability claims. With regard to those product liability claims, which relate to the Specialty business, the company made the decision that we have sufficient information to record a liability for the expected cost of settling the claims. We have set up the necessary resources to administer the claims process, and we have commenced with claims assessment and payment processes. We expect the expense we have recorded this quarter to be fully reimbursed in the future by a combination of funds from the at-fault counterparty and/or their insurers. We have made an assessment and determined that it was in the company's best interest to proceed with settling customers' claims, even though at this point, we do not have sufficient information to be able to record the offsetting indemnification assets. Now turning to the balance sheet. Our improved SIOP process has allowed us to operate with comparatively less inventory than we have had in the last 2 years. Our inventory is approximately $47 million less than it was at this time last year. And as is usually the case with our -- for our annual business cycle, we expect to meaningfully draw down our inventory during the fourth quarter of the year. Our net trade working capital was approximately $24 million lower than this time last year. We keep a sharp focus on these balance sheet items as we seek to limit accessing our revolving credit line. We have decreased our net debt as compared to the same period of last year by approximately $2 million to $165 million. While our net debt only modestly reduced, we bought in less early pay during the quarter than this time last year. While customer interest was high, we made the strategic decision to seek significantly less early pay in the third quarter of 2025 than we did in 2024. As usual, we will be working with customers on the early pay options during the fourth quarter of this year. Since our last conference call, we announced that we had reached agreement with our senior lenders to extend the term of our credit facility to December 31, 2026. As we continue to improve the business, we will continue to work with both our current lenders and potential new lenders to restructure our debt. We believe that as we continue to deliver, lenders should be drawn to our improved profitability and cash flow profile. We look forward to providing the investment community with an update on this effort at the appropriate time. As we said on the last call, we expect $5 million to $6 million of CapEx in 2025, coupled with our expectation of $40 million to $44 million in adjusted EBITDA for the full year. Thus, we expect to generate reasonably attractive cash flow in the fourth quarter of the year. We will apply virtually all of this free cash flow towards debt paydown. With that, I'll turn the call back to our CEO. Dak? Douglas Kaye: Thank you, David. Before opening up the call to questions, I would like to thank the team for implementing the changes that are necessary to improve this business. Your hard work is delivering tangible results. While the market slowly improves, we will continue to focus on things we can control, improving our manufacturing efficiency, keeping our close eye on net trade working capital and minimizing our operating expenses while focusing on long-term growth opportunities. This is a business that has always been a resilient one with products that are proven and effective and backed by the best technical team in the industry. It is also a business that can produce even greater cash flow now that we are a globally integrated organization. The future is bright for American Vanguard with a robust product pipeline improved cost structure and a focused team, we will remain on track to be the trusted provider of proven agriculture and environmental solutions. With that, I'll open up the call to questions. Operator? Operator: [Operator Instructions] Our first question is coming from Mike Harrison with Seaport Research. Michael Harrison: I was hoping we could start out by talking a little bit about some of the trends that you're seeing across the different portions of your business. Maybe starting with the strength in U.S. crop, it sounds like the herbicides area was very strong for you. Can you talk about what was driving that and maybe how you're feeling about momentum into the fourth quarter and into the first part of next year? Douglas Kaye: Sure. The U.S. crop was very -- performed very well in Q3. As you mentioned, the herbicides, Impact and Envoke were performed very well year-over-year as well as Aztec in the quarter. What we're seeing is more normal demand in the U.S. crop business. Therefore, we're not having to incentivize as much as we have -- as we did in Q1. There's a lot more upbeat around the -- in the channel with distribution. There's still a cloud overhanging, the farmers in the marketplace around the tariffs and the impact on soybeans, primarily. But in general, we see corn acres, they were up this year, and they are being projected up next year, so that bodes us well for our portfolio in the U.S. Michael Harrison: Great. And then on the non-crop or what you're calling the Specialty side of the business, it sounds like maybe the product liability situation dragged on part of that business. Is that something that is more of a onetime issue and we get back to growth in Specialty as we look into the fourth quarter? Or is that product liability issue something that's going to continue to drag for a few more months or quarters? Douglas Kaye: Yes. Good question, Mike. From an accounting standpoint, we've gone ahead and recognized the impact of that potential claim. We still have the offset that we're working through, the mitigation there, and we fully believe that we're going to get reimbursed for our claim there. We are completely not at fault and the counterparty is related. But it was a drag on the first part of Q3 in the Specialty business. We started to process those claims and get communication to the customers more readily, middle to end, seems to be flowing much better now. The market has been very receptive, actually, customers have been very pleased with the fact that we have started processing these claims in light of the situation. So I don't believe that it is a long-term impact. I believe you'll see growth in Q4 and in Q1 for Specialty. Michael Harrison: All right. That's good to hear. And then, David, I was hoping you could talk a little bit about free cash flow generation for this year. I believe you used the term reasonably attractive, is there any way to put any numbers around that? It seems like you're making good progress on working capital, and that should improve even further during the fourth quarter. David Johnson: Yes. I mean we had good cash inflow in the third quarter in comparison to the performance in the first 2 quarters. So that was encouraging. It wasn't quite as big as this time last year. But as I mentioned in my prepared remarks, we got -- we went out for and got less than we got last year in terms of early pay we got more than we looked for. So that was good news. And our cash flow in the final quarter will depend to a degree on the early pay, but it looks pretty good at this point in time. So I'm expecting inflow similar to last year, which was quite strong. Michael Harrison: All right. And then last question for me is just on the transformation process. It sounds like transferring that to the internal team is a really important step, I was hoping... Douglas Kaye: Did we lose Mike? Michael Harrison: Sorry, can you still hear me? David Johnson: We lost you for a moment. Douglas Kaye: If you could repeat the question, Mike. Appreciate it. Michael Harrison: Yes. Transferring -- the transformation process to the internal team sounds important. Can you talk about how meaningful that is? And maybe talk a little bit about how we should think about potential savings and further actions into next year? Douglas Kaye: Thanks, Mike. This is an important transition of the transformation process to our business improvement initiative. It's primarily to tweak it and manage it internally and give accountability to the plan as we go forth. There's a lot of potential, as I've said a few times, on investor calls, I believe that the Kearney had a great set of initiatives that created a blueprint to go forward with. But I do believe that the plan was really looking at low-hanging fruit, and there's a lot of other fruits on the tree, there for us to grab, specifically in the manufacturing efficiencies and as we get into the SIOP process more formalized, we'll see benefits there throughout the P&L and EBITDA. Operator: Our next question is coming from Wayne Pinsent with Gabelli Funds. Wayne Pinsent: Dak, congrats on a nice improvement there in the quarter. Just wanted to -- a competitor on their call recently noted increased generic pressure in the market. Just wanted to get your thoughts there and if that's impacting you guys at all? I know you noticed that pricing is starting to stabilize, but any color there? Douglas Kaye: Yes. Not speaking directly to the competitor situation. But in our situation, we have one product that underwent competition over the last couple of years. Quite honestly, we feel like we're in a very good spot this year, and we've seen an increase in volumes due to various market conditions, I would say. I think also the benefit that we have being a U.S. domestic supplier and producer and specifically on this product I was talking about Folex, we have a benefit there. And we should see some increased volumes in 2026 with Folex, we're planning for it as well. So there's always going to be generic competition in the marketplace. It's just always important to be cognizant and looking forward to those situations and making sure that you're planning accordingly is what I would say. Wayne Pinsent: Okay. So nothing significantly different than what you've been seeing? Douglas Kaye: Correct. Wayne Pinsent: And then Corteva announced that there's splitting up their seed and crop business. Just any positives or negatives there for AVD looking forward? Douglas Kaye: I think there's going to be some -- I mean, this is very broad. I think there will be some consolidation in the marketplace with what the other majors are planning to doing as well, the potential with Bayer as what they might do as well. So I think there's -- ultimately, there's going to be some consolidation in the marketplace in the next 12 to 18 months. And with consolidation, we see a strong opportunity to get back to what we were doing 10 years ago, which was buying a portfolio of products off the basics when they go through these consolidation period. So in the next 12 to 18 months, I think there will be a real opportunity to add to the portfolio through acquisitions. I think that's the most positive aspect of that. Wayne Pinsent: And then just -- I know you're not going to give a guide on 2026, but just thoughts on volume and pricing trends. I know you mentioned pricing improved seems to be stabilizing. Just what you're seeing, and if the crop protection market stabilizes and returns to more normalized low single-digit growth, how do you think AVD could perform in that environment now after a few down years? Douglas Kaye: I think we'll perform well. I mean in -- we set the company up to perform very well in 2026. There's the transformation plan in 2024, reorganizing the team, implementing global best practices in 2025, setting the stage for a very upbeat 2026 outlook, in my opinion. And I think the team is well positioned. The organization is well positioned. We've got a clear vision of who we are and where we're going to go. I think the pipeline is growing there. It's not going to be there in 2026, but it's going to be there in '27, '28, '29. So we're going to get there. And I think with the current situation with the market stabilized, the channel inventories lower, we should definitely see volumes increase in 2026. Wayne Pinsent: Okay. Great. And then last one for me, and you just touched on it there. The $100 million of net sales over the medium term from the pipeline, any more color on that and kind of the cadence of how you could see that playing out. Douglas Kaye: Yes. Great question, and thank you for asking it. because it is something I'm excited about. It was -- when I first got to American Vanguard, I was a little bit disappointed at the pipeline of products that we had there at here. And I think it was -- it because of multiple reasons, the SIMPAS technology was so heavily in focus of new products were not in focus, so to speak. Having said that, as we get into this year and started organizing and analyzing, there is -- there was some very good products in the product pipeline, that we brought through and cleaned -- clearing -- clear through the stage gate process to -- in order to formalize it to get to that $100 million that we're talking about there. It's -- there's some really nice product spread pretty broadly across the U.S. crop, International markets and in Specialty. It's like I said, there is a gap here. We're not going to see fruition on those new product sales until materially until starting to '28. Just because it takes 2 years, in most cases, 2 to 3 years to bring a new product to market. So I think what we've gained through this last year is the ability to put the new product pipeline in focus and give accountability to the time line of bringing these new products to market. And I'm more -- I'm really upbeat about it now that we put it on paper and looked at it and validated them. So it's pretty exciting. Operator: Our next question is coming from Charles Rose with Cruiser Capital Advisors. Charles Rose: I just want to go through a couple of numbers on the free cash flow issues, just to make sure I got them down, sort of properly. It looks like if you do something between $40 million and $44 million of EBITDA, I take out, let's say, $5 million or $6 million of CapEx, maybe there's $1 million or $2 million of cash taxes at most. I don't think there's much cash taxes. And then interest expense is $20 million. And then maybe working capital is a source of funds, I'm assuming working capital maybe is $5 million or $6 million of the source of funds for the full year. You get free cash flow of about $20 million. Is that sort of the way to look at it? Douglas Kaye: That's where I would pencil it up exactly. I think interest, we should be a little bit under $20 million. But yes, that's a good estimate, Charlie. Charles Rose: Okay. And then if I extrapolate that deck a little further out, right now, your leverage ratio at $165 million of EBITDA -- I'm sorry, I wish you were $165 million EBITDA, $165 million of net debt and $40 million to $44 million of EBITDA, your leverage ratio is running 4x. So by next year, let's say, you can get the numbers up towards something in the $50 million zone, and you can get down the debt by another $20 million, you should be able to get 1 turn of leverage reduced. Is that sort of the goal you're trying to get to, Dak? Douglas Kaye: Absolutely get that number under 3 is the primary goal that we're working for there. Charles Rose: So that's sort of what you want to do when you get towards a refinancing issue, right? Douglas Kaye: Yes, yes, indeed. We've shown positive momentum in Q2 and Q3 with our performance. And we are in the process, the mix of the refinancing initiative right now, right in the middle of it. Charles Rose: Then the last question I want to get to, which was asked earlier about Corteva. Obviously, we're seeing companies being set up to take advantage of consolidations. Then you see this issue with FMC and their, let's call it, their troubles. Can you give us some color on that situation too, Dak, if you could, just to say is there something more problematic there? Or is it something that's not as problematic as we -- as the market is suggesting. I'd love to hear your color on this whole thing because we're seeing now a differentiation between different issues of the ag industry. Douglas Kaye: Yes. I'm going to be hesitant to speak about that one competitor, Charlie. I have some thoughts on it. But I really don't want to go there if that's okay. Charles Rose: Okay. So I understand. Because it is a very levered company, and it seems to be more troubled with their products and their there -- it could be much more trouble than we think. That's I was just wanted to get your thoughts, but I understand you're not commenting. Okay. Anyway, congratulations on moving the company forward and look forward to your next quarter as well. Operator: [Operator Instructions] Our next question is coming from Dmitry Silversteyn with Water Tower Research. Dmitry Silversteyn: Congratulations on a solid quarter. I'm just curious to dive in a little bit more in your gross margin improvement, 300 basis points of adjusted gross margin year-over-year given what's going on in the industry is pretty impressive. So I was just wondering if it had more to do with the manufacturing improvements you've made over the last year. Was there some pricing or mix involved? So what were the major buckets that allowed you to get that 3-point improvement on a year-over-year basis? Douglas Kaye: Yes. Dmitry, great question, and thanks for asking it. I think it's a combination, not one specific thing there. It's a combination of sales starting to flow more easily into the marketplace, specifically in the U.S. without so much incentives too. I think the SIOP process is allowing for the inventory replacement cost to be funneled through the P&L now as we've worked off a lot of that old inventory, which is helping the margin. But I think also the manufacturing efficiencies we -- which is both the combination of focus on the manufacturing activities as well as the coordination and communication between demand planning, production planning and procurement is allowing for expand margin there as well. So I think it's a combination of several things. And mostly, it's the great teamwork that we've got going on at American Vanguard. Dmitry Silversteyn: So it sounds like you didn't have to be as promotional this quarter as you did this time last year. So pricing or mix may have improved a little bit in addition to your internal improvements as far as manufacturing costs themselves are concerned. Is there anything in your -- as you kind of look out towards the end of the year and early in 2026, any concerns on the raw material situation, anything giving you issues or giving you a reason to expect that your costs are going to be going up faster than inflation, let's call it. Douglas Kaye: No, Dmitry. I mean, really not. I mean, we've analyzed the tariff impact heavily. There is some. But quite honestly, most of the tariff impact is being offset by lower COGS, raw material costs that we're seeing. So it's been mitigated there quite substantially. We were just talking about one raw material just last week with the procurement team, and we're seeing a nice downward trend on that raw material costing. And so yes, I don't see anything in our COGS that's increasing at this point in time. Dmitry Silversteyn: Wonderful. And then the last question, just sort of the mood in the marketplace. You talked about inventories getting more -- kind of in a more appropriate level in the supply chain and for yourself internally. Given that there's a pretty strong outlook, you mentioned the increased acreage likely again next year in North America. Would you expect your season in the fourth quarter and the first quarter to proceed in a more normal way where demand in the end market is actually reflected in your results and not so much from inventory clearing out of the channel? Douglas Kaye: Yes. Yes. So I think the -- I mean, personally, I think the inventory -- not personally, what we see from our data from the systems, the third-party process that we get as our inventories in the channel. Our products are very low, and are lower in relation to prior year. And so we feel that the inventories are down, so the normalized buying is coming back. Now what the normalized buying is, we don't believe it's going to be building inventories. But on an annual basis, the product being bought and sold should be consistent. So we don't feel at this point in time, unless there's a black swan event that they will start building inventories again to the level they did right before COVID just because the market has enough supply and the customers know that now. Operator: Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session and of our call. This will conclude today's call, and you may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to Ranger Energy Services Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joe Mease, Vice President, Finance. Please go ahead. Joe Mease: Good morning, and welcome to Ranger Energy Services Third Quarter 2025 Earnings Conference Call. We appreciate you joining us on an exciting day in Ranger's growth journey. Before we begin, Ranger has issued a press release outlining our operational and financial performance for the 3 months ended September 30, 2025. The press release and accompanying presentation materials are available in the Investor Relations section of our website at www.rangerenergy.com. Today's discussion may contain forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, please note that non-GAAP financial measures we referenced during this call. A full reconciliation of GAAP to non-GAAP measurements is available in our latest quarterly earnings release and conference call presentation. Joining me today are Stuart Bodden, our Chief Executive Officer; and Melissa Cougle, our Chief Financial Officer. Stuart will begin with a strategic and operational overview, including commentary on our acquisition of American Well Services. Melissa will then walk through a financial summary of the transaction and the results for Ranger's third quarter. Following their remarks, we'll open the call for Q&A. With that, I'll turn it over to Stuart. Stuart Bodden: Thank you, Joe, and good morning, everyone. Today marks a significant milestone in Ranger's journey. This morning, we are proud to announce the acquisition of American Well Services, a leading Permian Basin focused well services provider with the fleet of 39 active workover rigs, new complementary service lines and over 550 employees. This transaction represents a strategic acquisition that strengthens our position as the largest well servicing provider in the Lower 48 and enhances our ability to deliver differentiated technology-enabled solutions to our customers. Let me start by sharing why AWS is such a compelling addition to Ranger. Outside of adding meaningful scale to our high-specification rig business in the Permian Basin, AWS brings a well-maintained fleet of high-spec rigs that includes extensive supporting equipment and an excellent safety track record. The AWS business also provides a suite of complementary service lines to Ranger, including tubing, rentals and inspection, chemical sales, mixing plants and transportation and logistics, amongst other services. Their operations are deeply rooted in the Permian Basin since founding. And their team has built a reputation for safety, reliability and operational excellence similar to that of Ranger. They have grown the business strategically over the past 7 years through a combination of inorganic and organic growth, and they have established themselves as a strong customer base that is anchored by major operators. This acquisition will expand Ranger's rig count by approximately 25%, strategically increasing our market share in the premier oil and gas basin in the Lower 48, while also unlocking meaningful pull-through revenue opportunities for Ranger's own high-spec rig business. AWS' customer base is highly complementary to ours. While we share some of our largest customers, there are new customer relationships that broaden our market reach on the AWS side, and we look forward to further expanding these relationships in the future. From a financial standpoint, the purchase price of approximately $90.5 million represents less than 2.5x trailing 12 months EBITDA, with consideration consisting of a prudent mix of cash and equity, along with an earn-out that is tied to AWS' assets, generating at least $36 million of EBITDA over the next 12 months. Additionally, we expect to realize approximately $4 million in annual cost and revenue synergies once integration is complete. The transaction is immediately accretive to earnings and cash flow with minimal dilution. In addition to the share repurchases, we have been successfully executing over the past 2 years, AWS represents an even higher return on capital comparatively, given the discount of the deal multiple to our own trading multiple. We are supporting the transaction with minimal borrowings on our revolver and pro forma leverage of less than 1/2 turn. On a pro forma basis, Ranger is now expected to produce over $100 million in adjusted EBITDA in 2026 under current market conditions, with an earnings potential that is much higher when commodity prices recover in the future. Our Executive Vice President of Well Services, Matt Hooker, Melissa and I are here in the Permian Basin today, while hosting this call to welcome our new Ranger team members of aboard and continue the integration planning that has already commenced. We have been preparing comprehensive integration plans based on proven playbook from prior acquisitions, including our successful integration of the Basic Energy assets. AWS personnel share our cultural focus on safety and operational excellence, and we are excited about building upon the great foundation already created by both companies to forge an even stronger path together in the future. We will complete the integration with focus and efficiency, and we anticipate finishing the majority of integration activities during the third quarter of 2026. AWS is a strategic extension of what we already do well. It strengthens our existing abilities in our flagship service line, cements our footprint in the Permian Basin and enhances our ability to serve customers, all while doing so at a great valuation. Acquisitions like AWS accelerate our strategic road map, position us for continued success and give us the ability to whether cycles better while enjoying enhanced pro forma cash flows that enable other ongoing efforts like the ECHO rig deployment program. Last quarter, we announced our ECHO hybrid electric rig program, which represents a step change in the workover rig space and continues to gain momentum. Ranger's ECHO rig is the first of its kind, double electric hybrid rig, bringing to market a program to convert existing conventional workover rigs into a new rig that greatly reduces emissions, while also taking a meaningful step forward with regards to safety. The first 2 ECHO rigs have been delivered to the field and are currently completing their final testing before they begin working on live wells. Customer interest remains robust and we see strong demand for the efficiency, safety and environmental benefits these rigs offer and expect additional contracts to be signed in the coming quarters. Before I turn the call over to Melissa, I'd like to make some comments about our quarterly performance as well as some early views on 2026. For the quarter, our financial results showed continued resilience in our core production-focused service lines, although we did see weakness in declines in completion-focused areas and in some of our northern focused districts where commodity price pressures are leading to activity declines. We mentioned in our prior call higher-than-normal levels of asset turnover as certain customers adjusted their well programs in light of current market conditions. And this has resulted in greater than expected standby time on the books this quarter. We reported $128.9 million in revenue for the third quarter, which represented a quarter-over-quarter decline largely as a result of our completion exposed businesses. Ranger reported $16.8 million of adjusted EBITDA for the quarter, achieving a 13% adjusted EBITDA margin. Our high-spec rig segment continued to be the cornerstone of our business, contributing $80.9 million of revenue and $15.7 million of adjusted EBITDA, with margins of 19.4%. Activity levels within our production-focused rigs increased quarter-over-quarter and are on track to return to previous year peaks. That said, completions activity declined more than offset those increases, where customers took extended breaks between drill up programs and released some rigs due to budget exhaustion or generalized activity reductions. Our Ancillary segment had mixed results this quarter, with the largest declines coming on the back of depressed coiled tubing activity. Year-over-year, the combination of completion activity declines and reduced P&A activity brought about from depressed commodity prices has put pressure on this segment. We expect to see a rebound in both of these businesses in the back half of 2026 when lingering commodity supply concerns are resolved. We have also been encouraged by recent progress and contracts signed within our P&A business with regulatory bodies for a safety-sensitive plug and abandonment work, where Ranger's experience and track record make it a provider of choice. This quarter, our Wireline segment showed some stability despite lower activity levels with revenue of $17.2 million and $400,000 of adjusted EBITDA. At the end of the quarter, we were encouraged by the signing of 2 new customer contracts with major independent operators, which give us light of sight to more sustainable revenue levels in 2026. Margins in this segment remained challenged, and we expect this trend will continue through the winter months, with recovery planned in March as the winter weather effects [ subsides ]. Looking forward to 2026, we are encouraged and optimistic on the back of newly created growth avenues with the AWS acquisition. We have weathered the pullback over the past several quarters with continued strong cash flows and deploy these cash flows wisely to make investments countercyclically, buying back a meaningful number of our owned shares when the stock came under pressure. And today announcing an acquisition that is anticipated to bring about strong returns on capital. Next year, we expect to generate greater than $100 million of EBITDA for the first time in Ranger's history, which represents a pivotal milestone in our growth path. We believe there is much room to grow from there when market conditions improve and when our ECHO rigs see increasing adoption in future periods. With that, I'll turn the call over to Melissa before providing a few final closing comments. Melissa Cougle: Thank you, Stuart. I'd like to first walk through a few specifics around our announced transactions. Today, Ranger entered into an agreement to acquire American Well Services for a purchase price of approximately $90.5 million in a cash-free, debt-free transaction. The consideration consists of approximately $60.5 million of cash with reductions for indebtedness and select other items as well as 2 million shares of Ranger common stock. An earn-out of $5 million payable in cash in 1 year is dependent on achieving $36 million of EBITDA in the first 12 months. Ranger used its existing cash on the balance sheet for the cash consideration portion of the transaction and supplemented with borrowings on its credit facility. Pro forma, Ranger anticipates having approximately $30 million of borrowings, post close on its facility, representing less than 1/2 turn of leverage. Ranger intends to repay the borrowings in due course with free cash flow. The company has identified $4 million dollars of operational and administrative synergies that are anticipated to be realized by the end of the third quarter of 2026. Everyone on the Ranger team is excited about what the future holds for the combined organization. Turning to third quarter results. Revenue for the quarter was $128.9 million, a decrease of 16% from $153 million in the third quarter of 2024 and down 8% from $140.6 million in the second quarter of 2025. The decline was primarily driven by reduced completions activity in the broader market as well as activity declines in the Bakken and Powder River Basin this year. Net income was $1.2 million or $0.05 per diluted share compared to $8.7 million or $0.39 per diluted share in the third quarter of 2024 and $7.3 million or $0.32 per diluted share in the second quarter of 2025. Net income reductions are a consequence of the aforementioned reductions in activity, both year-over-year and quarter-over-quarter. Ranger is reporting adjusted EBITDA for the quarter of $16.8 million, representing a 13% margin. Now let's look at performance by segment. High-spec rigs generated $80.9 million in revenue, down from $86.7 million in the prior year period and $86.3 million in the prior quarter. Rig hours totaled 111,200 hours for the quarter with an average hourly rate of $727. Work hour reductions were related to a reduction in completions devoted rigs during the quarter, while the hourly rates were affected by larger-than-normal amounts of standby time for rigs when they operate at a much lower margin between active jobs. Adjusted EBITDA for the quarter was $15.7 million. Processing Solutions and Ancillary Services delivered $30.8 million in revenue, down from $36 million in the prior year and $32.2 million in the prior quarter while operating income was $3.4 million and adjusted EBITDA was $5.5 million for the quarter. Year-over-year activity declines were predominantly in plug and abandonment and coiled tubing service lines while quarter-over-quarter declines were related to coiled tubing and Torrent Service lines where some recently idled equipment has not yet found new contracts. Finally, Wireline services reported $17.2 million in revenue with an operating loss of $4.2 million and adjusted EBITDA of $400,000. This segment was impacted by lower activity as well as noncash inventory adjustments of $1.6 million that affected operating income but were treated as an adjustment to EBITDA given their onetime nature. Our efforts this year to create a more sustainable operation and run with improved cost efficiency are most evident when comparing the positive EBITDA this quarter with the $2.3 million EBITDA loss in the first quarter this year where we had similar revenue levels. We intend to build upon these efficiencies in 2026 with the signing of additional contracts, as Stuart mentioned in his comments. And turning to the balance sheet. As of September 30, 2025, total liquidity was $116.7 million, consisting of $71.5 million of capacity on our revolving credit facility and $45.2 million of cash on hand. Free cash flow for the quarter was $8 million or $0.37 per share, reflecting continued strength in our cash conversion. Year-to-date, we've generated $25.8 million in free cash flow which has been deployed in the announced transaction today with AWS as well as through our shareholder return program. During the quarter, we were very actively, repurchasing 668,000 shares for $8.3 million, bringing year-to-date shareholder returns, including both share repurchases and our base load dividend to $15.6 million. Our capital allocation strategy remains focused on balancing disciplined growth with shareholder returns. Capital expenditures year-to-date totaled $19.1 million, down from $28.7 million in the prior year period. The current year-to-date figure includes payments related to procure and build our 2 newly delivered ECHO rigs. Our leverage profile remains conservative, and we continue to maintain financial flexibility to pursue strategic growth opportunities like the AWS transaction, while simultaneously returning capital to shareholders. We will continue to be prudent stewards of our balance sheet and capital return framework in the year. Before I hand it back to Stuart for closing comments, I want to reiterate that our financial discipline strong liquidity and consistent free cash flow generation position us well to execute on our strategic priorities. Stuart Bodden: Thanks, Melissa. As we close out the third quarter, I want to reflect on the progress we've made and the opportunities ahead. The acquisition of American Well Services is a clear example of our disciplined approach to growth. It's a transaction that enhances our scale, expands our service offerings and strengthens our position in a key basin. With AWS, we're not changing who we are, we're building on what we do best. Our integration plan is already in motion, and we're confident in our ability to execute. We've done this before, and we'll do it again with measured urgency, precision and a focus on creating value for our customers and shareholders. At the same time, our ECHO hybrid electric rig program continues to gain traction. These rigs represent the future of well servicing and the AWS acquisition gives us a better platform upon which we can accelerate that future. Together, we're delivering innovation, efficiency and safety in ways that set us apart. We remain committed to our purpose to be the best well servicing provider in the Lower 48 on behalf of our customers, partners, employees and shareholders. Strong free cash flows and prudent returns to investors remain our guiding principle and we will continue to make our strategic decisions and allocate our capital with discipline and foresight. With our balance sheet in excellent shape, our integration playbook in action and our technology road map expanding, I'm more optimistic than ever about the next chapters for Ranger. I want to thank our Ranger employees, customers and the AWS team for their partnership and commitment throughout this process. We're excited to welcome AWS into the Ranger family and look forward to everything we will achieve together. Thank all of you for your continued support. We'll now open the call for questions. Operator: [Operator Instructions] The first question comes from Don Crist with Johnson Rice. Donald Crist: Congrats on getting the AWS transaction across the finish line. Stuart Bodden: Thanks. appreciate it. Donald Crist: I wanted to ask about kind of the geographic footprint of AWS. Is it mostly in the Permian? Or does this kind of expand you into other areas? And I guess that goes for both the workover rigs as well as the other service lines. Stuart Bodden: Everything is in the Permian Basin. It's a 100% Permian Basin player. Donald Crist: Okay. And then as far as like tubing rentals and inspection and some of the other business lines that you're not in now, like how big is that in relation or maybe you want to characterize it into EBITDA or whatever metric you want to use as compared to the high-spec rig fleet? Stuart Bodden: Yes. From, from a revenue perspective, it's about 45-55 meetings. About 55% of the revenue is a direct overlap with Ranger and about 45% is service lines that are unique to Ranger. But I think one of the things we're excited about is a lot of the service lines are being sold into some of our existing customers. And so we think there may be an opportunity to expand them in the future. Donald Crist: Interesting. And my last question, and I'll return to queue is on ECHO rigs, where are we in the process? I believe they've both been delivered, but have either 1 of them going to work? And kind of what are your first impressions now having it in your possession? Stuart Bodden: So there's 2. One is in the Bakken currently and one is in the Permian Basin. They are each kind of undergoing final testing. We expect the one in the Bakken to be working on live wells within the week. And we think the one in the Permian Basin right after that. We're pretty excited, Don. If you just kind of just go -- if you go up to the rig, if you just think about the safety features it has, how quiet it is, we've obviously talked about some of the incremental benefits. But I think everybody that has been up and close to it has been pretty blown away. So we're very much excited to get it over a live well. Operator: The next question comes from John Daniel with Daniel Energy Partners. John Daniel: I'll echo Don's comments on consolidating the Permian, good for you. First question is the customer base for American. Can you -- sure you don't want to name the customer, but can you give some color as to the customer base? Stuart Bodden: Yes, they have pretty similar customers to us and they have a very large customer that we're very familiar with as well that we do a lot of work with. But I think as I made in the comments, they do have some other customers that Ranger has not historically worked with. So we think there's an opportunity there. But for sure, there's some meaningful overlap with the customers. But we think that's going to be a positive. We expect all that work to continue. John Daniel: Got it. And then on the ECHO rig, when your customers are looking at that, are they looking at the adoption to replace an existing one of their workover rigs. And when they do that, are they looking to displace one of your competitors? Or are you -- is this potentially a maintenance CapEx, growth CapEx? Can you just elaborate on how you see the adoption rolling out and how that changes the competitive landscape with those customers that take the rig? Stuart Bodden: Sure. So right now, they're additive. We're not taking away. That said, as we think about over time, we would expect that these rigs would be deployed and would either replace some existing rigs of ours or competitors. But we don't think that's going to be one for one, right? So if you put 2 ECHO rigs out, maybe they collectively displace 1 conventional, something like that. John Daniel: Fair enough. And then just a final one, I'll try to get you the answer. Would you give us an over or under on how many ECHO rigs get built in '26? Stuart Bodden: Over or under in '26? John Daniel: Yes. What would make you happy? And what would disappoint you? How about that? Just doing it another way. Stuart Bodden: Well say take over or under at 10. Operator: This concludes our question-and-answer session. I would like to turn it back over to Stuart Bodden for any closing remarks. Stuart Bodden: Thanks, Steve. Again, just thanks to all of you for your continued interest in Ranger. As we said, it's an incredibly exciting time with the deal, with the ECHO rigs. We're really just excited about how everything is coming together. So we look forward to talking to all of you in the weeks ahead. Thanks a lot. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Jan Pahl: Gentlemen, my name is Jan Pahl, and welcome to the Hypoport SE Q&A results Q1 to Q3 2025. I'm here together with this lovely gentlemen, Ronald Slabke, our CEO, here. And together, we would like to organize this Q&A session. Jan Pahl: [Operator Instructions] And we are very happy to wait until the first question on our Q3 results [indiscernible]. And in the meantime, we have decided to start with a question, which I got just a few minutes ago via e-mail. So maybe this is a good -- even it's a little bit complicated one, it's a good idea to start with. It is regarding our JV. So at least the question to Mr. Slabke is, could you please explain if Europace has maybe lost market share because of Deutsche Bank issues. So the German mortgage market volume seems to increase more than the Europace volume this year. If Deutsche Bank is priced themselves out of the market while the German mortgage market volume continues to increase, who is taking over these Deutsche Bank market shares at least. So -- and I'm sorry, I forget to start the record. Should I summarize it again. Okay, sorry for that. Now we are live on now record has started. We are already live. So once again, our first question here on our Q&A result is if maybe Europace has lost market share because of Deutsche Bank because it looks like the German mortgage market is increasing a little bit faster than the Europace volume, and this is because Deutsche Bank is pricing them out of the market, out of the Europace market. Who is taking over these shares from Deutsche Bank? Ronald Slabke: Okay. A good question. Let's start with this that -- in general, we see a healthy market environment right now. So the recovery of the German mortgage market from the crisis in 2022, second half of the year and 2023 is over and the market is, let's say, coming back. So the speed of this recovery looks slightly different in different areas of the market when you think about what the mortgage is used for, regional differences between metropolis and rural areas, but as well the different market participants perform slightly different in this market. So what we see from the reporting and as well from our numbers and activities, regional banks are pretty successful right now, especially in a year-on-year comparison because they had a weak start in 2024 still. And so they come from a lower base level when you look on the 9-month numbers. So cooperative banks and savings banks are taking market share right now. In a certain level, it may be even -- or in a small level, it may be linked to the rollout of Europace in both of their groups and the rollout of a lot of features that we provided to them, which improves their competitiveness, their efficiency in the market and as well the conversion rates of their advisers there. So they're performing well. And as you saw already in our results, we're performing well with them as well. So a next group where there are no clear statistics, but where we see that on a, let's say, daily basis that they operate well in the current market environment are mortgage brokers. A group which heavily is using Europace is depending on Europace. And with only one large German mortgage broker outside of Europace, Interhyp Group as another market participant in this area. For consumers, the interest rate is very important again right now because it has risen from a much lower level in the last 10 years. And on a higher interest rate level, comparing interest rates is something very German and very efficient and creates a huge benefit for the consumer who is comparing. And brokers, thanks to Europace or in case of Interhyp, thanks to their own system are comparing hundreds of banks and offers with them and enabling consumers a great deal at the end. And so let's say, compared to bank branches, they are usually independent structures. So freelancers working on -- for their own profit, their own benefit. They are much more agile and aggressive and using Europace better in interacting with the clients than the typical bank branch in Germany right now, which is not using Europace. So this [indiscernible] takes market share, and they are all supporting that Europace is growing. And in none of these 3 sectors, we lost a single relevant participant of the market. We just gained structures all the time. So what is certain, and this is the analysis of the one who made the questions right, the private banking sector lost market share in this environment in the last, you can say, 2 years. And this is -- Deutsche Bank plays a role there. They have a strategic goal to reduce their mortgage exposure and reduce their new mortgage volume because of their return on investment requirements. So equity is expensive for Deutsche Bank. It wants it wants to optimize its return on equity and this leads to a lower new mortgage volume and the decline in balance sheet for them in this business. So Yes, all Deutsche Bank business goes for Europace. So we see the lower numbers as well, less contribution to our overall numbers. And if you want to just look on the volume, you can say we lost thanks to Deutsche Bank a certain volume in the market. We don't treat this as a market share loss. We know that Deutsche Bank will come back and that the volume in the other markets is something where we are super successful in getting forward in all other banking groups. So longer answer to this simple question. Jan Pahl: Fair enough. Great because I think it's important. So I appreciate the detail. I got -- received a couple of questions. Let's for a moment, stay with real estate and mortgage platforms segment. There's a special, but maybe it fits because you mentioned the saving bank Sparkassen. So the question is, could you please tell us a little bit more about Project [indiscernible], which is with the Sparkassen banks? And how is that impacting FINMAS' market share with internal loan applications? Should we think about Finanz Informatik core banking software as a competitor to FINMAS? Or is it a partner? And maybe you can explain a little bit [indiscernible] because it's an acronym and maybe not everyone is aware of. So as a kickoff, maybe to start there. Ronald Slabke: Yes. As well, a good question. So we, for 10 years now cooperate with the savings bank sector. And for the last 5 years, our cooperating partner is Finanz Informatik, which is the central IT service provider for the savings bank industry. [indiscernible] a project started roughly 2 years ago is or decided to be started roughly 2 years ago, better say, and we are working on this now for 2 years is a project where we integrate the property as an asset in the mobile app environment of Finanz Informatik so that every of the 30 million users of savings banks in Germany, not just see the balance sheet of the current account and the savings products, but as well the worth of his properties and the mortgage loan linked to this. Every day when he opens the app, he's going to see this, thanks to [indiscernible]. And behind this, the consumer gets different services around the property and the mortgage provided in the app, things like renewing the mortgage are possible or if the mortgage comes from a third party, refinancing this mortgage with a savings bank mortgage. And this is in a rollout process right now. This [indiscernible] project slightly delayed, should be available -- or let's say, it's in the process with some -- a focus group already, but the full rollout should happen now in the first half of next year. So this puts Europace and the FINMAS features and actually as well the Value AG proposition and the automated value model of Value AG in a center position in the savings banks industry, which is a great progress. In addition, we work together with Finanz Informatik right now in -- on the deep integration of the Europace offers and comparisons and product presentation in the Finanz Informatik system. So should we think of Finanz Informatik as a competitor or a partner, by sure, partner. So we integrate both systems with each other more and more. We replace features out of the or we add features, we enhance the user experience of the internal system of Finanz Informatik with Europace features step by step and with this bring more volume to the Europace marketplace. So this is -- it's a strong partnership, which is driven by making savings banks more competitive and enhancing the user experience if a user is using -- is using saving bank as a mortgage adviser. And this is very successful for all 3 involved parties for now. Jan Pahl: Great. Thanks. So for now, let's stay with real estate and mortgage platforms. A short one is what EBIT we expect for this year, next year and medium term, I think it's 3 to 5 years roughly for value. So Value AG appraisal service. Ronald Slabke: Yes. Okay. So Value AG is an heavy investment from our side in valuation as a major part of the mortgage process. And to fully automate this and integrate this with the mortgage process, it was necessary to innovate it by ourselves. And this is a long journey for us by now and linked with huge investments, relevant losses that we had in the last years because of this. So on the loss side, we reduced again this year the investments that we have there and expect for next year that during the year, we will turn profitable. So first half of the year, still some losses, second half of the year, a positive contribution from the side. Why we expect this? We see a very positive traction in the adoption of digital products of Value AG. I mentioned, as an example, cooperative banking sector where we just rolled out an integration solution. We just explained here in the Q&A, [indiscernible] and the role of as well Value AG there in value adding the properties of the consumers in a digital way. So we are progressing in all sectors with this, and this gives us a clear path to profitability already. Plus we see that the efficiency of the whole structure and Value AG, thanks to a stable market environment now is turning profitable. And we see that we can get a fair pricing from our partners, thanks to the integrated solution that we are offering. So this -- the automation that we bring to the value market is -- valuation market is huge. So looking forward, it will never be a high-margin business valuation, let's say never -- not in the next 5 years, this is the horizon, but it's something which together with our offering in our UPS offering as an automated process for advice and transacting mortgages is a win-win situation for both products. So that midterm, we expect the growth from -- on both sides, thanks to the integration, and we expect double-digit growth from Value AG for the upcoming years after turning profitable. Jan Pahl: Great. Thanks. So the next 2 questions are related to Europace and a little bit more detailed. So it seems investors are pretty good informed about. Our start of Europace One, which we started in Q2, could you please tell us how it is developing so far? Ronald Slabke: Yes. So first, what is Europace One? Europace was a free-to-use SaaS solution for now for advisers. We only deal with sales organizations, which then provided this to their intermediaries. And as well for the sales organization, if they were willing to underwrite a certain level of volume, it was free of charge. But we saw that with the heavy investments we do in enhancing the user experience, integrating AI features, we need a different value stream to get a fair share out of the business which we enable and the efficiency and the conversation gains that we create with our investments. So we decided to bundle new features, which we introduced during the first half of this year to a Europace One offering where as an adviser, you book this as an additional monthly subscription offering from us to enhance your experience. You compare this with the freemium model, which is pretty popular in the mobile world, where the general use of an application of an app is for free. But if you want to use special features, you need to sign up and pay extra. So we have to establish for this a way to charge advisers. We have to establish a legal framework for this and we have to -- let's say, we had to build the features and we have to integrate the features in the bundle. So there was a lot of work that had to be done in the first half of this year. And since this summer, we offer to advisers directly, and we have a 3-digit number of advisers that signed up by now. We are still in talk with a lot of large organizations, which doesn't allow their senior advisers to make this choice. So -- and that's often about integration with their systems. We are partially replacing as well third-party solutions with the features that are part of the bundle. So these are slightly longer projects to agree on the usage of Europace OneE. But let's say, with all major partners, we are well on track on getting them signed up as well. So for next year, it will be interesting how the dynamic looks like. In the upcoming years, it will contribute with a 7-digit number to our revenue and profit. But for now, the signing up speed still needs to be improved from our side. But there is a learning path for us because we are pretty new to this way of doing business with individuals. Jan Pahl: Right. So the next question is regarding one click. So it's also once again, Europace, but Europace OneClick. The question is, is there a regulatory hurdle here? And if so, how we plan to overcome it? Ronald Slabke: Yes. So -- only good questions by now, I would say. So one thing is the offering on the credit decision side and to the lenders of mortgages, where we enable them to have a fully automated mortgage underwriting process. We introduced this in the beginning of 2022 when speed was still very important for consumers. Thanks to the massive changes in the market, the attractiveness of the product was recently less high, you can say. But with the recovery of the market now, the whole offering gets more attractive again as well for the banks, not just to speed up the process, but as well to save on the cost of labor and to provide the consumer a digital checkout process equal to this what he knows in other industries. So we have a number of banks which are productive with it and created the regulatory framework necessary to operate with OneClick under German regulation. But it's a hurdle to take, to be clear, it's a hurdle. We provid it as an entry level to this product, a solution where you can automatically score a consumer without a manual input of data just by using access to the account of the consumer to gather the data. We call this entry, Europace entry as an entry product to OneClick. So the process on the side of the property is not automated, but the process of the side of the checking the consumer credit worthiness is fully automated. And there the sign-up is significantly higher. So there's a double digit of banks experimenting with entry and using this already and allowing this and something which we as well heavily promote on the platform because it reduces the work for the adviser, streamlines the process and creates a value proposition for everyone. So the transition is ongoing, and we are constantly optimizing the approach to the market to digitalize this mortgage process even in smaller steps if necessary. And this is as well, we are talking about high single-digit percentage of the mortgage volume already generated via entry or OneClick, but there is still a huge potential going forward, as you can imagine. Jan Pahl: Great. Thanks. It seems there are right now, no more questions on real estate and mortgage platforms, but we received a couple of other questions to the other segments. So we switch now to financing platform. And here's a question, same like for Value AG. So which EBIT we expect for this year, '26 and for the midterm 3 to 5 years? Ronald Slabke: Yes. Okay. Let's say, this year, at the end of Q3 and so at the beginning or before the final quarter, which is very relevant for the success of this segment, it's, let's say, difficult to give an exact prognosis. So last quarter is seasonally typically the strongest one. So if it's this year as well, then we will be above last year. So as we are on the 9 months right now, but it's going to be decided just in the days around Christmas as every year. Going forward, as I said when I introduced this segment in the first video, we see that there's a huge potential in all 3 parts of this segment. So housing associations, we are on a great track of signing up housing associations to our ERP system linked to all the services around a strong proposition in the mortgage market there. So this under distressed market has a huge potential to grow significant. And part of this recovery would just be to the precrisis level when it comes to especially revenues from mortgage brokerage. But overall, we are on track for a great success in this industry. Personal loan business and German Mittelstand, both distressed right now. I explained this already. I would say, looking forward, these are both markets where we expect a normalization. Germany can't stay in a recessive environment much longer than it did already. Otherwise, we will have disruptive political changes here and nobody wants this. So my sense of urgency right now is high, and I have the feeling that [indiscernible] our government got the message after the summer as well. So they see that they need to act to change the trajectory in the market. And with this, we will see a very strong performance of both of these product segments in the upcoming years. So where it can end up, it's linked to the recovery of the German economy in general, you could say, the better it goes, the more success we can deliver there. Jan Pahl: Right. So there are no more questions for financing platforms right now, but there are 2 or 1 or 2 for insurance. So a little bit more on a high level. If you compare SMART INSUR with Europace, what is the penetration of suppliers so far, maybe in percent of the market that provides their policies through our platform through SMID and where are the challenges and progress to grow that platform? And what is surprising? It's the same like Europace, the 11 basis points we charge in average? Or how does it look like? Ronald Slabke: Okay. This is -- I make a short and I would say, deep dive with Jan later or in the upcoming days. So in general, SMART INSUR is the platform for standardized policies usually for consumers here in Germany. And the core value proposition is managing the whole information flow along the existence of an insurance contract that being the insurance broker on one side, the distribution side and the insurance company on the other side. It's not a transaction focused platform. It's whole lifetime of an insurance because this is a core problem in the insurance market that the information flow over the lifetime is very expensive for all parties because of their dysfunctionality and the way how information are transacted via e-mail from one side to the other. So the pricing model is volume-based. So the more volume you manage as a distribution within the platform, the more you pay. So it's a percentage of the premium the consumer pays, and this is your fee for the handling of the whole information flow, as I said, from the beginning of the contract to the end of lifetime of every contract there. So the challenge is the necessary adjustments of -- for the IT system on the distribution side. On the insurer side, for the insurance companies, we have established business relation with all of them. But for now, just some of them are paying if they receive the information and are integrated via interfaces. So this is the -- we report this as the validation process. So when there is a link between the information in the platform and the insurance company, then there is a financial link for us. But still, most of the volume in the platform is not linked to the insurance company. So the insurance company is not paying. Even when you are able to manage this kind of insurances as well as the distribution as a distributor within our system. More details, I would say, Jan in the deep dive. Jan Pahl: Sure. The next question, I'm not sure if I got it right, but I mixed it a little bit up. And if I'm wrong, don't hesitate to circle back and correct me. But I get this question right, it is during Q2 or maybe Q3, we signed some brokers for Corify, and it took longer than planned or expected. What were the headwinds? And are we in talk with additional brokers to launch right now? Ronald Slabke: Okay. Yes. So Corify is our platform offering for the industrial insurance business, where not a defined tariff and policy is underwritten by thousands of consumers. But in industry insures effectively or a fleet of class or whatever. So there are only individualized auctioned or tendered insurance policies closed between corporates and insurance companies. So we introduced this marketplace so the better version in the beginning of last year and see a huge interest in the industry. Industry was part of the development process over the last years and is now steadily signing up, and we got additional signatures for the first modules of this marketplace from the industry. There is a long line of -- in the sales funnel of brokers and insurance companies, which wants to use this for their interaction with their clients. So the pipeline is well filled looking forward. We just need to see that the contribution is not just intellectually and let's say, mutual, it needs to be as well financially beneficial for us so that our part of the investment incrementally goes down and the monetization kicks in and our partners after signing up as well are paying the transaction fees linked or usage fees linked. And when we talk about signatures, then we talk about this last step, the monetization that partners start paying for the benefits which they have using the system. And yes, we saw the progress now finally as well in Q3. And looking forward, we are optimistic that we get Corify up and flying and creating a marketplace effect in the upcoming years as well in this part of the industry. Jan Pahl: Great. We have 3 more questions in line. So once again, if you have any questions, feel free to type it in. The next one is on insurance platform as well, now on private insurance once again. So the question is, how does your distribution, distribute of insurance policy work together, compete with price comparison websites. So is this a competitor? Or is it a coop for us? How we look like? Ronald Slabke: Okay. These are different positions in the value chain. So the typical price comparison side for insurance is a perfect client for Smart InsurTech to handle completely -- the complete back-end process over the whole lifetime of the insurance contract for the comparison side. So we -- here on the distribution, you have the insurer app. So pure online insurance brokers use Smart InsurTech as their back end. And we are a great opportunity for them to focus on the consumer front-end side and the competition there and not spend IT resources in integrating 200-plus insurance companies and the lifetime of the variety of insurance contracts in their system. Jan Pahl: Great. Okay. There are 2 more questions, one a little bit detailed and the next one a little bit high level on strategic. Let's start with the detailed one, and now it is real estate and mortgage platforms again. We are here with BAUFINEX. So the question is, how has growth for the number of BAUFINEX Genoberater consultants trended so far this year? Are you having success signing up more salespeople at the cooperative banks? Ronald Slabke: Yes. Sorry -- let's say, we are active in the cooperative banking sector with 2 brands. So Genopace as a platform. BAUFINEX is a joint venture with Bausparkasse Schwäbisch Hall for the pooling activities and for the third-party distribution in this market. So the question was specific to BAUFINEX. BAUFINEX is very successful using the huge network of cooperative banks across Germany and digitalizing their external relations to local mortgage brokers, real estate developers and so on to provide cooperative mortgages, you can say, to this third-party distribution. And BAUFINEX, I would say, is right now the largest mortgage pooling offering in the market. So they surpassed Starpool and as well the competitor from Interhyp Group Prohyp and are #1 right now. So they are succeeding very well. So together with the success of the cooperative banking sector, BAUFINEX is very successful on digitalizing their third-party relations. Jan Pahl: Great. So one question left. And as a reminder, once again, don't be shy. If you have any, you can type it in. But the next one is a little bit high level on strategic and maybe on our -- also historical shift in our strategic. So could you explain the main synergies and potential scale in the interplay of our segments, real estate and mortgage platforms, financing platforms and insurance platforms? Or would you say that these are unconnected segments that have their special B2B platform for the customers? Ronald Slabke: Okay. I would say the second part answered already something, but I would give you, let's say, a better perspective on this. So up until 2 years ago, we developed the Hypoport network, a group of companies and offering in all these 3 industries independent and created synergies usually between 2 or 3 of these companies in the group. We restructured to these 3 segments, the network 2 years ago. So we formed the real estate and mortgage platform just 2 years ago after seeing where are the strongest connections, where are the highest synergies between daughter companies, which needs to be more facilitated and with more management attention and focus on to develop a joint strategy in this market. And with this the segments were created. In certain areas, we had to even split companies. For instance, the personal loan business, which is now part of the financing platform was until recently part of the Europace AG development where as well the mortgage solution was developed, and we have a significant overlap in partner structures there. So even when they are now in different segments and we -- from the legal entities, split them, they are using the same technologies and offering to the same partner. So there are interlinks between the segments, even when this is not, let's say, naturally when you would start the segments independent. So we created synergies in the past between offerings and just because we regrouped this and focus now on these areas of synergies where we see the highest benefit for the network doesn't mean that there are not other synergies. So between each of these 3 segments, there stays certain levels of synergies alive, but the focus happens within the segment. So the truth is they are less integrated between each other than within each of them, but they are not -- it's not that there are no synergies between them. Jan Pahl: Great. Thanks for this. And here's another one. Ronald Slabke: Great English Q&A today, I would say. It is good that we have a full hour. Jan Pahl: Yes. So the next question is why did the error in revenue recognition [indiscernible] happen because of -- so it is regarding Starpool last year, which you had to adjust the numbers. And yes, how it is going to be look like forward? Ronald Slabke: Yes. Okay, I would say a detailed answer in the 2024 annual report. Quick answer. The structure of the business of Starpool changed over the last year because of the strategic change on our joint venture partner, Deutsche Bank. And because of this, third-party mortgages got more important. And with this, we had to recognize all revenues generated by Starpool, including the commissions which Starpool receives from Deutsche Bank and pass through to Deutsche Bank linked mortgage brokers. So this pass-through of Deutsche Bank commission business let's say was not under our control under -- in the last years, let's say, or during the buildup of the joint venture, but lately because of the shift in the priorities and the shift to mortgage brokerage of other lenders, the situation changed, and we had to start to recognize this pass-through commissions as group revenue and group cost of revenue so that it inflated first in 2024, our revenue number and our cost of revenue number, just starting at the gross profit, it didn't have an impact anymore. Jan Pahl: Great. The next one, it's an interesting question because it seems to me that there are 2 ways to answer. So I look forward, which is your one. So the question is, where do you see cost reduction potential for the application of AI? And what would your best estimate for the amount? Ronald Slabke: Yes. So AI is a big topic publicly right now and for us in the last 10 years, where we are able to enhance our products using AI. So the question focuses on cost reduction. And when I hear cost reduction in an organization like us, it's about efficiency gains in, let's say, repetitive processes where we look across the group, especially in the centers where we have processes where we expect that AI can replace them already right now. This is linked to migration costs, to systems which provides this because in this area of HR or accounting for ourselves, we will not implement our own algorithms. Another way of cost reduction, I would say more efficiency gain is using AI in the whole software development process. This is an ongoing process now for the last 2, 3 years where our people get more efficient using AI. To be honest, I don't expect that we reduce our costs for software development. What I expect is that we increase the output in volume, in future volume and in quality. We are willing to invest this money. And we focus our people right now in getting better in using AI and getting better in shipping software fast to our platforms. So there is not a focus on cost reduction in this area, it's the focus on efficiency. Jan Pahl: Great. And actually, these are the 2 answers I expect. So at the moment, there's no more -- it looks like there are no more questions. But once again, here's a chance, we've received already couple of, actually 13, which is good, I think, 45 minutes. And if there are no more questions, maybe I hand over to you, Ronald, for last wording. Ronald Slabke: Yes. Thank you. Great Q&A today. We will talk again in March next year. We will chase our 2021 record year, and we'll want to outperform in all top and bottom line numbers next year. So I'm looking forward to this race, and you get an update when we are there in March next year. Thank you. Jan Pahl: Thanks. Goodbye.
Operator: Thank you for standing by, and welcome to the ReNew Second Quarter Fiscal Year '26 Earnings Report. [Operator Instructions] I would now like to hand the conference over to Anunay Shahi, Head of IR. Please go ahead. Anunay Shahi: Thank you. Thank you. Good morning, everyone, and thank you for joining us today. We have put out a press release announcing results for fiscal 2026 second quarter and the half year ended September 30, 2025. A copy of the press release and the earnings presentation is available in the Investor Relations section on ReNew's website at www.renew.com. With me today again are Sumant Sinha, our Founder, Chairman and CEO; Kailash Vaswani, the CFO; and Vaishali Nigam Sinha, Co-Founder, ReNew and Chairperson, Sustainability. After the prepared remarks, we expect -- which we expect will take close to half an hour, we will open the call for questions. As per usual, please note that our safe harbor statements are contained within our press release, presentation materials and materials available on our website. These statements are important and integral to all our remarks. There are risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements. So we encourage you to review the press release we furnished in our Form 6-K and the presentation on our website for a more complete description. Also contained in our press release, presentation materials and annual report are certain non-IFRS measures that we reconcile to the most comparable IFRS measures, and these reconciliations are also available on our website in the press release, presentation materials and our annual report. With that being said, it's now my pleasure to hand it over to our CEO, Sumant Sinha. Sumant Sinha: Yes. Hi. Thank you, Anunay. Good morning, good evening to everybody. I'm glad to have you all on our earnings call for the second quarter and for the first half of fiscal 2026. While we continue to see global macroeconomic and trade-related volatility, the situation in India remains relatively benign. S&P has upgraded India's long-term credit rating, and the inflation remains low, providing scope for further rate cuts by the Reserve Bank of India. There is also expectation of an Indo-U.S. trade deal being concluded and announced in the near future. Coming to the energy sector, we also have seen an unusual trend in climatic emissions this year in India. There has been an extended selloff the monsoons, resulting in more muted power demand growth as well as lower solar PLFs compared to last year. On the policy front, in a welcome move, the government of India took a significant step and reduced the goods and services tax on most items in the renewable energy sector from 12% to 5%. This should further increase the affordability of clean energy, which was anyway the cheapest source of electricity in India. As a company, we continue to deliver profitable growth, deliver on project execution as well as demonstrate capital discipline in delivering returns significantly above our cost of capital. Turning to our highlights for the quarter. Since October of last year, we have commissioned over 2.1 gigawatts of renewable energy capacity, marking a 22% growth in our portfolio after adjusting for the asset sales over the period. We continue to expand our committed portfolio and have signed PPAs for 3.8 gigawatts of installed renewable energy capacity over the past 4 quarters for projects that should provide returns towards the higher end of our targeted IRR range, if not better. We, therefore, reiterate our FY '26 megawatt guidance and are on track to complete construction of 1.6 to 2.4 gigawatts of capacity in fiscal 2026. Turning to our financial highlights. We continue to demonstrate strong financial performance, delivering adjusted EBITDA of INR 53.5 billion, which is a 24% growth year-on-year for the first half of the fiscal year ended March 31, 2026. We have also meaningfully improved our leverage metrics for operational projects, and we reaffirm our fiscal year 2026 adjusted EBITDA guidance of INR 87 billion to INR 93 billion. Our manufacturing business comprising of an operational capacity of 6.4 gigawatts of modules and 2.5 gigawatts of cells is fully stabilized and produced over 2 gigawatts of modules and over 900 megawatts of cells in H1 FY '26. Manufacturing also made a meaningful contribution of INR 3.3 billion towards adjusted EBITDA for the quarter, which adds up to INR 8.6 billion for the first 6 months of fiscal year 2026. As a result, we are revising our FY '26 adjusted EBITDA guidance for manufacturing upwards to INR 10 billion to INR 12 billion. We are also steadfast in our ESG commitments as showcased by the rating of 83 out of 100 in the S&P Global Corporate Sustainability Assessment, which we received recently. This is the highest ever by any Indian IPP. We were also recognized in the Fortune Global Change the World list 2025 for the third time. We have also published our inaugural climate risk and biodiversity risk reports aligned with the TCFD and TNFD frameworks, indicating our continued push towards transparency and governance. Turning to Page 9. Execution is our topmost priority and a key differentiator for us. We have commissioned over 2.1 gigawatts of capacity over the last 12 months or so, and reiterate our guidance to complete the construction of 1.6 to 2.4 gigawatts for fiscal year 2026. Year-to-date, we have commissioned more than 1.2 gigawatts, which are split into approximately 750 megawatts of solar capacity and nearly 500 megawatts of wind. In addition, we have over 500 megawatts of solar capacity that has already been erected and will enable us to meet our construction targets. While there has been some lull in the bidding environment, we believe that this is cyclical as most IPP players have already been able to build pipelines that will be executed in the next 4 or 5 years. Turning to Page 10. Our solar manufacturing facilities are now operating at full tilt. We are currently producing over 12 megawatts of modules and 5 megawatts of cells on a daily basis. In the first half of this year, we produced close to 2 gigawatts of modules, operating at high utilization and efficiency levels. We currently have third-party orders to sell approximately 650 megawatts this fiscal with close to 1.5 gigawatts already delivered this year. In September 2025, we also closed the $100 million investment from British International Investments, which will primarily be used for expansion of the cell facility. We are pleased to say that the construction of our new 4-gigawatt TOPCon cell facility is on track with the land acquisition, engineering and machinery orders completed and the civil works well underway. Our manufacturing business has started contributing meaningfully to the consolidated P&L by delivering an adjusted EBITDA of INR 3.3 billion this quarter at a margin of over 30%. The EBITDA contribution in this quarter has moderated as compared to the previous quarter due to a higher percentage of captive sales. In addition, the margins are slightly higher due to some cost savings and procurements ahead of time, which may normalize as this year progresses. Now let me hand it over to Kailash to talk more about the financial highlights. Kailash Vaswani: Thank you, Sumant. Turning to Page 12. We continue to deliver consistent profitable growth. Since the same time last year, we have constructed over 2.1 gigawatt of projects, representing a 22% increase in operating capacity after adjusting for the 600 megawatts sold during the trailing 12 months. This year, so far, we have commissioned over 1.2 gigawatts of renewable energy capacity. Our revenue increased by over 50% for H1 of this fiscal compared to last year due to increase in megawatts and a meaningful contribution from third-party sales in our manufacturing business. Turning to Page 12 and the EBITDA walk. We saw subdued PLFs this quarter due to lower irradiation from an extended sale of monsoon, resulting in a net negative impact of INR 1.7 billion for the quarter compared to last year. The new projects that we commissioned over the last 12 months contributed INR 2.5 billion to our adjusted EBITDA, while the manufacturing business provided INR 3.3 billion. Over the past year, we have sold 600 megawatts of solar assets as well as a transmission project, contribution from which was also absent in the adjusted EBITDA from -- for this quarter. Turning to leverage. The headline leverage continues to decline significantly and consistently, having reduced from 8.6 in September '24 to 7 in September '25. Leverage at the operating asset level also continues to be below the 6x threshold that we have set. On a trailing 12-month basis, the leverage was around 5.5x, excluding our under-construction portfolio and the contribution from our JV partners. Do note that our trailing 12-month EBITDA is not reflective of the run rate EBITDA for these assets as many of these assets have less than 1 year of operation. We continue to focus all options -- we continue to pursue all options that will improve our leverage ratio at the consolidated levels such as asset recycling, cost optimization and reduction in the corporate debt. During the quarter, there was also favorable macro news with S&P upgrading India's long-term ratings to BBB from BBB-, which was the first upgrade in almost 18 years. There was also a reduction in GST rates by the Government of India. There are also further expectations of rate cut by RBI, which should also get transmitted to our future borrowing costs. Let me now hand it over to Vaishali for comments on ESG. Vaishali Sinha: Thanks, Kailash. Turning to Page 15. Let's look at the advancement in ReNew's sustainability initiatives and targets. The global landscape is shifting quickly towards mandatory regulations as climate impacts intensify. In India, recent reports highlight extremely challenges, while events such as the August 2025 floods in Uttarakhand and Punjab, along with severe AQI levels in Delhi, underscore the urgent need for action and resilience. At ReNew, we remain steadfast in our mission to lead with purpose and resilience. Our continued commitment to purpose-driven sustainability continues to deliver results, reflected most recently in our standout performance in the prestigious S&P Global CSA assessment, which is one of the key highlights of this quarter. We achieved a score of 83, our highest ever, marking a 14% year-on-year improvement and more than doubling our score since our fiscal year '22 debut. This makes ReNew the highest rated India-based energy company and places us amongst the top 10% of energy companies globally. This milestone reflects the depth and breadth of our overall climate strategy, human rights and our continued commitment to transparency and ethical governance. In terms of awards and recognitions, as was mentioned earlier, Fortune Change the World list 2025 in that ReNew has been recognized in this prestigious list for the third time. This marks our second consecutive recognition for a community water-related initiative in Rajasthan. Forbes Sustainability Leaders, ReNew's Chairman and CEO, Sumant Sinha, was named amongst the top 50 climate leaders globally, reinforcing ReNew's leadership in sustainability movement. On the reporting front, we published our inaugural climate risk report aligned with IFRS S2 and TCFD, outlining key climate-related risks and opportunities. We also released our first nature risk report aligned with TNFD, identifying nature-related risks and opportunities critical to our long-term resilience. Now turning to Page 16 to see the progress made across our ESG targets. We remain fully committed to our sustainability road map and have made meaningful progress across overall sustainability goals. We have achieved an 18.2% reduction in our Scope 1 and 2 emissions from the baseline. And as part of a pilot study, 2 of our sites have become water positive. Social responsibility remains at the heart of our work. We strongly believe that a just energy transition must empower those at the grassroots, and we continue to upskill and train women and coal mine workers in green technologies. Diversity forms a core aspect of our overall sustainability strategy, and our full-time employee diversity now stands at approximately 16.2%. Our S&P Global CSA score of 83 continues to reflect our leadership in sustainability. We are currently awaiting results from other ESG ratings and will disclose progress across all ratings in our upcoming meetings. As we move forward, we remain committed to delivering sustainable growth and driving positive change across the world. I will now turn it back to Kailash. Kailash Vaswani: Thank you, Vaishali. Turning to guidance for the fiscal year ended March 31, 2026. We reiterate our guidance provided earlier. We expect to be at the higher end of the adjusted EBITDA guidance range of INR 87 billion to INR 93 billion, subject to weather staying on track for the remaining of the year. We also expect to construct 1.6 to 2.4 gigawatt of our projects during the year and generate cash flow to equity of INR 14 billion to INR 17 billion. During the first half of this fiscal, while we saw marginally better wind PLF versus last year on account of the extended monsoon, we saw significantly lower PLFs in solar, resulting in overall lower PLF year-on-year. Our overall consolidated adjusted EBITDA has also benefited from the performance of our manufacturing business, wherein we have increased the range of EBITDA contribution by INR 2 billion, revising the guidance to INR 10 billion to INR 12 billion for the remaining part of the year. With that, we will be happy to take questions. Operator: [Operator Instructions] Your first question comes from Justin Clare with ROTH Capital Partners. Justin Clare: I wanted to start here just on the progress that you continue to make on the contracting side. So I think 3.8 gigawatts of PPAs signed over the last 12 months. Could you just comment on the contracting environment, your expectations for additional PPA signings over the next few quarters? And then do you have any sense for when you might contract the entire 25-gigawatt pipeline that you currently have secured. Kailash Vaswani: Sumant, would you like to take that? Sumant Sinha: Yes. Okay. Justin. Yes. Look, we've made some good progress on our PPA signings over the last 12 months. And we have approximately, as you know, about 6 gigawatts of LOAs that we would hope a substantial chunk of that would convert into PPAs. It's hard to give you a specific visibility on it because PPAs get signed when they do based on feedback from the DISCOMs. Our expectation would be that over the next 6 months or so, a reasonable chunk, and it's very hard for me to hazard exactly how much of this 6 would get signed. And it's very hard to give a specific indication as to when all of it might get converted. I think we just have to be patient, and we have to continue to work with the DISCOMs. A lot of that capacity is the more structured products, and that does take time for DISCOMs to essentially convert on because they need to do a lot of diligence and work. The other thing also is that a lot of the capacity is for execution out to 2029, 2030 and so on. And there, we have to work very closely with the DISCOMs to see what the requirements are, see if we can prepone some of that capacity or not. So there is a lot of conversation and dialogue going on with the DISCOMs through the REIAs, the bidding agencies to convert this capacity. But it's hard to give you a very specific time line as to when all of that will be converted at this point. Justin Clare: Okay. Got it. That's helpful. And then I guess just thinking through your pipeline here. I was wondering if you could just update us on the transmission status for the projects in your pipeline, especially as you go out into 2029, 2030. And maybe help us understand the remaining risks in securing the transmission necessary for your assets? Sumant Sinha: Yes. So we have most of the transmission in place because the moment you win a bid and you get to the letter of award, you are allowed to go and block connectivity. So we've actually blocked connectivity for the entire 25 gigawatts, plus you're also allowed to block connectivity based on acquiring land, which is not linked to a specific project. So we've blocked a fair amount of connectivity basis that as well, which is not linked to a specific project. Now as I said, what is happening is that some of the DISCOMs are coming back and saying that, look, if the projects are to be constructed based on transmission coming up in '29 or '30, that may be too far away for us. So can you give us the projects a little faster. So we are seeing where we have the flexibility of converting the existing transmission connectivity that we have, which is further out to, in some ways, try to replace that with some of the land-based connectivity that we have, which may be coming up sooner. And so that is -- that is work that we are doing to see which of those PPAs we want to actually prepone using the land-based connectivity that we have. So that gives us a lot of flexibility actually, in terms of allowing us to convert some of those LOAs into PPAs at an earlier stage. But of course, land-based connectivity at this point is a very scarce commodity and it's very valuable. So we want to use it very carefully. Justin Clare: Okay. Appreciate it. And then just one more on the manufacturing business, the solar manufacturing. EBITDA margin, it looks like it moved lower to 33% in fiscal Q2 from 40% in Q1. I think in your prepared remarks, you mentioned that maybe a higher mix of captive sales, but I wanted to better understand what drove the decline. So maybe you could just expand on that a little bit. And then if you have -- if you could provide your expectations for how EBITDA margins might trend into the back half, that would be helpful. Kailash Vaswani: Yes. So... Sumant Sinha: Kailash, do you want to take that. Kailash Vaswani: Yes. Yes. So see, Justin, the captive sales don't really have an impact on the reported EBITDA margins because when we report our numbers, we only report for third-party manufacturing sales. Obviously, quarter 1 was exceptional. We had better realizations. And to that extent, the margins were high. But obviously, quarter 2 is a relatively leaner month when it comes to sales. So to the extent we were producing, we were also selling at the same time. So that's why there was some impact in terms of realizations, which caused the margins to be lower. Secondly, also in quarter 1, we had done some strategic procurement earlier before the prices went higher for wafers and all, and some of the other key equipment to make cells and modules. So I think that we saw it play out in quarter 1. Quarter 2 was obviously with the revised pricing that we got on our procurement side. Operator: The next question comes from Nikhil Nigania with Bernstein. Nikhil Nigania: My first question, just continuing on the discussion on the solar manufacturing bit. Would be great if you could share some time lines on the expected commissioning for the cell expansion? And also, if there are any plans to enter ingot wafer given the guidance government has given? Sumant Sinha: So Nikhil, on cell expansion -- we are currently in advanced stages in terms of land acquisition and placing some of the key equipment orders. So we expect that we'll start the pre-commissioning happen by same time next year. And I think the full commissioning would happen perhaps by the end of fiscal '27. And in terms of plans on wafer, the notification is relatively new. We will obviously see what the merits of that expansion would be and then accordingly decide if we want to expand into wafer ingots. Nikhil Nigania: Understood. The second question I had on the manufacturing bit is we hear that there has been some softening in prices on the non-DCR modules, whereas DCR remains strong heading into this quarter as well. Would you agree to those points -- on both those points? Kailash Vaswani: Yes, Nikhil, again, along expected lines, I would say, as more capacity has come online, that sort of trend -- does tend to play out. But also there's a factor of seasonality where it was a lean season in terms of construction activity. So we saw some slowdown in sales. So obviously, prices also could have moved down a little bit. Let's see how the rest of the year pans out. But again, as capacity comes up, the super normal margins that we were getting would have corrected over a period of time in any case. And on the DCR side also, I would say that while right now, there's no immediate concern, but there is more capacity coming online on the sell side also. So again, the margins would go to normalized levels over a period of time. Nikhil Nigania: Perfect. Very helpful on the manufacturing bit. My second question then was on the renewable assets. If I look at the committed pipeline of 7 gigawatts, which is to be built out, there is about 2 gigawatts of solar where I think the time line clarity is better. But the balance 5 gigawatt seems to be the complex projects, FDRE, RTC where the time line given is 2 years from PPA subject to transmission. So I would appreciate if you could give some more color on when do you expect this balance capacity to come online, the committed pipeline in the complex FDRE, RTC part with a substantial number. Kailash Vaswani: So on the committed pipeline side, we are expecting some of the transmission projects are yet to be awarded. So we won't have the exact sense of what the time lines on those would be. But again, given our understanding as it stands currently, by FY '29 is when most of it would get done and some part only could overflow beyond that. Nikhil Nigania: Understood. So then is there a possibility that if I spread this 7 gigawatts till FY '29, there could be a drop in capacity addition in FY '27 or FY '28? Kailash Vaswani: No, we continue to build on the pipeline, Nikhil. And also there will be within the state, intrastate type of projects, which we could evaluate and participate in some of those auctions or do C&I. So I think as a company, we have been on this capacity addition trajectory. So I don't see any reason why that should change because of connectivity not being available. Nikhil Nigania: Got it. And directly, if you could tell me, have things got better on transmission project completion or right of way for that part? Or is it similar to where it was last year? Kailash Vaswani: Hard to tell because every project -- every transmission project has a different qualities where it either gets done on time or later. But the situation on the ground is that in Rajasthan, which was relatively easier in terms of execution, some ROW issues have been coming up there also. Nikhil Nigania: Got it. That's helpful. My last question was then on the future or the ongoing bidding. We see a lot of battery energy storage tenders happening. And I mean, to us, the bids seem quite aggressive, but wanted to hear your thoughts if ReNew feels similar, and that's why ReNew has not been very active on that front. Sumant Sinha: That's absolutely correct. It's -- our actions are reflective of what our belief is. Operator: The next question comes from Puneet Gulati with HSBC. Puneet Gulati: My first question is if you can talk a bit about whether you also experienced any curtailment during the last quarter and what was the extent of that? Kailash Vaswani: Sumant, would you like to take that? Sumant Sinha: Yes, sure. No, no, we did experience some curtailment in some of our projects in Rajasthan, Puneet. And the extent of that was about INR 100 crores in terms of actual rupee number in the first half. These are linked to projects where we have... Kailash Vaswani: Of revenue. Sumant Sinha: Yes. Of revenue, yes. So these are linked to projects where we have PG&A, where the substation is ready and so we have to connect. But sometimes the back-end lines are not ready to give us the full G&A. I think this will continue to some extent until some of those back-end lines are done, which will probably happen in the next couple of months. So at least in those areas, that curtailment will go down. Puneet Gulati: Okay. That's very clear. And in terms of just absolute power capacity, what number would that be in terms of curtailment? Sumant Sinha: So assume an average tariff of maybe INR 3.50 to INR 4. Puneet Gulati: Okay. Sumant Sinha: So it will probably be whatever units were passed through. Puneet Gulati: Yes. Yes. Secondly, on the connectivity side, you have the target of 1.6 to 2.1 for this year. Is connectivity ready for all these projects up to 2.1? Or is it still where you are banking on timely commissioning of connectivity. Sumant Sinha: I would say most of it is very. There is one, of course, issue that is currently going on, which is the Great Indian Bustard issue that the Supreme Court is opining on. I think that is the only externality that we are facing in these projects. But hopefully, that gets resolved, and therefore, that doesn't end up being a constraining factor. But regardless, even if there is a delay, it will be a delay of a month or 2 months at max. So it's not going to be substantial from the point of view of impacting financials that much. Puneet Gulati: Okay. And lastly, you've commissioned RTC peak power projects. Can you also talk a bit about how those have been going in terms of how much capacity are you now selling outside? And how has the battery performance been. Sumant Sinha: I don't think I have exact numbers to give you or to share with you, Puneet, on this one. Anunay or Kailash, if you guys have data then please do go ahead. Anunay Shahi: So Puneet, on peak power, it's fully commissioned. So the entire 400 megawatts of RE capacity plus 150 megawatt hours of batteries are done. And our experience has been pretty good. On RTC, the batteries are done as well as about 1,100 -- close to 1,100 megawatts of RE capacity, which is about 700 megawatts of wind and 400 megawatts of solar. So nothing really to complain no concerns as such on both these projects on the operating performance. Operator: The next question comes from Maheep Mandloi with Mizuho. Maheep Mandloi: Maybe one question just on the manufacturing side. And I think Kailash you talked about normalized margins or hitting that in the future. Can you just talk about like what expectations are on normalized margins in the future for cellular modules? Kailash Vaswani: So Maheep, it's hard to say at this point in time. When we do our projections, we don't take 35%, 40% type of margins. We are more like reasonable. And it will be a function of what happens as far as the demand-supply situation is concerned. So let's see, it will be hard for me to give you an exact number. Maheep Mandloi: Got it. But any thoughts on when we hit that, like maybe 1 or 2 years after the approved list of cell manufacturers go into effect or when we get there? Kailash Vaswani: So as part of ALMM for sales, also a lot of capacity is coming up. Some of it is coming up now before ALMM comes into being, which is April next year. And so to that extent, there would be some additional supply also, which is there in the DCR market right now. But then again, as the window for ALMM on sales start, then again, you'll see margins spike up briefly. So I think whichever segment of the market, there is scarcity, we are seeing an initial period of, say, 12 to 15 months, 18 months, where we are making higher than our expected margins. Maheep Mandloi: Got it. Got it. And I would love to just kind of question on the privatization bid here. Saw the latest updates from your press release recently. Any updates after that on the offer or any bids you're receiving from other investors [indiscernible]? Kailash Vaswani: No. If there was any other bid, then that would have had to be announced to the market. At this point in time, the special committee has only received the bid from the consortium. Maheep Mandloi: And any thoughts on the time line here? Or the consortium had a time line of, I think, plus 1 year. Is that a fair kind of time line for the closing there? Sumant Sinha: I mean that's what they have shared in their filings. Hopefully, we will be efficient about it to the extent some of the processes, which are within the control of the company is concerned. Maheep Mandloi: Got it. [indiscernible] Anunay Shahi: Just to clarify, I think they had -- the consortium had indicated T plus 7 to 8 months. And as Kailash said, our assessment is that hopefully it gets sooner than that, and this is perhaps at the more conservative end of the range. Operator: And we have a follow-up from Nikhil Nigania with Bernstein. Nikhil Nigania: I just had one follow-up question. On the 6 gigawatt of solar, which is where the LOA is awarded, but the PPA is not signed, there were multiple press articles recently highlighting government plans to cancel this 42 gigawatts of renewable tenders where the tenders have been awarded, but PPAs have not been signed. Any thoughts on that? In light of that, could this 6 gigawatt go away? Sumant Sinha: My view on that, Nikhil, is that there were a lot of things that came out in the press. But finally, the final word on it is what MNRE said, which is that they are working and encouraging the REIAs to get all the PPAs signed and that they will continue to work at it. And any cancellations, if at all, will be done after a lot of effort has been put in and on a very selective and case-by-case basis. So I don't see any blanket sort of decision being taken on this. I think it will carry on for some more time. People are going to continue to put an effort to get this PPA signed. And it's only after maybe another 6 months, 9 months or a year that we will see what happens in case some of the PPAs even after, let's say, a couple of years of having got bid out have not got signed, what action the government then takes. I think at this point, it's still premature. Operator: Now I would like to pass to Anunay Shahi for online questions. Please go ahead. Anunay Shahi: Thank you. There are a couple of questions online. One is, Kailash, if you could take this, is what are the plans for refinancing the Diamond II bonds due in 2026 and the ING PH, which is a restricted group issuance, which is due in 2027. And is the plan to refinance it again with dollar bonds or locally in INR. Kailash Vaswani: So the answer to that question is that the maturity for both those bonds are in the late second half of next calendar year. And we are working on plans to refinance it. We will see whichever market offers the lowest cost of capital to refinance, we would pursue the refinancing in that market. Having said that, overall, the financing markets continue to remain quite strong and robust, and access to capital is there across multiple pools that we typically access, which includes not only the dollar bond market, but also the domestic financing market where the public sector undertakings, the financial institutions, the private sector banks, they are all quite active and focused on financing renewable energy projects. So we don't foresee any major challenges in the refinancing whenever that becomes due. Anunay Shahi: The second question, Kailash, I think this is for you as well, is on the status of the take-private offer. I think the question is, when do you expect the consortium to firm upon their offer? Is it likely to be in November? And second question is, are you in regular discussions with them? And do you know if they are talking directly with some of your long-term shareholders? Kailash Vaswani: Okay. So just let me know if I miss any answer. In terms of process from here on, I think the Special Committee has shown its support to the final nonbinding offer received and asked the consortium to convert the same into a binding offer. And so the expectation is that sometime in the month of November is when we will get the final binding offer from the consortium. From there on, I think there would be a process in terms of documentation. We signed the transaction agreement, work towards the 13d filings, then E3 filing with the scheme for SEC review. So all of those -- that process will happen. I am in touch with the Special Committee, whenever those meetings get held along with the General Counsel of the company. The Special Committee is engaging with some of the public shareholders, the large public shareholders. And to the extent some of the public shareholders have expressed an interest to also speak to the consortium, I think they are allowing that also or facilitating that rather. So yes, that's -- I think I've answered some of the questions. Did I miss anything, then let me know. Anunay Shahi: No, I think that was perfect. Kailash Vaswani: Okay. Operator: As there are no further questions at this time, this concludes the question-and-answer session and the ReNew second quarter fiscal year '26 earnings report for today. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the EVgo Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Heather Davis. Heather Davis: Good morning, and welcome to EVgo's Third Quarter 2025 Earnings Call. My name is Heather Davis, and I am the Vice President of Investor Relations at EVgo. Joining me on today's call are Badar Khan, EVgo's Chief Executive Officer; and Paul Dobson, EVgo's Chief Financial Officer. Today, we will be discussing EVgo's third quarter 2025 financial results, followed by a Q&A session. Today's call is being webcast and can be accessed on the Investors section of our website at investors.evgo.com. The call will be archived and available along with the company's earnings release and investor presentation after the conclusion of this call. During the call, management will be making forward-looking statements that are subject to risks and uncertainties, including expectations about future performance. Factors that could cause actual results to differ materially from our expectations are detailed in our SEC filings, including in the Risk Factors section of our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. The company's SEC filings are available on the Investors section of our website. These forward-looking statements apply as of today, and we undertake no obligation to update these statements after the call. Also, please note that we will be referring to certain non-GAAP financial measures on this call. Information about these non-GAAP measures, including a reconciliation to the corresponding GAAP measures can be found in the earnings materials available on the Investors section of our website. With that, I'll turn the call over to Badar Khan, EVgo's CEO. Badar Khan: Thank you, Heather. EVgo delivered another solid quarter of results, furthering our position as an industry leader built for long-term success. We delivered total revenue of $92 million and record charging network revenues. We ended the quarter with almost 4,600 stalls in operation and expect to see a very large fourth quarter for stall deployment. And we continue to see improvement in adjusted EBITDA. From a liquidity standpoint, we are in a very strong position with a higher cash balance at the end of the quarter than last quarter. In October, we received the latest advance for $41 million from the DOE Loan, which is being used to accelerate the nationwide build-out of EV charging infrastructure, offering American drivers more choices on where they charge. As you recall from the last call, we closed on a first-of-its-kind transformational commercial financing facility in July for $225 million with potential to expand up to $300 million, which we believe reflects the confidence these banks have in the resilience of the cash flows generated by our ultrafast charging infrastructure. We have now received 2 draws from this facility for a total of $59 million. We've expanded our pilot for J3400 connectors, more commonly known as NACS, and now have roughly 100 NACS cables installed. We're encouraged to see an increase in Tesla's charging at EVgo. And we continue to improve returns on capital deployed by lowering net CapEx per stall with 2025 vintage net CapEx per stall now expected to be lower than our initial plan by 27%. Unlike other companies in the EV charging space, EVgo's revenue has grown consistently and predictably faster than the growth in EV vehicles in operation, growing at double the CAGR of VIO growth over the past 4 years. This is due to both market factors and company-specific factors, and we believe this outperformance of revenue growth over VIO growth is set to continue for the foreseeable future. Today's market-wide tailwinds include higher usage fueled by rideshare electrification, expansion of affordable vehicles, bringing more drivers to public charging, faster vehicle charge rates with a shift towards larger, less efficient cars. And historically, EV vehicle miles traveled has steadily closed the gap to their ICE counterparts. Company-specific factors that are driving EVgo's outsized growth include our network planning, which looks for better locations with high utilization compared to the rest of the industry, building better charging stations and our expanding network effect of more than 1.6 million customer accounts. The third quarter saw a historic number of EV sales in the U.S. ahead of the federal tax credits expiring. While we won't speculate on the level of EV sales in Q4 and 2026, it will result in an ever-increasing number of EVs on the road. Although EV projections today are lower than in the past, the latest forecast for EV VIO growth remains strong, albeit with a slower rate of growth. Our charging revenue forecast based on our updated unit economics and forecasted store growth we discussed last quarter also conservatively assumes a lower rate of growth than we delivered historically and yet still represents 3 to 4x annualized growth from today. As we noted earlier, we are nearing a critical milestone, delivering breakeven adjusted EBITDA, which we expect to achieve in the fourth quarter. Over the past 4 years, quarterly revenue and gross profit have accelerated 15 to 19-fold, whereas quarterly adjusted G&A has only grown modestly because most of our G&A is actually fixed. As a result, we are predictably reaching adjusted EBITDA inflection to positive in the fourth quarter. But after this inflection, EVgo has 2 sources of operating leverage that will position us for accelerated adjusted EBITDA growth in the future. First, and something we have been benefiting from over the past 4 years is that we have leverage within our charging network cost of sales. Approximately 28% of our cost of sales is fixed on a per store basis. So as throughput per store grows, so does the charging network gross margin. These fixed costs on a per store basis include rent and property taxes. Secondly, once store-based cash flow or charging network gross profit less sustaining G&A exceeds the total of growth and corporate G&A, which are largely fixed, all profits from the charging network fall straight to the bottom line, accelerating adjusted EBITDA growth. With approximately 2/3 of our G&A cost base largely fixed today, this represents very strong operating leverage. In fact, excluding growth G&A, EVgo is already adjusted EBITDA positive, but we are choosing to incur growth expenses given the strong returns associated with deploying new stores. Making this even more attractive for investors is that we have the financing in place through 2029 to deploy all these new stores without the need for any additional equity capital. The expected result is a very attractive business by 2029 with $0.5 billion in adjusted EBITDA at mid-30s adjusted EBITDA margins. For almost 2 years, EVgo has been delivering one of the highest levels of network usage across the industry. Again, this is driven by both market and company-specific factors. Average daily throughput per stall is an important KPI to view network performance, and it is growing, driven by both time-based utilization as well as charge rates, both of which have been growing for the past 4 years. Rising charge rates are a significant tailwind we benefit from as higher charge rates deliver more kilowatt hours at the same utilization level and tend to result in higher levels of EV adoption, in turn, increasing demand for our fast chargers. Higher charge rates also improve returns on capital deployed because they allow us to dispense more kilowatt hours from the existing assets without the need to deploy more capital. Higher charge rates come from improved battery technology and EVs, as well as EVgo deploying more 350-kilowatt ultrafast high-powered infrastructure. Average daily throughput per stall has grown more than sixfold from less than 50 kilowatt hours in Q1 2022 to 295 this quarter, and we conservatively assume only slightly higher utilization by 2029, but with rising charge rates, we expect to see 450 to 500 average daily throughput by 2029. This higher throughput per stall, combined with many more stalls deployed is what has been and will continue to drive growth in revenues. Not only have we been delivering some of the best performing usage across the industry, we're focused on ensuring our chargers perform to their maximum potential and can maintain increasing utilization rates. Today, nearly all stores deployed are 350-kilowatt chargers, which delivered almost 60% of our throughput in the quarter. These chargers are the most representative of our expected future network since we estimate well over 90% of our throughput in 2029 will come from these chargers. Utilization on the EVgo network has surpassed others in the industry, our expectations and the expectations of the equipment providers. This high usage placed stress on our Signet chargers, which were the first 350-kilowatt chargers we deployed. After performing root cause analysis in conjunction with Signet in 2024, we embarked on a number of tech enhancements and a year later, Signet chargers are performing very strongly with usage already close to our long-term target in 2029. We are now at a similar junction with our Delta chargers, which have comprised almost all new builds since 2024. EVgo is embarking on the same kind of tech enhancements we did with Signet, and we're confident we will see the same strong performance step-up as we've seen with the Signets. As an industry leader, we are focused on ensuring we have the best quality hardware through ongoing maintenance, periodic enhancement of specific components and our next-generation charging stations, which we are actively developing at our innovation lab in El Segundo. Our new generation of charging architecture is being designed not only for a better experience and lower cost, but also being developed and qualified for these higher levels of utilization from the start. This project is being led by the EVgo team and features a robust design for reliability methodology, including best-in-class hardware design and software, taking into account our learnings from our 15 years of experience in EV charging and over 1.6 million customer accounts, all of which sets us apart from the rest of the industry. The next generation of charging architecture is expected to lower our gross CapEx per stall by over 25% in 2029 versus 2023, delivering even stronger returns on capital deployed. In the meantime, we've been driving down both gross and net CapEx per stall over the last 3 years. In 2025, vintage gross CapEx per stall is expected to be 17% lower than 2023, driven by savings from lower contractor pricing, material sourcing and increased use of prefabricated skids. When you include capital offsets, our CapEx per stall is expected to be reduced by 40%, resulting in vintage net CapEx per stall of $75,000. As a reminder, capital offsets come from 3 sources: state and utility incentives, OEM infrastructure payments and federal incentives like 30C. Our forecasted performance this year is a reminder that despite the fact that federal incentives for EV charging will sunset in the summer of 2026, state grants and utility incentives are alive and well. As we said last quarter, in order to capture some of these state grants, a certain number of stores that were due to be operationalized in the second half of the year have shifted out by a few weeks, lowering the total number of stores that we expect to deploy in calendar 2025. Our long-term expectation is to continue lowering gross CapEx per stall as a result of our next-generation architecture, but we conservatively assume we do not have a same level of offsets as we've seen in the past couple of years. Let's now briefly turn to progress on our 4 key priorities: delivering a best-in-class customer experience, operating in CapEx efficiencies, capturing and retaining high-value customers and securing additional complementary nondilutive financing to accelerate growth. As we discussed earlier, our next-generation charging architecture will take our customer experience to the next level. We've completed the enhancement of a number of components in our Signet 350-kilowatt chargers and are now embarking on a similar campaign for our Delta 350-kilowatt chargers. In terms of efficiencies, while the next-generation charging architecture is expected to deliver CapEx efficiencies by 2027, we're making great progress in the near term, too, lowering 2025 vintage net CapEx by 27% versus our plan for the year, and we continue to see a reduction in G&A as a percent of revenue for 2025 versus prior years. The EVgo app has now reached an overall rating of 4.5 on the Apple App Store, which is a key threshold above which we would expect to see accelerated organic customer acquisition, and we're thrilled with reaching this milestone. Our NACS pilot has continued to expand from 2 sites last quarter to almost 100 stores as of the end of October. In this pilot, we continue to test our ability to attract native NAC vehicles to our network and we remain encouraged by the higher number of Tesla drivers at these stores than they had prior to installing the NACS cables. This is a key part of our iterative learning process before a much wider scale rollout plan for 2026. And on financing, we've made excellent progress this year between continued advances under the DOE Loan, closing the sale of our 2024 Vintage 30C portfolio and of course, the transformational first-of-its-kind commercial financing facility. As we noted earlier, we expect 40% capital offsets for the 2025 vintage CapEx. We have the financing in place to increase our annual store build to up to 5,000 stores a year by 2029 without the need for any new equity capital. Now, Paul will share more detail on our third quarter results. Paul Dobson: Thank you, Badar. Operational stall growth is one of the key components of growing EVgo's revenue. We ended Q3 with 4,590 stalls in operation, a 2.7x increase compared to the end of 2021. Our customer base has grown almost fivefold over that same period, which contributes to the network effect driving increased usage on our network. We've grown the total energy dispensed on EVgo's network to 350 gigawatt hours over the trailing 12 months, a 13-fold increase over that same period. Revenues of $333 million over the last 12 months have increased over 15x since 2021. Charging network gross margin has grown from the mid-teens to the mid to high 30s, reflecting the leverage of fixed cost of sales on a per stall basis as throughput per stall rises. And importantly, we continue to deliver improving profitability and adjusted EBITDA margin has made significant improvements driven by increasing revenues, leverage of fixed costs and disciplined cost management. Total throughput on the public network during the third quarter was 95 gigawatt hours, a 25% increase compared to last year. Revenue for Q3 was $92 million, which represents a 37% year-over-year increase with growth in all 3 revenue categories. Total charging network revenues were $56 million, exhibiting a 33% increase. eXtend revenues were $32 million, delivering growth of 46%. Ancillary revenues of roughly $5 million were up 27%. Charging network gross margin in the third quarter was 35%, up 1 percentage point. Third quarter adjusted gross profit of $27 million was up 48% versus the prior year. Adjusted gross margin was 29% in Q3, an increase of 230 basis points. Adjusted G&A as a percentage of revenue also improved from 40% in the third quarter of 2024 to 34% in Q3 of this year, demonstrating the operating leverage effect. Adjusted EBITDA was negative $5 million in the third quarter of 2025, a $4 million improvement versus the third quarter of 2024. Now turning to our 2025 guidance. We anticipate some of the public and dedicated stalls we forecasted to be operationalized in December will now be open in January 2026. As such, our EVgo public and dedicated stall expectation for the year is 700 to 750. This shift in deployments to January will be reflected in our 2026 guidance, which we expect to issue with our Q4 results in early 2026. However, we are increasing our expectation of the number of eXtend stalls operationalized this year to 550 to 575 due to the great progress we've been seeing all year with our partner, Pilot Flying J. As a result, Q4 is expected to represent a very big quarter for newly operationalized stalls. Overall, we will deploy slightly fewer total stalls in 2025 compared to our guidance in Q2. However, the mix has changed with fewer public and dedicated stalls and more eXtend stalls. We have not only been focused on capital efficiency, but also reducing the length of time it takes for us to develop and build stalls. As a result, we now expect fiscal net CapEx for 2025 in the range of $100 million to $110 million driven primarily by less spend this year on 2026 [indiscernible] stalls. We are now forecasting a wide range of outcomes for the fourth quarter and full year than we normally would, substantially due to a potential contract closeout payment to EVgo in relation to dedicated stalls we were building for one of our autonomous vehicle partners that has decided to exit the robotaxi business. There is currently uncertainty on both the quantum and timing of these payments. And because this amount could be very significant, we are issuing a baseline guidance that does not include this item and an upside guidance that includes it. Our prior revenue and adjusted EBITDA guidance did assume a smaller range from this matter in 2025. As the matter has progressed, we now believe the range of outcomes could be much wider. In addition, the matter may not be concluded this year and may slip into the new year. For the full year 2025, we expect total baseline revenues will be in the $350 million to $365 million range with baseline adjusted EBITDA in the negative $15 million to negative $8 million range. Our baseline revenue and adjusted EBITDA guidance are relatively in line with our prior view, excluding our prior estimate for the ancillary upside. Including the ancillary revenue upside of up to $40 million, 2025 revenues are expected in the range of $350 million to $405 million, with adjusted EBITDA in a negative $15 million to positive $23 million range. There are a few moving parts for the implied Q4, so let's unpack those a bit. Charging network revenues are estimated to be near 60% of total revenues for the full year, in line with prior guidance. We're anticipating continued sequential improvement in the fourth quarter. We expect the 2025 charging network margin profile to be consistent with 2024. Fourth quarter charging network margin should improve compared to Q3 '25. Our eXtend business with a pilot company continues to perform better than expectations. Full year eXtend revenues are anticipated to be approximately 30% higher than prior year eXtend revenues, slightly higher than prior guidance. We'll be more than halfway through the build program with pilot by the end of this year and thus expect 2026 eXtend revenues to be similar to 2025. Ancillary revenues are expected to grow significantly in 2025, driven by our dedicated hubs business serving other autonomous vehicle partners. Baseline ancillary revenues are expected to show at least 50% growth before any potential upside. Adjusted G&A for 2025 is expected to be approximately $125 million to $127 million for the full year. In 2026, we're continuing to invest in growth, therefore, anticipate G&A increasing by approximately 20%. We expect to achieve adjusted EBITDA breakeven in the fourth quarter at the midpoint of our baseline guidance. This is a significant milestone for the company. Operator, we can now open the call for Q&A. Operator: And your first question comes from the line of Chris Dendrinos with RBC Capital Markets. Christopher Dendrinos: I guess maybe to start out here, and you mentioned some commentary around the EV demand outlook, and I know you wouldn't comment on it. But maybe could you kind of walk through how you're thinking about EV demand in relation to your longer-term outlook? And what are the puts and takes that would maybe make you slow development down or speed development up? Badar Khan: Yes. Chris, look, I think EVs -- the number of EVs on the road have grown, as you can see, three to fourfold in the past 4 years. Today, there's around 100 battery electric vehicle models available, and that's -- it was probably about 30, 4 years ago. We see these cars are increasingly affordable and just great cars to drive. I think in some ways, EV sales forecasts sometimes to me anyway feel like a pendulum swimming back and forth. They were probably too high a few years ago and maybe the pendulum swung back and maybe it's too low today, driven by a view of these incentives that have just expired. I actually think that we'll see higher sales than what the current forecasts show because the cars are -- they're just great to drive. They're -- in many cases, they're getting better. And I think it's just a matter of time before they're cheaper. As it relates to our business, the way we think about our charging stalls is, of course, whether we're able to generate the kind of strong returns on capital that we're generating today. You can see or most people can see that we're at 2 to 3-year payback here. As we look at the market, we think about the ratio of cars per fast charger nationwide. And over the last several years, that ratio has been growing, meaning there is more upside on usage per store. And that's, in fact, what we've seen. We've seen our usage per store go up sixfold. We don't see that picture getting any worse than today. And therefore, we -- if it gets better to today, then that's even better for us. If it's no worse than today, we will expect to be deploying charging stalls that are generating the kind of returns that we are today. And that's how we think about the capital deployment in the business. Christopher Dendrinos: Got it. And then as a follow-up, you mentioned you're seeing an uptick in Tesla's charging on your network with the rollout of that NACS cable. Can you maybe kind of quantify here what you're seeing early days? Badar Khan: I would say it's still a little too early to quantify or to give you a real quantification. We've gone from a couple of sites that we talked about last quarter to almost 100 cables as of the end of October. Team here and myself are pretty excited about what we're seeing. Tesla driver usage is higher at these sites than they were pre-installation. These are all retrofit. I expect that we will do what we've done in everything else in the business, which is sort of very databased analysis of the situation where if we are continue to have the kind of confidence we have today that we're able to put these retrofit cables at sites that are targeted sites close to where we believe Tesla drivers live and work and run [indiscernible] and we continue to see that sort of Tesla usage rise, we'll look to scale rollout in 2026. I think we'll keep it at this sort of 100 level for another quarter or so, make sure that we remain confident in the results and then really scaling it out next year.Your next question comes from the line of Bill Peterson with JPMorgan. William Peterson: I realize you're going to provide more granularity on stall guidance for next year. You gave some framework for eXtend. But if you look at the guidance, assuming some of the pushouts into next year, your prior guidance from the middle of the year was around, I don't know, 1,400 or so, 1,350 to 1,500 at the midpoint. I guess, conceptually, should we think of that coming in lower, maybe perhaps towards where you had provided guidance at the start of 2025, which was more in the 1,000 to 1,200 range. I'm just trying to get a sense of how we should think about that as well as really the build plan over the next 5 years. Should that be tracking more like what we saw at the start of the year? Just trying to get a sense given the realities that we may be probably see a negative year-on-year growth for EV demand maybe for the next several quarters. Badar Khan: Yes, hey, Will, we haven't yet provided guidance for 2026, as you said. But I think looking back to what we said last quarter is actually a useful starting point. And on our call last quarter, you're exactly right. We said that we would expect to see 1,350 to 1,500 stores for 2026. And to be clear, that was our owned and operated stores at 1,350 to 1,500, that's our public network and our dedicated stores. So that's about double the rate of growth that we're at today. This year in 2025, the larger number that you mentioned includes our eXtend stores. So, we were at the sort of 800-ish public and dedicated plus eXtend for 2025. We now see 2025 a little bit lower, more extend, a little less public and dedicated. But on the public and dedicated side, it's -- we would be looking at about a doubling of where we're at this year for 2026. So, we're pretty excited by it. We're generating the kind of returns that we expect that we've been talking about for the last couple of years or the last several months or last several quarters. And as long as we are generating those kind of returns, then we expect our shareholders would want us to deploy that capital. William Peterson: I'd like to try to understand this ancillary upside a bit more -- and just to be clear, this was not contemplated in your prior guidance, right? So -- and then if that's the case, trying to get a sense of what this closeout could mean for future revenue impact. In other words, was there some sort of expectation that this dedicated fleet customer would have been continuing beyond 2025? Any additional color would be helpful here. Badar Khan: Yes. So, we had assumed a smaller range from this contract close out in 2025 in our prior guidance. It was in the $10 million to $15 million range. And so, if you look at our guidance today, we're pretty much at the same place as we were last quarter. So, if you just take today's baseline guidance, excluding our updated view, add on the $10 million to $15 million that we assumed in our prior guidance, and you're at pretty much the same place. In terms of the update, it's a larger range. So the upside is quite a bit higher than we had thought earlier in this year, but also there could be a timing issue where it occurs, it slips into next year. We don't assume that this is a recurring thing, Bill. So, this is -- we consider this a one-off, and that's why we're separating it out. So, you can see the very strong trajectory of the underlying baseline business. Operator: Your next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: Two things for me. I guess the first is you talked about fourth quarter and maybe getting to EBITDA breakeven at the midpoint of your guidance. Can you just remind us as we sort of think about seasonal patterns as you get into '26 without specific numbers, should we be thinking about this as when you get there, you should stay there and then progress from there? Or are there some seasonal noise we should be contemplating in our models just to make sure we're in line with how you're thinking about things? Badar Khan: Yes. Let me talk about the seasonality point in just one second, Stephen. The -- but you're right, the company has maybe at a macro level, very strong operating leverage, where around 2/3 of our G&A is kind of largely fixed. And so, when the growing profits from the charging network exceed those costs, all that profit goes straight to the bottom line. I'm talking about charging network gross profit less sustaining G&A. And that's the point where EBITDA really accelerates. Looking back, that's how we've gone from an $80 million loss to approaching breakeven. And it's really how we get to $0.5 billion in adjusted EBITDA in 4 to 5 years' time. And to your question more specifically around the near term, in Q4 this -- in Q3 and in Q4 this year, we still have gross profit from our non-charging businesses that are helping to cover those fixed costs. But in 2026, the charging network profit, so again, that's charging network gross profit less sustaining G&A will be higher without any contribution from our non-charging business to cover those fixed costs. And that's where we see things really accelerate. We think that will be in the second half of next year. In terms of the seasonality point, we do have seasonality. We do see it in terms of vehicle miles travel. So, there's a little less VMT and therefore, a little less throughput per store per day in the kind of Q1 in the winter than in the summer. We also see seasonality in terms of charge rates. Charge rates tend to be a little lower in the winters than in the warmer summer months. And we also see seasonality in terms of gross charging gross margin where we have higher cost of sales, energy cost of sales, higher tariffs in the summer months. So those are probably the main sort of seasonality things that we see. And as I said, once that charging network gross profits exceed fixed costs, that's the point where you see the EBITDA growth just really accelerate, and we're getting closer and closer to that point if we standby. Stephen Gengaro: Great. And then my other question was just around industry dynamics. And how do you think about -- I mean, you've laid things out very well as far as your plans through '29. How do you think about just the number of players in the industry, industry consolidation in the U.S. market? And how do you think that plays out over the next couple of years? Badar Khan: Yes. I mean, look, we are -- we think that we've got a number of sources of competitive advantage where specifically, we focus very much on site selection. So, building sites where drivers are and as a result, generate the kind of returns that we're generating today. We do not see that across the rest of the industry, either they're people are focused on chasing federal grants that may not necessarily be the most productive sites or their goal isn't necessarily to maximize returns on charging, but in terms of encouraging people to buy electric vehicles. We know that charging or range anxiety is alongside the upfront price, one of the 2 biggest reasons for even faster adoption of electric vehicles. And so, some companies are focusing on building charging stations to sell cars. When we think about -- we've got scale -- that translates to advantages in customer experience, the remote monitoring and diagnostics, the kind of marketing and dynamic pricing I talk about every quarter, the supply chain relationships, we talked about those relationships on the call today. These are not things that we see with the rest -- with many others in the space. The average number of charging stations across this industry amongst our competitors are significantly smaller than us. And so, when I think about these advantages, next-generation architecture, our balance sheet, it seems to me that we'd expect to see a smaller number of other peers in the network in the industry. I'm thrilled when we see our peers building charging stations because that will ultimately encourage EV adoption. And as I said before, I expect that will result in more throughput per store for our network because we've got faster charging stations and better located sites. So that's maybe one way of thinking about this landscape. Operator: Your next question comes from the line of Craig Irwin with ROTH Capital Partners. Craig Irwin: So Badar, I was hoping we could dig in a little bit more on the experience you're seeing out there with the new NACS connectors, right? This is an exciting opportunity for you given the size of the Tesla fleet and that it's early days for the OEMs to cut over to the NACS connector where they're heading longer term. Can you maybe unpack for us what the actual utilizations are or early experiences on utilization around NACS? I mean, are you seeing the Tesla drivers come back repetitively to the same locations, use multiple locations? And how should we think about the build here and the tempo? And what would you use to guide your change out of additional locations in the future? Are there specific data points or other metrics you would use to guide the adoption of these cables? Badar Khan: We completely agree with you that the upside here is quite significant. As you said, and we've talked about in prior calls, there are -- there's a significant amount of the vehicle fleet that are Tesla vehicles that are generally not charging on our charging stations. And so being able to access roughly half of all the IO it was just a giant step-up for us. And so, we're pretty excited by it. We also know that switching out a CCS cable that is very productive. I mean we can see we're at an average of almost 300 kilowatt hours per stall per day across the network is not something that we want to -- it's not something we want to take for granted. And so, we are being very thoughtful about switching out the CCS cables with these NACS cables. It does take us a few months to ramp up throughput per stall on our CCS cables with drivers that are very familiar with EVgo. And so, we want to make sure that we're being thoughtful about that switchover and attracting Tesla vehicles. In the early part of the year, it was all about making sure that we've got cables that can withstand the high power. So, these are liquid cool cables, and we've got the right technology, and I think we've proven that. We've gone up to 100 cables as of the end of October, and we're going to spend some months now making sure that we're learning everything we need to be learning in terms of all the questions that you asked, what is the behavior of Tesla drivers in terms of the charging stations, repeat at the same location, other locations, how are they identifying EVgo stations? How can we help them to identify and locate our stations even better. We expect in 2026, when we issue our guidance that this will be a fairly key part of our store rollout schedule. As I said before, I expect a lot of the 2026 will be retrofit. I do expect to be a scale rollout of the NACS cables next year, again, attracting roughly half the market that isn't really charging in our standard network today. That could be a big source of upside. And for the new stations at some point in 2026, perhaps around the middle of the year, new charging stations from the get-go, not just retrofit will include the NACS cables. But you're going to have to wait until our guidance for 2026 before we reveal that. As always, Craig, I think as you've seen, we're going to be pretty thoughtful and pretty analytical about all this. Craig Irwin: Understood. That definitely makes sense. So, my next question is about dynamic pricing. In your past couple of calls, you'd shared some real points of success where that's actually driven much better utilization for the network and the overnight. Can you maybe share some more detail with us on where you stand with dynamic pricing, the peak-to-trough variance in rates, the geographic success? What should we be looking at to understand this business and what it could mean for EVgo over the next number of quarters? Badar Khan: It's super exciting, Craig. We've got first -- I will call it a sort of a first version or 1.0, if you will, of dynamic pricing across our entire network. We rolled that out, I want to say, throughout 2024, maybe late 2024, I should say. And we have it across all geographies, across all charging stations. There is some -- there are some limitations around the number of combinations of prices and the frequency of change, which will come through our next version -- our next iteration of dynamic pricing. We were expecting that to be in the fourth quarter of this year, Craig, but we've got such a large fourth quarter build-out. I think as you will have heard from Paul, we've got about 350 to 400 stores that we'll be deploying. This is public and the dedicated stores. So, the owned and operated network in the fourth quarter and the eXtend stores on top of that, we felt that it was more sensible to get -- not to try and take on too many things. So, the next iteration of our dynamic pricing will get rolled out in the first -- at the end of the first quarter of next year. In terms of what the impact is, I mean, you can see our revenue per kilowatt hour is pretty flat. We're growing throughput per store. We're obviously very happy about that. We see double-digit utilization in the overnight hours which I think is pretty extraordinary. We're talking about 3:00 in the morning. A lot of that is all through dynamic pricing and our approach to the way that we communicate with our customers, so shifting usage from peak times to off-peak or overnight hours. And these are all the kind of things that we're deploying that results in growing throughput per store, growing utilization while minimizing wait times or queuing times and providing opportunities for customers to charge at rates that are appropriate for them. Craig Irwin: If I could sneak in a third one. The autonomous vehicle fleet out there is growing, right? There's many more cities where we're seeing adoption and vehicles training, new vehicles in commercial operation, but many cities training. And I'm going to guess that some of these leading companies are using the EVgo the EVgo network or at least their own proprietary stations built and managed by EVgo. How does revenue recognition work for you on these things? When they're in training, are they actually generating revenue already on the EVgo network? Are they already customers? Or do we see site commissioning when they go commercial? And how do we think about fleet growth correlating to demand growth for EV? Is this something that should be sort of 1:1? Or is this something that happens sort of in increments or steps? Any color there for us to understand the -- how these businesses are interconnected? Badar Khan: Yes. Look, the both of that point and the autonomous vehicles are the 2 big sources of upside for the company over the coming years. And we completely agree with you that we see that autonomous vehicles is a potentially very significant and very interesting source of upside. I do see the space growing potentially very quickly. These are all electric vehicles, and they'll all be needing to be charged at fast charging sites, not slow charging. And yes, we are working with all the leading players in the EV space -- in the AV space in terms of building dedicated sites for these AV partners. Today, the way that we are contracting with them, we've got effectively a monthly rent, so dollars per store per month from when the store is operational, whether anything is charging there or not. And that's the nature of the contracts today. These are -- we're in the foothills, in fact in my mind, in this industry. And so, the structure of these contracts may very well evolve or very likely to evolve over the coming years. But that's the way that we're contracted. In terms of revenue recognition, it's -- these are long-term contracts. And so there's typically a gain on sale with this long-term revenue stream that's recognized when the store goes live or around when the store goes live. Anything else, Paul, in terms of revenue recognition that is important here? Paul Dobson: No, that's good. That's pretty much how it works. They are long-term contracts with basically a fixed fee, a fixed monthly fee. That's the cash flow that we receive. But because they are long-term contract or some of them are, I shouldn't say they all are, but some of them are long-term contracts under accounting, it's considered to be a deemed sale, so sale lease accounting. So, with some of them with the longer-term contracts, we do recognize a gain on sale of the construction costs. So, there's a markup to what we think is fair market value for this site and then that gain is recognized when the site goes live when the customer -- the client takes over -- the partner takes over the site. And then after that, it is basically the operating cash flows for maintaining the site that we receive. When we have that gain on sale, we're bringing forward some of the economic value. And so that creates a receivable. So then when we receive the money in, we draw down that receivable over time over the life of the contract. So, it's a bit tricky. I know we said last time, we'll do a webinar or teach-in on how it all works, we'll just sort of provide annual guidance as to where we think in total those will come. Craig Irwin: Excellent. Well, you've confirmed for me that it's an exciting business, and I think that's what investors really mean. So, congratulations on the progress across the board. Operator: And your next question comes from the line of Brett Castelli with Morningstar. Brett Castelli: Just sticking with autonomy, I wanted to come back to this contract closeout here that you talked about and really understand more medium and long term. Does that at all impact sort of the prior range of expectations you gave us in terms of stalls and build-out for that particular part of the network? Badar Khan: No, it does not. So, the range that we provided last quarter on the last quarterly earnings call for public and dedicated build targets remain valid, remain the same as they are. As Bill asked upfront, next year, we were looking at 1,350 to 1,500 public and dedicated. The majority of that is public. We have not yet broken out how many are public versus dedicated. Dedicated are these stores for autonomous vehicle partners. As Craig said, I think that, that remains a very, very exciting and very interesting source of upside. We just need to make sure that the -- if we are doing a significantly more dedicated stores that they are meeting our return expectations. The economics are attractive for us. We can see very strong and very attractive economics for our public network. And so, the contract close out, there's really one company that was going to get in the robotaxi space in a pretty big way that do exit, but there are many others that are building out these businesses and we're working with them all. Brett Castelli: Okay. And then I just wanted to ask on the charging network gross margin. We've seen more muted margin expansion within that line item here in 2025. Can you remind me for the drivers behind that? And then how we should think about margin expansion within that line item in 2026? Badar Khan: Yes. So, maybe I'll just start and then, Paul, I can ask you just to sort of provide further details. We are seeing charging network gross margin expand, Brett, year-over-year. There is seasonality. So Q3 is seasonally the lowest margin percent typically quarter over the course of the year because we got the higher summer tariffs. We saw that last year. You see that this year. This year is higher than last year year-over-year. And the operating leverage, we've got 2 sources of operating leverage, one in the G&A, which we talked about earlier and then operating leverage within the charging network cost of sales where about 30% of that is fixed. And so as usage per store grows, that margin just expands. And that certainly we fully expect to see continue over the next several years. But Paul, any other color or any other detail that might be helpful in the near term? Paul Dobson: Sure. Yes. So, when we look over year-over-year and say, I'll talk about Q1 '24 first. So, in that quarter, we did have a large amount of breakage revenue, which has got 100% margin. So that's customer credits. When they expire, we recognize that as revenue and as margin, and that increased Q1 '24. If you took that out and then just looked at '24 by quarter versus '25 by quarter, it generally shows an increase, a couple of percentage point increase quarter-over-quarter. And then if you look at where we are in Q3 '25, 35%, which is about 1% increase over '24. In '24, that increase from Q3 to Q4 was 6 percentage points. And in the prior year, it was about 5 percentage points. So, we would expect Q4 '25 to follow a similar pattern and be 6, 7 percentage points higher in Q3 this year. And we see that pattern moving -- continuing to move up steadily as we've shown in our -- as we get the operating leverage as we've shown in our unit economics as well. So, when you correct for a couple of those things and look at the that quarter-over-quarter and think about the seasonality, I do think you see improvement. Operator: Your next question comes from the line of Chris Pierce with Needham & Company. Christopher Pierce: Just one question for me. If I look at last quarter, if we calculate ASP per kilowatt, there was a mid-double-digit increase and then it's kind of a high single-digit increase kind of moving down sequentially in the third quarter. I just want to understand how to think about the pricing levers you guys are pulling and how bill to pull kind of going back to Craig's question on dynamic pricing? Or is it that OEM revenue sort of distorted things in the second quarter and made things look a little more robust than they actually were. I just kind of want to get a sense of pricing across the buckets there and how to think about ASP per watt. Badar Khan: Yes. Paul, do you want to take that? Paul Dobson: Yes. So, when I look at the pricing charging revenue overall, I see Q2 versus Q3 to be broadly flat, and I see, of course, the costs energy costs, in particular, increasing in Q3 as we talked about because of summer tariffs, the seasonality there. So, we see a bit of a squeeze in the margin in Q3 as expected. But as I mentioned before, our pricing has been generally pretty steady, and our margins have been showing a general increase overall, which we expect to continue into Q4 and follow a similar pattern into '26 as well. There is some mix effect when we look at pricing, we have to think about where the volume of energy is coming from and being dispensed to. But it's been broadly flat across the portfolio in the quarter. Operator: There are no further questions at this time. I will now turn the call back over to Badar Khan for closing remarks. Badar Khan: Great. Well, look, thank you, everybody. We had another solid quarter of great operational performance and hitting strategic milestones. We can clearly see that we're nearing the inflection to adjusted EBITDA breakeven. And with the operating leverage that we have, we can see accelerated EBITDA growth coming soon. And I look forward to sharing that progress with you on the next call. Thanks, everybody. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Almirall 9 Months 2025 Financial Results and Business Update Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Pablo Divasson, Head of IR. Please go ahead, sir. Pablo Divasson Fraile: Thank you very much, Nadia, and good morning, everyone. Thank you for joining us for today's quarterly earnings update and review of Almirall's 9 months financial results of 2025. As always, we are sharing the slides we are using today in the Investors section of our website at almirall.com. Please move to Slide #2. Let me remind you that the information presented in this call contains forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to materially differ from what we are sharing today. Please move to Slide #3. Presenting today, we have Carlos Gallardo, Chairman and Chief Executive Officer; Jon Garay, Chief Financial Officer; and Karl Ziegelbauer, Chief Scientific Officer. Carlos will start with the business highlights covered covering the first 9 months of 2025, followed by an update specifically on biologics and the key growth drivers of our medical and dermatology portfolio. Karl will provide you with an R&D status update presenting our pipeline. And Jon, will then talk you through the financials before Carlos concludes the presentation, and we open for questions. I will now hand over to Carlos Gallardo, our Chairman and CEO. Please move to Slide #5. Carlos Gallardo Piqué: Thank you, Pablo, and good morning to everyone on the call. Almirall delivered strong year-to-year-to-date results in 2025, and we are confident to reiterate our guidance, mid-term outlook and peak sales expectations. Our consistent growth is powered by the success of our medical dermatology portfolio, where we continue to deliver innovative treatments and broaden access for patients to support our physician community. Ebglyss delivered strong momentum in the third quarter of 2025 as European markets start to scale with launches now completed in the key countries. Encouraging uptake in newly launched geographies reinforces our confidence in the product's positioning and growth potential. Ilumetri continues to deliver steady year-on-year growth, keeping us on track to achieve peak sales of over EUR 300 million. Wynzora now capturing leading market share in key countries, together with Klisyri, strong performance across Europe are 2 other important contributors to our European revenue base. This underscores the breadth of our dermatology portfolio and Almirall's position as a comprehensive provider one-stop shop for diverse dermatological needs. We built our strong presence in the medical dermatology field throughout the year. In addition to participating in major events such as the 2025 annual AAD meeting, we reinforced our presence at the 2025 European Academy of Dermatology and Venereology Congress in Paris. Our contributions include 44 scientific abstracts, 2 expert live symposia and the presentation of 2-year positive study data on Ilumetri as a late-breaking abstract. On the clinical side, we are excited to share that the anti-IL-1RAP antibody has entered Phase II for Hidradenitis Suppurativa. We also plan to start Phase II studies in the upcoming months for the other proof-of-concept assets. Karl will soon provide a full update on the recent developments in our pipeline. Please move on to Slide 7 for an update on our biologics portfolio. In the first 9 months of 2025, Ilumetri generated EUR 171 million in net sales, marking a steady 12% growth year-on-year. We remain on track to achieve over EUR 300 million in peak net sales even as the product and the class start to reach a more mature stage in its growth curve. Ilumetri continues to be well positioned in the psoriasis market, keeping its market share and consolidating its position as a leading product within the leading anti-IL-23 class. The successful launch of a 200-milligram formulation provides greater dosing flexibility for patients, enhancing its competitive positioning and supporting long-term growth. In addition, 2-year positive study data presented at the 2025 EADV highlights the product long-term value and the overall impact on patient well-being. Please move on to the next slide on Ebglyss highlights. We view Ebglyss as one of the most successful atopic dermatitis launches in recent years since we gained approval in Germany in December 2023. It has quickly become our second best-selling product. Meanwhile, the advanced therapy segment within the atopic dermatitis market in EU5 continues to expand rapidly, growing at an annual rate of around 30%. Sales for the first 9 months of the year nearly quadrupled year-on-year to EUR 75.5 million, while Q3 sales reached EUR 31 million. Our focused execution has delivered solid quarterly growth momentum as European markets are scaling at a healthy pace following launches in most countries, with Portugal and Ireland undergoing negotiations. Encouraging early traction and market share uptake are evident across new geographies, building confidence in Ebglyss growth trajectory and positioning it as a key driver for future expansion. It is important to note that good reimburse reflects the high unmet need in atopic dermatitis and the value health care systems place on innovation. We are continuing to expand and increase brand awareness across multiple markets within the first year, with which we are very pleased. In terms of clinical advancements, our collaboration with Lilly remains highly productive, fostering valuable knowledge exchange that drives ongoing market development. At EADV 2025, we presented numerous study results on lebrikizumab, reinforcing our commitment to advancing care in atopic dermatitis. This included new real-world evidence from the ADlife study, long-term extension data up to 3 years patient-reported outcomes and safety analysis. Collectively, these results highlight rapid symptom relief for sustained efficacy, further strengthening Lebrikizumab's differentiated pipeline. Let me turn it over to Karl for an update on our pipelines. Karl Ziegelbauer: Thank you, Carlos, and good morning to everyone on the call. This slide shows you the status of our pipeline. Let me focus on the progress we made in the last month. We expect the approval of sarecycline in China still this year. Together with our partners, Sun Pharma and Eli Lilly, we continue to work on expanding the labels for our key products, Ilumetri and Ebglyss, respectively. Our partner, Sun Pharma announced in July the top line results of 2 Phase III studies to assess the efficacy and safety of tildrakizumab in patients suffering from psoriatic arthritis. Both trials met their primary endpoint at week 24 and are still ongoing for additional 28 weeks until completing the open-label extension. We keep you updated for next steps. Our partner, Eli Lilly has recently published data from an additional 32-week extension of the Phase III ADjoin trial at the 2025 Fall Clinical Dermatology Conference that indicates that lebrikizumab sustained similar levels of skin clearance when administered as a single injection of 250 milligram once every 8 weeks compared once every 4 weeks. This supports a potential less frequent maintenance dosing in patients with moderate to severe atopic dermatitis. These data build on lebrikizumab proven efficacy and demonstrate the potential for disease control with even less frequent dosing. Lilly has submitted this data from the ADjoin extension trial amongst other data to the FDA for a potential label update. As the regulatory and market access environment is different in Europe, we will stick to our label with a recommended 250-milligram lebrikizumab for weekly pathology. At the same time, we are investigating lebrikizumab maintenance dosing of 500-milligram administered once every 12 weeks as part of our ADhope 2 clinical trial. Together with our partner, Eli Lilly, we are running joint clinical development programs to make lebrikizumab available to additional patient populations. The different programs are well on track and a data overview can be found in the appendix. We have created an exciting early clinical pipeline addressing novel mechanisms and best-in-class compounds in high medical skin disease. In the coming 9 to 12 months, we plan to have initiated for proof-of-concept Phase II clinical studies across a spectrum of different dermatological diseases. Let me highlight some of the progress. For our anti-IL-1RAP monoclonal antibody called LAD191, we have completed Phase I single and multiple ascending doses in healthy volunteers. We have also explored pharmacokinetics, pharmacodynamics and safety in patients suffering from hidradenitis suppurativa and presented those data at EADV meeting in September this year. LAD191 was well tolerated and demonstrated a favorable safety and PK profile with patients with hidradenitis suppurativa. LAD191 showed a trend in decrease in neutrophil count. Furthermore, it led to downstream cytokine reduction and early signs of clinical improvement in HS lesion count. A Phase II study to explore the efficacy of multiple dosing regimens of LAD191 compared to placebo in participants with moderate to severe hidradenitis suppurativa has been started. Together with our partner, Simcere, we are developing a so-called IL-2 mutant Fc fusion protein to stimulate regulatory T cells as a novel approach to treat autoimmune kinase. We have recently completed Phase I and plan to start a Phase II study in alopecia areata within the next month. Our partner, Simcere has initiated a Phase II study to evaluate the efficacy and safety of this IL-2 mutant Fc fusion protein in subjects with moderate to severe atopic dermatitis. In summary, we're making good progress with both our early and late-stage pipeline programs. With that, I will hand over to Jon for the financial review. Jon U. Alonso: Thank you, Karl, for the update on our R&D pipeline, and good morning, everyone. As Carlos highlighted earlier, company's consistent execution continues to achieve solid tangible results. In the first 9 months of 2025, Almirall delivered a strong performance with net sales growing nearly 13% year-on-year on track with the company's full year guidance. European dermatology portfolio remains the key growth driver in net sales, reinforcing Almirall's path towards leadership in medical dermatology. Gross margin moderated to 64.9% of sales in the first 9 months, reflecting ongoing pressure related to Ilumetri royalties. EBITDA for the period reached EUR 180.7 million, marking a 27% increase versus the same period last year, driven primarily by robust top line growth and a lower SG&A over net sales ratio. SG&A increased 6.2% to EUR 366.7 million, with the mentioned lower growth in the third quarter. However, as with previous years, we do expect a certain pickup in expenditure in the final quarter. R&D spending increased by about 14% year-on-year, representing 12.5% of net sales. The ratio of spending relative to net sales moderated this quarter following higher investment in Q2, keeping us on track with our annual target. We closed September with a net debt-to-EBITDA ratio of 0.1 after solid cash generation in the quarter. Our low leverage provides significant flexibility to pursue licensing opportunities and targeted both on acquisitions on an opportunistic basis. These results reinforce our confidence in delivering full year 2025 guidance and the midterm outlook shared earlier this year. For the full year, we expect to land near the midpoint of our guidance range for both net sales and EBITDA. Please keep in mind the tough comparison against Q4 2024 revenue when the company reported sales growth of 17%. In addition, as mentioned earlier, we expect a pickup in SG&A in the next quarter, which simply reflects a natural pacing of quarterly cost and sales trends. As a reminder, our 2025 guidance calls for net sales growth of 10% to 13% and EBITDA in the range of EUR 220 million to EUR 240 million. Let's move to the details of our sales breakdown on the next slide. The European dermatology business delivered a strong performance with net sales growing 24.5% year-on-year in the first 9 months. Additional details will be shared on the next slide. In general medicine and OTC, European sales were mainly impacted by the recent divestment of Algidol and the out-licensing of Sekisan. Excluding these portfolio changes, the segment remained broadly stable. A delayed allergy season in Ebastel continued erosion of Efficib/Tesavel and lower sales of minor products were largely offset by a solid contribution from Almax. On out-licensing, we expect full year income to remain broadly consistent with 2024 and prior years as these transactions are part of our ongoing strategy to maximize portfolio value, including the deals mentioned earlier. Performance in the U.S. declined and further details will be shared on the next slide. In the rest of the world, general medicine remained broadly stable, while dermatology saw a slight decline. Let's take a closer look at the dermatology business on the next slide. Our European dermatology business continued to prosper. Ilumetri exhibited its characteristic summer seasonality with flat quarter-on-quarter sales and healthy year-on-year growth. Ebglyss consolidated its position as a primary growth engine for the company. Meanwhile, we are actively building market share for Klisyri and Wynzora as the launches gain traction across key European regions. Ebglyss delivered EUR 75.5 million sales in the first 9 months as European markets scale up after launching in all key countries. This performance is in line with expectations and reinforces our confidence in the product robust growth potential. Both Skilarence and Ciclopoli maintained sales growth in line with prior years with a slight growth compared to the last year. In the U.S., performance declined year-on-year. While Klisyri's large field launch continued to generate growth, these gains were offset by persistent pressure on the legacy portfolio. Products such as Cordran Tape, Physiorelax and Aczone remain impacted by ongoing generic competition. Additionally, Seysara sales fell versus last year primarily due to a contraction in the overall oral antibiotic market for acne. In the rest of the world, dermatology sales dipped year-on-year, reflecting lower license income compared to 2024. Now let's review financial statements on next slide. In terms of P&L and once revenue has been covered, gross margin moderated to 64.9% in the first 9 months of 2025 as we continue to face ongoing margin pressure, primarily driven by higher royalty tiers linked to Ilumetri's growth. At 12.5% of net sales, R&D spending remained broadly in line with the same period last year with the third quarter reflecting a moderation in investment levels compared to the elevated activities in prior quarters. SG&A expenses increased 6% versus the same period last year as we continue to support these launches in new markets and other key products. As highlighted earlier, we expect SG&A to pick up in the final quarter of the year due to the typical seasonal timing of our marketing activities. Financial expenses improved year-on-year, primarily reflecting an EUR 8 million positive impact from the valuation of the equity swap driven by share value increase year-to-date. Finally, a reminder that our effective tax rate remains impacted by the inability to offset the U.S. tax losses against European profits, consistent with the full year guidance provided earlier this year. Please move to the next slide to take a look at the balance sheet. Our balance sheet remained very stable in the first 9 months of 2025 compared to the same period prior year as shown in the slide. Goodwill and intangible assets decline was driven by depreciation, which outweighed the impact of R&D capitalization and progress in our pipeline. In the third quarter, capital expenditures remained minimal, primarily related to the recently extended collaboration agreement with Simcere. Our net debt ratio remains low at 0.1, providing continued flexibility to pursue inorganic growth opportunities. The decrease in net debt primarily reflects solid cash flow generation during the third quarter. Let's take a look at the cash flow statement next. Company improved cash generation during the first 9 months of 2025 by EUR 44 million versus same period prior year. Cash flow from operating activities was EUR 146 million during the period, representing an improvement by EUR 40 million versus last year, mainly driven by material improvement of profit before taxes is slightly offset by working capital increase as our business grows. Cash flow from investing activities reached minus EUR 104 million, improving EUR 20 million versus prior year, driven by lower investments, mainly EUR 43 million in the sales milestone booked in 2024 partially compensated by milestones related to Wynzora and pipeline progress. Finally, cash flow from financing activities was minus EUR 43 million, an increase in cash outflows by EUR 17 million compared to last year, driven by higher cash dividend selected by shareholders and partially offset by the positive equity swap impact mentioned earlier. With this, I would like to pass the word to Carlos for his closing remarks. Thanks a lot, everyone, for your attention. Carlos Gallardo Piqué: Thank you, Jon. As Jon confirmed, we remain on track to deliver our 2025 guidance and midterm outlook as we have a clear ambition to achieve our double-digit net sales CAGR through 2030 and reach an EBITDA margin of approximately 25% by 2028. We are poised to lead in a rapidly expanding medical dermatology market, leveraging a proven platform for sustainable growth. Over the past decade, we have built a foundation that combines scientific depth, operational excellence and a pipeline with disruptive potential, including several first and best-in-class assets. Together with our long-standing relationship with dermatologists and patient communities across Europe, which drive our relevance as a leader in medical dermatology, this strength represent a clear competitive advantage, positioning us to capture a meaningful opportunities for both growth and margin expansion. To translate this strength into sustained value creation. We apply a focused and prudent capital allocation strategy. We are investing in current and upcoming launches to drive midterm growth, actively strengthening our pipeline through internal R&D and in-licensing, maintaining a stable dividend policy and remaining open to targeted business development and licensing opportunities, all supported by a solid liquidity position. Our strategy of turning disciplined execution into solid financial results is encouraging. As we close the third quarter for 2025, momentum remains strong. Ilumetri and Ebglyss continue to drive double-digit total sales growth, reinforcing the strength of our dermatology franchise. Looking ahead, we expect further pipeline milestones in the coming months, adding depth to an already differentiated portfolio. We are committed to shaping leadership in medical dermatology in Europe, turning innovation into growth and delivering lasting value for patients and shareholders. With this, we conclude the presentation. And I hand it back to Pablo for the Q&A session. Pablo Divasson Fraile: Thank you very much, Carlos. Nadia, back to you for the Q&A, please. Operator: [Operator Instructions] And it comes the line of Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: Just a few pieces. Starting off with Ebglyss, please could you remind us, is the pediatric opportunity included in your current peak sales guide? And what's the overlap there with your current sales force? Or would that require additional SG&A investment? And then with Ebglyss with the peak sales guide, have you ever disclosed kind of what that implied penetration is would be of the European ATD market when you reach that peak? And then secondly, on your midterm guide, how important is the Klisyri inflection in terms of reaching that midterm? Or is it primarily driven by your 2 biologic therapies? And then finally, I may be looking incorrectly, but I couldn't find the IL-1RAP trial? And when might we expect the data from that to read out? Carlos Gallardo Piqué: Thank you very much, Lucy. I'm not sure I got your last question about the anti-IL-1RAP. Is the question about what? Lucy-Emma Codrington-Bartlett: It is when will we expect the data from that? Carlos Gallardo Piqué: Maybe you can with this question. Karl Ziegelbauer: Thanks a lot, Lucy for the question. As I mentioned, for our anti-IL-1RAP monoclonal antibody, we have just started a Phase II in hidradenitis suppurativa and we start getting data towards the end of 2026, 2027. Carlos Gallardo Piqué: Thank you, Karl. And about your other questions, Lucy. So pediatric indication, yes, it's ongoing. It's an important part of our clinical study to generate further data. And yes, the potential of this population is already included in the peak sales estimate, and we don't expect further investment. We don't need further investment. We already have the necessary infrastructure to capture the pediatric opportunity. In terms of the peak sales, we have not disclosed the penetration, but we believe we have the best product in our hands. So it will be -- a we believe that at peak sales Ebglyss will be playing a very significant role in treating naive patients for moderate to severe atopic dermatitis. Lastly, your question about the midterm, the key is to realize the value on our -- on 2 of our biologics, Ebglyss and Ilumetri, that's what will drive our ambition to grow double-digit growth and the margin expansion. Klisyri and Wynzora will play a lesser role on that regard. Operator: And the question comes from the line of Guilherme Sampaio from CaixaBank. Guilherme Sampaio: Two, if I may. The first one on ADjoin and of course, the data was quite enticing. I appreciate the additional color that you provide on what you're doing. But you could provide a bit of time line for the options that you're following to obtain a label update? And the second question is a bit towards 2026. If you could provide us some initial indications on how you're seeing the year in terms of top line and EBIT expansion? Carlos Gallardo Piqué: Thank you, Guilherme. The time line, I missed probably for ADjoin. Karl, can you take this question please? Karl Ziegelbauer: That you mean -- Sorry, the ADjoin study? Guilherme Sampaio: No, no, no. I mean so the efforts that you are undertaking to leverage on data that could be similar to ADjoin to obtain potential more favorable dosing... Karl Ziegelbauer: Yes. AD is a chronic disease that requires chronic treatment. That's why generating data that shows a long-term efficacy and safety are very important. We are running a study that is called ADlong, where we will generate data on efficacy and safety of lebrikizumab for up to 5 years. We have recently published 4-year interim data that have shown that patients who have been well controlled after week 16 maintain a very good skin clearance and efficacy for up to 4 years. And we will have then 5 years data next year 2026. Carlos Gallardo Piqué: And here about your question about the 2026 outlook, we have to be a bit more patient as we typically shared these expectations in February. But I think that Jon has provided already a highlight, right? You can comment. Jon U. Alonso: As Carlos has mentioned, Guilherme, it's too early to provide detailed performance figures for 2026. I know that my predecessor, Mike used to share some high-level indications with you all ahead of the fiscal year results. So if some context can help, we can offer that we expect 2026 growth and EBITDA to be in line with the most recent midterm guidance. We expect net sales to remain into the double-digit territory. And please bear in mind that our midterm guidance does not include a typical M&A except beyond the usual portfolio optimization we do every year. We will see certain pressure in the gross margin as we have several licensed products that are subject to royalties, which means that actual margin expansion will happen at EBITDA level as sales are expected to grow more rapidly than SG&A expenses once the commercial infrastructure for Ebglyss has already been fully deployed in Europe. R&D expenditure or the net sales ratio aligned with the 1 shown in 2025 seems to be a fair proxy in the near midterm. So hopefully, this helps and we will disclose further details early next year. Operator: And the question comes from the line of Natalia Webster from RBC. Natalia Webster: Firstly, just a follow-up on Ebglyss. This continues to grow well quarter-on-quarter, but I was just curious to hear a bit more about how you're seeing the competitive dynamic evolving in Q3? And if the continued NEMLUVIO launch has impacted Ebglyss' market share in key European markets? And then my second question is on Efinaconazole following the approval in Germany in August. Are you able to provide some more details on your launch preparations and thoughts around growth potential for this product over the medium term? Carlos Gallardo Piqué: Okay. Natalia, thank you for your question. So as I mentioned before, Ebglyss dynamics remain very favorable and in line with our expectations. We continue to receive very positive feedback from dermatologists, both in the more experienced ones in countries where we have launched already a number of months ago, but also in the newly launched countries such in France, the feedback form remains very consistent. So very good news. The majority of the prescriptions continue to come from naive patients, and that's very aligned with our strategy. So also confirmation of our expectations and good news there. In terms of NEMLUVIO impact, it's too early to say as NEMLUVIO has only launched in Germany, in Europe. So far, as we mentioned in other calls, we believe that new entrants will expand the market, and we remain confident, and that's based on the feedback of the dermatology community, that the anti-IL1 and anti-IL13 remains the key class to treat these patients. And also, we believe that IL-31 is more indicated for prurigo nodularis. But in any case, we believe that new launches will have to make even more noise and expand the market as only 10% of eligible patients that could be treated with advanced biologics or advanced treatments are only treated today with this treatment. So there's a tremendous opportunity to continue to help patients in this class that will lead to market expansion. On Efinaconazole, we are getting ready for launches in selected countries, and we will update you more probably in 2026. And -- but we will play a modest role in the contribution to sales at the end. Operator: And the question comes from the line of Joaquin Garcia-Quiros from JB Capital. Joaquin Garcia-Quiros: Yes. So the first one, there was a EUR 20 million -- a bit more than EUR 20 million positive impact in free cash flow from other adjustments. Just if we could have more color on what exactly was the cause of that? Then on M&A, would you consider now that I know is still on ramp up, but there's been a few years now since launch on a more relevant M&A acquisition or you're still targeting on smaller deals? And then lastly, could you have a bit of insight on to hidradenitis suppurativa and the alopecia areata market? Do you have some information on these? How big could this be for you? Carlos Gallardo Piqué: Thank you, Joaquin, for the question. So I will leave the first one to Jon, but let me answer the second question from my side. In terms of M&A, we remain extremely focused on delivering value for the company in organic growth to make sure we maximize the penetration Ebglyss and Ilumetri. And of course, moving our -- the assets into POC, right? So that's where we dedicate a lot of our efforts. However, licensing and M&A continues to be an important part of our strategy. So far, now we are looking at bolt-on opportunities from an acquisition perspective and platform licensing from early and late-stage opportunities in all geographies. HS and alopecia areata, these are 2 areas where there's tremendous unmet need from a patient perspective, and that's based on strong feedback from the dermatology community. We are very exciting to have 2 assets that have potential to be the first and best in class. And we believe that if we get positive results and our target product profile is confirmed that we will have a therapies in our hands that will have a significant impact on the company, on the patient, but also from a sales perspective in the company. And we cannot -- now we're not prepared to provide more specifics here, but could be a major impact to the company is a target product profile is confirmed in the clinical trials. Jon, so for the first question, Joaquin. Jon U. Alonso: It's Jon, yes. Sorry for the first question, Joaquin. Thanks for your question. Yes, the improvement you have seen in our cash flow statement relates to an advanced payment received during the quarter regarding a license deal for one minor product in our portfolio to commercialize this in the countries included in the Eastern Europe and Western Asia, most only in the Commonwealth of Independent States. There is no impact in the P&L as it will be recognized in the future years. I hope it helps. Operator: And the question comes from the line of Jaime Escribano from Banco Santander. Jaime Escribano: So a few questions from my side. Could you remind us the pediatric indication for Ebglyss, when do you think it can be launched? Or when could we have some impact in sales basically? Second, on Seysara in China, what could we expect here? Any news? And what's the potential in revenues? And then a little bit of housekeeping for the modeling. Can you remind us tax rate for this year more or less where could we stand? Also the milestones for 2026, if you can remind us? And a final question. Yes. My final question is a spicy one. I don't know if you will answer, but basically, when you see Bloomberg consensus at around EUR 280 million EBITDA for 2026, how do you feel about this figure? Is it something fair? Is it something ambitious? Or you feel comfortable with that? Karl Ziegelbauer: Yes Jaime, this is Karl speaking. Thanks for your question. The pediatric study called ADorable 1 and ADorable 2 are run by our partner, Eli Lilly for the first one that covers participant 6 months to younger than 18 years. The Lilly expect primary completion in December this year and full completion in December 2026. And ADorable 2 is then the long-term safety and efficacy and the primary completion is expected in December 2027. Then after that, of course, there is the combination of the data, the submission and then the extension of the label before we then can finally launch. Carlos Gallardo Piqué: Do you want to comment on Seysara China? Karl Ziegelbauer: Yes. On Seysara, China, as I have mentioned in the presentation, we expect the approval of Seysara in China still within this year. Carlos Gallardo Piqué: Thank you Karl. Jon do you want to take the other 2 questions from Jaime? Jon U. Alonso: Thank you very much, Carlos. I think the first question regard -- related to the tax rate for this year. So right now, the tax rate is around 40%, which is a significant improvement versus prior year and is aligned with the full year guidance we provided for this year. We are working as hard as we can to try to be more effective here. But right now, I'm not confident providing any guidance for next year. We will just try to work and see how much we can improve. The other 2 questions regarding to 2026 in the sense of milestones and EBITDA. If we start with milestones, I think that, again, bear in mind for us, it is too early provide the detailed performance figures for 2026. But bear in mind, I think to assume certain milestone levels similar to 2021. Initially, it could be a good estimate, and we will provide further details in February 2026 when we disclosing the guidance. Regarding the Bloomberg consensus, right now, we are very positive about the performance of the company and confident in achieving our stated guidance. That's why we have reiterated it this quarter. Coming back to next year, it is still too early. But so far, we cannot -- I cannot tell you if we agree or we do not agree. It's a statement based by third parties. And what we have shared just in this call is that we expect to remain in the midterm range provided for the company. We will provide more information in February, so please stay tuned. Thank you very much. Operator: Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Pablo Divasson for any closing remarks. Pablo Divasson Fraile: Thank you very much, Nadia. Thank you. As there are no further questions, ladies and gentlemen, this concludes our today's conference call. Thank you for your participation. You may now disconnect. Operator: Thank you for joining today's conference call.
Ching Ching Koh: Good morning, everyone. Thank you for joining us to our third quarter results briefing. This results briefing will be Helen's last results briefing. And so of course, we all wish her all the best, and from the fourth quarter and full year results, we'll see Teck Long [indiscernible] next year. Okay. So without further ado, I'll pass the time to Chin Yee to take us through our results. Chin Yee Goh: Good morning, everyone. Thank you for joining us in OCBC's third Q 2025 results briefing. Our third Q '25 group net profit was SGD 1.98 billion, up 9% from last quarter and largely unchanged from a year ago. This was our second highest quarterly net profit. ROE was an annualized 13.4%. Total income grew 7% from previous quarter. The growth was driven by record noninterest income, which more than compensated for the decline in net interest income. NII fell 2% to SGD 2.23 billion quarter-on-quarter amid declining benchmark rates. We continue to prioritize asset growth to support NII. Noninterest income rose 24% to SGD 1.57 billion, driven by fee, trading and insurance income. The strong results were supported by our wealth management franchise, which continued to scale and deliver record wealth management income. Our insurance business also contributed strongly, reinforcing the benefits of our diversified income streams. Loans and deposits continued to register healthy growth, up 7% and 11%, respectively, year-on-year. Asset quality remained resilient. NPL ratio stable at 0.9% for the past 6 quarters. Total credit costs in third Q of '25 were 16 basis points on annualized basis. Total NPA coverage was 160%. Our capital position remains sound. Common equity Tier 1 ratio was 16.9% on a transitional basis and 15% on a fully phased-in basis. With our solid third quarter earnings, our 9 months of '25 group net profit reached SGD 5.7 billion, 4% below 9 months of '24. The strength of our One Group franchise is reflected in the performance across our banking, wealth management and insurance pillars. Our banking net profit grew 3% from last quarter, demonstrating resilience despite a declining interest rate environment. Double-digit growth in noninterest income more than compensated for the moderation in NII. Wealth management income and AUM were at record highs. Our wealth management income grew 25% to SGD 1.62 billion, contributing 43% to group total income. Banking AUM rose 18% year-on-year and 8% Q-on-Q to SGD 336 billion, driven by net new money inflows and positive market valuation. Net new money inflows were SGD 12 billion in third quarter, above the run rate for the past 2 quarters of about SGD 4 billion to SGD 5 billion. Year-to-date 9 months, net new money inflows were SGD 21 billion. On insurance, profit contribution from GEH grew 50% Q-on-Q to SGD 347 million. This was driven by improved investment performance from insurance and shareholders' funds. GEH new business embedded value or NBEV rose 9% and NBEV margin improved to 48.8%, reflecting GE's strategic shift towards higher-margin products. Moving on to details of our group performance trends, starting with NII on Slide 8. NII for the quarter came in at SGD 2.23 billion, 2% lower from last quarter. Average assets grew 1%, but this was offset by an 8 basis point decline in NIM to 1.84%. Referring to the waterfall chart on NIM. NIM narrowed primarily from lower loan yields, which reduced margin by 21 basis points. This was driven by the fall in benchmark rates, particularly the average rates for SRA and HIBOR. The progressive reduction in our funding costs as well as cash flow hedges partly mitigated the compression in loan yields. About half of our loan book is denominated in Sing dollar and Hong Kong dollar. For these currencies, around 80% of our Sing dollar loans and almost all Hong Kong dollar loans are either on floating rates or due for repricing within a year. The exit NIM for September was 1.84%. At end September, our NIM sensitivity based on 100 basis point drop in rates across our four major currencies of Singapore dollars, Hong Kong dollars, Malaysian ringgit and U.S. dollars was about 11 basis points on an annualized basis. On NII -- sorry, on noninterest income now. For the quarter, noninterest income was up 24% Q-on-Q, supported by broad-based growth across fee, trading and insurance income. For the 9-month period, noninterest income grew 10% year-on-year to a new high of SGD 4.14 billion, listed by the same growth drivers. Fee income was a key contributor, increasing 24% to SGD 1.8 billion. Our fee income reached SGD 683 million in third Q of '25, up 18% Q-on-Q and 34% year-on-year, driven by higher corporate as well as wealth customer activities. As can be seen from the chart, our fee income has maintained an upward trajectory over the past 5 quarters, contributed mainly by the strong momentum in wealth management. The record third quarter wealth management performance lifted our 9-month fee income to a new high of SGD 1.8 billion, up 24%. Wealth management fees surged 35% to SGD 923 million, contributing more than half of fee income. Compared to last year's, customers deploy more funds into investments across all wealth segments with around 60% of banking AUM invested. Trading income for the quarter was SGD 518 million, up 38% Q-on-Q. The strong growth was driven by customer flow treasury income, which was at a quarterly high. Noncustomer flow trading income also improved, reflecting better investment performance across our global markets portfolio as well as GE's shareholders' funds. For the 9-month period, trading income was up 4% to SGD 1.29 billion, underpinned by record customer flow treasury income. The growth was contributed by both wealth and corporate segments. Moving on to expenses. Our operating expenses continued to be well managed even as we invest strategically for growth. For the 9-month period, operating expenses rose by 3% year-on-year. Cost-to-income ratio was held below 40% at 39.3%. Our loan book remains well diversified across geographies and sectors. Loans grew 7% year-on-year and 1% quarter-on-quarter to SGD 327 billion. Growth over the past year was broad-based across consumer and corporate segments. In particular, the transport, storage and communication sector grew the most as we focus on capturing opportunities in the new economy sectors and high-growth industries. Singapore housing loans also grew as we build market share. Sustainable financing continues to gain traction. Loans grew 17% year-on-year to SGD 55 billion and now accounts for 17% of our total group loans. Our overall loan portfolio quality remains sound. NPL ratio stable at 0.9%. NPAs declined by 1% Q-on-Q, largely due to higher recoveries, upgrades and write-offs, which more than compensated for new NPAs. We remain vigilant and continue to conduct ongoing reviews of our loan portfolio, including assessments on the potential impact of trade tariffs. Total allowances for 9 months of '25 were SGD 466 million, down 4% due to lower allowances for impaired assets. Allowances for non-impaired assets were higher. This included preemptive allowances set aside for trade tariffs and macro uncertainties and adjustments, MEV updates mainly to reflect the weaker economic outlook. Credit costs for 9 months '25 were at an annualized 17 basis points. Our third Q '25 allowances were higher quarter-on-quarter as we set aside allowances for impaired assets. Our NPA coverage ratio was around 160% over the past 5 quarters. Allowances for non-impaired loans maintained at 0.9% of total performing loans. Moving on to deposits. Customer deposits rose 11% year-on-year and 1% Q-on-Q to SGD 411 billion. CASA deposits grew by SGD 27 billion or 15% year-on-year across both corporate and consumer segments. CASA ratio improved to 50.3%. Our strong deposit franchise contributed to 80% of our funding structure. All funding and liquidity ratios are well above regulatory requirements. Moving on to capital. Our capital position remains strong. Transitionary CET1 ratio was 16.9%, broadly stable quarter-on-quarter. On a fully phased-in basis, our CET1 ratio was 15%. Our robust balance sheet and capital position enable us to pursue growth opportunities, navigate uncertainties and enhance shareholders' returns. With this, I end my presentation. Thank you. And I will now hand the floor over to Helen. Helen? Pik Kuen Wong: Thank you, Chin Yee. Good morning, everyone. As usual, very happy to see faces. I always say that because when I started, we can't see faces. It was COVID. So it's always good to have you at office. Just want to start with some comments on the third quarter results. Of course, it is our strongest quarter this year, and it's the second highest on record. I think we lost out -- this quarter lost out to first quarter '24 by like SGD 4 million. So -- and it's all in all, a very good quarter. Of course, net profit is up Q-on-Q by 9% and SGD 1.98 billion, of course, and is closest, as we said, closest to first quarter '24. I think we achieved this despite a declining shipment environment through a few things. I think the first thing has to mention is the ability of our diversified business pillars, right, and producing or generating balanced earnings through economic cycles. And covered by -- as covered by Chin Yee, NII and NIM moderated, but our noninterest income rose 24% quarter-on-quarter to a new high with double-digit growth across quite a variety on fees, on trading and insurance income as well. So to sustain our NII, we are focused on asset growth. I did mention before in some of the other briefing on interest rate cycles, there are always interest rate cycles, they are always up and down. You cannot rely on high interest rate to generate a wider margin. So the cost of the matter is always to focus on growth and asset growth is important to defend the NII. So -- but equally important is to manage the funding cost. So growing deposits in the right manner, especially lower cost deposits is key as well. So I think we have been able to and we continue to focus on driving regional account openings for corporates and also for commercial banking customers and capturing a lot more cash management mandates. Cash management mandates are important as they bring in the money and the operating account normally are not fixed deposits because they work on that. And indeed, as you gather the cash management mandate, that means the remittances, the FX, everything comes in as well. So this is what is important. So our robust noninterest income also reflected results of our strategic actions to strengthen our franchise. Be it in wealth and be it in our cross-border capital flow, sustainability, as Chin Yee has mentioned, our sustainable finance is growing well and also some of the newer economy customers that we are able to start to bank with more and more. Wealth management strategy, of course, continue to play out positively. We are well positioned for long-term growth. As shared by Chin Yee, net new money for the third quarter is SGD 12 billion, and this is quite good, well spread across and contributed by all segments. By that, we mean the private banking side, our premier private and our premier customer wealth segments. Quarterly wealth management fees and income grew to record levels with sustained momentum across all segments as well and product channels. We do talk about our investing in more relationship managers, but our wealth platform has been very effective for our customers. And indeed, whenever we come up with new products, we will be able to apply across our wealth platform for different segments. Of course, we check the suitability, right? So -- but that means whenever we invest in anything, we can consider to launch on the same platform, which makes our channels very effective. We continue to deepen our regional private banking and premier banking franchise. RM bank strength, we talk about private banking and also our PPC segment having more RMs. But I think importantly is the products that we develop and the advisory capabilities across the wealth spectrum, including insurance. I think productivity also is another key. Recently, we did announce private bank using AI to have our RMs to do KYC and which has significantly shortened the time spent, meaning they have more time facing the clients, but will be -- continue to be effective and protected. Trading income, we're happy with it as well, rose 38% Q-on-Q. It's now above SGD 500 million in the third quarter as customer flow treasury income hit an all-time high. This is again both for wealth and also for corporate customers as we built on cross-selling as One Group. And this is not just in Singapore, but across geographies as well. And for insurance, the profit contribution from GE was up 50% Q-on-Q. GE indeed is working on increasing collaboration with the whole group. And I would say insurance plays an essential role in our Wealth Management business. We have also seen more insurance policy working together with the trust side to -- as a way to protect the wealth of our customer. So we always talk about wealth continuum. This is what we have been working on, and it is important that we continue to have that. So cost-to-income ratio is around 40%. Of course, we exercise quite a good cost discipline as well. And important to continue to invest in our business, in our people and also in technology. This is indeed for future growth. Asset quality is sound. NPL ratio held steadily at 0.9% since June 2024. And we are closely watching risk arising from trade tariffs, but we've talked about it for the last 3 quarters already. So I think there is, of course, potential impact, but I think we have been tracking well. Our customers have been managing quite well as well. One sector we remain particularly cautious, of course, Hong Kong CRE is a question that some of you will raise, but indeed, we have been quite cautious. We're comfortable with current level of allowance coverage. I think 160% as an NPL coverage is quite satisfactory. And then coverage on performing loans is at 0.9%. Loans will also grow, I think, 7% and 4% on a constant currency basis. We have gained market share in Singapore mortgages. And through -- for one example, we have a partner care program, which we work very closely with property agents and to encourage them to bank with us more and also through the referral customers and mortgages to us as well. For corporates, we continue to expand, deepen relationships with new-to-bank customers as well as supporting customers across our international network. So that is not limited to ASEAN and Greater China, but through our major international branches as well. I'll pass to Teck Long later to talk a bit about that. Flipping the page, of course, we always say there is uncertainty and uncertainty become more complex as well. But happy to say that global trade and most major economies have shown signs of resilience. And of course, this year, in particular, supported by some front loading for trade and also technology up cycling, particularly for Asia. For this year, we are keeping to our previous guidance on our financial numbers, except for NIM, we want to -- and we are changing it to around 1.9% from the previous 1.9% to 1.95%. Looking ahead, I think as we said, operating conditions continue to be complex and 2026 may see slower economic growth across various countries and geographies. And of course, trade policies can continue to shift. Geopolitical tensions are still there that could have an implication on the demand and supply chains for our key markets, but we do feel that the fundamentals remain resilient, and we are positive on the mid- to longer-term growth prospects as well. Also want to report on our strategy. I think we refreshed our corporate strategy in 2022. We talked about a 3-year plan of incremental revenues of SGD 3 billion. Glad to report by end of September, we have already surpassed that growth of SGD 3 billion. So hopefully, we'll end the 3-year plan quite ahead. First thing is ahead of schedule, but also above plan. That means the initiatives we all put together and how we work as One Group has bear fruit. And I think this will shape up well as a firm foundation to capture growth opportunities going ahead as well. We talk about growth pillars, but also fundamentally what is important is a One Group approach, and this is an important enabler. Today, we work much more closer as One Group. That means not just collaboration, but synergy and synergy is both in business volumes and more customer and also synergy in terms of cost savings as well. So this is important because it is -- as we have more customers and they bank with us on more products and more and more countries and more effectively because we also make digital a very important offering. So I think we are managed to work as One Group together. We are well placed for the future and -- because we still have a very strong balance sheet position and the business franchise. For 2025, we stick to our commitment to deliver the 60% of dividend payout ratio, and we will complete the share buyback plans by end of 2026. That is still there. So we stay committed. So we now hand over to Teck Long to talk a bit more about the business and the business environment. Teck Long Tan: Thank you, Helen. I will share two key factors which we are monitoring. One factor is obviously the tariffs. And I would say it's not just the tariffs, but also the broader trade restrictions other than tariffs. We feel that the ripple effect of the tariffs and trade restriction has not been fully filtered throughout the economy. So we are watching this very closely. Having said that, some sectors are still growing, for example, digital infrastructure, domestic construction boom. So we see these sectors continue to grow. Indeed, from a different angle, because of trade tariff where materials come from, for example, a large market, a large manufacturer market like China, the input cost could be lower for some of these corporates in these industries. The second big factor is interest rate. Interest rate helps in the sense that the wealth customers start to relook at onboarding risk in their investment. And also for corporates, it has an effect on them evaluating the hurdle rates for investment. Having said that, the overall tone of the environment is still cautious in investing. So I will pass that back to the colleague, Ching Ching. Ching Ching Koh: Right. We'll open the floor now for questions. Maybe [indiscernible]. Unknown Analyst: Yes, so to start off, what does this mean for OCBC moving forward? And what's the outlook for the next quarter and... Pik Kuen Wong: Which one? Sorry, can you repeat that once more? Unknown Analyst: What does this mean for -- [indiscernible] for us. Pik Kuen Wong: Okay. It's an exciting set of numbers. We are happy, reflects on some of the investments and the commitment we have made in the past. We did talk about the corporate strategy, where we are focusing on and indeed improving for the wealth segment, in particular, we said we are hiring more RMs. I remember last quarter, we did talk about we achieved the number, in particular for the private bank, we achieved the number earlier than we expected, meaning we hire faster than we hope. The use of AI has generated a lot more -- some cost savings, meaning we become more productive in a sense. So we hope that this is a good foundation going forward. Fourth quarter since we're going to only announce by next year, and we're only 1 month into the fourth quarter. Of course, we hope momentum is still there. But generally, the last quarter is a more quiet time for wealth. Normally, it is the case. And we have changed our -- [indiscernible] some of our guidance, meaning we think loan growth can still be mid-single digit. We continue to try to defend our NII. But again, I think the noninterest income sees most results from what we have invested in the past. So we hope this is laying a good foundation for 2026. Unknown Analyst: Okay. So with AI assisting [indiscernible] helping RMs do KYC, so [indiscernible]. Pik Kuen Wong: If we have RMs, that's great, right, because they have more time to talk to customers. So they're able to generate business volume. I think I also mentioned in the past with the use of technology, you have not actually seen there is any need for us to say that we have to release people. First thing is because we continue to train our people so that they will be able to take on more complicated jobs. But the second thing is you invest in technology, it brings on more volume. So you also need the people to do the job. And there's always natural attrition. So I wouldn't say that because of AI, suddenly there will be a loss of job. We haven't seen that, and I do not expect it in the foreseeable future. Ching Ching Koh: Anyone else? [indiscernible]. Unknown Analyst: So one question I had was how critical is wealth management to Singapore's growth strategy right now, especially as lending margins compress? And then my second question is, how do you balance the growth opportunity from ultra-wealthy clients with heightened regulatory scrutiny around money laundering and sanctions compliance. Pik Kuen Wong: The first one you're also referring to wealth. And you asked about loan margins? Unknown Analyst: No. Mostly just how critical is wealth management to Singapore banks right now as a strategy? Pik Kuen Wong: I think wealth management has been a very important -- also in our own corporate strategy, it's a very important growth pillar. And the reason being that Asia is getting more affluent over the years. And so Singapore definitely is the center in particular for ASEAN. And wealth management -- and Singapore is a highly rated country. And even you have seen over COVID or some uncertainty in the world, actually, there will be net new money coming into the country. So that's why this is a very important growth pillar for Singapore banks. And in particular, most research would say that the Wealth business will continue to grow like high-single digit or even double digit, right? Over the next 5 years or so. So that is why it is important. When we say it is important, that means we should be able to handle business in a fair manner. Fair manner meaning that you serve your customer well, but, of course, you stick to your laws and regulations. And also we uphold to the higher standards, right, because we are responsible to -- not just to our regulators or rules and regulation, it's to our stakeholders as well, right? We defend our reputation, we defend our business franchise. So when you need that history -- to the second question, how do you balance that? I wouldn't even call it a balancing act. We strongly adhere to -- of course, we have to adhere to rules and regulations. But it is not rules and regulations that Sing -- that keeping us from not doing business. Rules and regulation is there. And if there is no rules and regulations, how do people conduct business. So that's the fundamental. So adhering to rules and regulations, there's no negotiation, yes. And then it is about how do you use your people, use your technology to identify what is not suitable. So KYC is a very important thing. And it doesn't mean that if you do KYC, you cannot put clients on. But KYC is the way for us to keep away not suitable clients, right, those -- and so I don't think it's a balancing act. It is we need to continue to invest in how we conduct our KYC. The world has become a lot more complicated. That's why AI comes in handy. Using AI information, it can summarize much better than you put in a lot of manual hours to do it, right? But I want to recap that this is not a balancing act. You just have to do it, but that doesn't stop us from able to put in more customers and offer our service to them. Ching Ching Koh: Maybe Thomas... Unknown Analyst: So I have a question for them because you just mentioned that digital infrastructure is growing sector, but a significant portion of investment obviously [Technical Difficulty] so do you foresee any possible [indiscernible] or overheating? And how do you monitor? Teck Long Tan: I think the demand will be sustained. The digital infrastructure is needed because of the trends of companies adopting digitization in their processes. It also has to do with consumer behaviors, individual behaviors, serving the net using video services as opposed to just searching on Google for information. So all these are data intensive and this fuel the growth of AI and therefore -- sorry, fuel the growth of digital infrastructure. Now AI is even more demanding for data center. So this is the beginning of the AI wave, and I think the trend will sustain. Ching Ching Koh: Sorry, maybe I go to [indiscernible] . Unknown Analyst: I have one question on the net new money inflows. So it's SGD 12 billion, and it's about the run rate of about SGD 4 billion to SGD 5 billion in the past 2 quarters. So I was wondering what changed. And in terms of the geographies, where are they coming from? Pik Kuen Wong: It's a good number, of course, and it is also a result of some of the early work we have done, the hiring of the new RMs are beginning to bear fruit, right, because we did say that we accelerated the hiring a bit more for the last 2 years. With that sometimes people say, is this the new normal? I think you cannot see it as like what you call a new normal because a lot depends on the market conditions as well. And when the interest rate coming lower also help because customers maybe actually be more active. And if you have good products and then, of course, they said, I give money -- put money into OCBC Group because you can offer me good products and give me good investment plans. Generally, fourth quarter is a bit more quiet as we always see. So don't take it that SGD 12 billion will repeat in the fourth quarter necessarily, okay? But as to the spread, it's quite well spread among our three segments that we report, meaning the private banking side and then our premium and also premier private. And it also comes from various places. It's not limited to -- I'm not to say that it's particular one country contribute the most. Ching Ching Koh: [indiscernible]. Unknown Analyst: I have two questions. The first one is what's the basis of the assumptions for the new guidance on NIM of 1.9% as the basis of assumption? And the second question is how confident are you with the asset quality amid all this macro uncertainty? And do you see any -- foresee any like specific sector stress, for instance, like Hong Kong, CRE and... Pik Kuen Wong: Yes. I think NIM, we provide guidance because we have been providing a guidance on NIM in the past. In an interest rate cycle as now interest rate going lower, NIM will continue -- I mean NIM will have pressure, yes. So what we have been focusing this year, which we described in the past is very much protecting our NII, yes. So NIM becomes like a pointer. It's not really like a target. It is a pointer to help us to look at how -- in particular, look at how we manage our funding costs. And how we defend, of course, our loan margin as well. So I think the reason why we do want to show this is because we have been showing NIM before, and we don't want to misguide because we do see NIM dropping in the last quarter, which would mean that the whole year -- I mean the last quarter and also the coming quarter because interest rates coming down. So that's why we want to provide an updated NIM. But it is -- it doesn't serve as a target. We say we need to protect that NIM because I said before, interest rate cycle -- I mean we cannot control how interest rate turn, but we can control and we can invest what we can do to bring in more volume to counter that loss and more volume also pointing to more volume on noninterest income as well. So that is it. The second question is on the quality of our portfolio. We are quite uncomfortable. It has been stayed -- the NPL ratio has been staying at 0.9%. Our coverage, I think, is quite comfortable as well. We do not see any systemic risk. There are sectors that we watch much more closer. It doesn't mean that we foresee something very bad coming up. But of course, nobody can look too far beyond. Everything is about -- I think Teck Long just talked about it. We always know that there is geopolitical tension, there is trade tariff situation, doesn't mean that it's entirely gone. And so -- but what we can -- what we are more comfortable is we feel that the area we are in still offer a lot of resilience in the economic situation. Next year, maybe the global growth may be slower. But if we are in more resilient regions, we hope that through the opportunities we have identified, through the work and investment we have put in, we'll be able to continue to grow our franchise and to grow our business. Unknown Analyst: Just a couple of questions. I think you mentioned that there will be some focus on asset growth. Will this be loans? And if so, what sectors? And will it also be on your book, your securities book? And if so, what currencies are these likely to be? That's one question. The second one is, of course, Great Eastern. You said that there were higher margin products. Just wondering -- and we're wondering what sort of products these were that give higher margins versus what they had been, I think, last year because less powerful last year. And then the -- there's one question which I'll ask to you later. It's about the strategy over your regulatory loss allowance reserves. You have it, but one of your peers doesn't. And I don't understand the reason for it because you can't use it, right? You can't -- it's not like an overlay which you can draw on if you want to boost your [indiscernible]. Pik Kuen Wong: I will answer that -- you want me now? Unknown Analyst: No, no, answer that to me -- so basically, asset growth and [indiscernible]. Pik Kuen Wong: I think I start with asset growth, but I want Teck Long to comment on it. It's both our loan book because we have onboarded more customers, especially the corporate customers as well. Mortgages, we mentioned, we have gained a bit more market share. And of course, we want to serve customers across geographies and which we have done quite well. And when we onboard big customers, we are able to serve them indeed in different countries. And of course, we do have funding growth, which we will put into high-quality securities asset. That would be quite a bit in U.S. dollars, but also in, of course, in Sing dollars, which is our home base currency as well. So I pass to Teck Long to talk a bit about the loan growth. Teck Long Tan: [indiscernible] one of our banking franchise, and we will continue to focus on that. I think the question also has to do with the overall economy, the overall uncertainty in the economic environment at the moment. As you can see that uncertainty has been there for quite a while, whether you look at it from duration day or caused by the spike of interest rate a couple of years ago. So we have navigated quite well. We see growth potential in the corporate sectors where the demand is certain, like domestically driven industries like construction or even renewable energy, where usually there's involvement of the government or major energy corporates in offtaking the generation of the power. So we look at it from an industry-led aspect to manage the risk. So we are industry specialists who will look at this valuation closely and navigate that environment. So we expect continued growth in the corporate loan book. On the other aspect is really the individuals and to some extent, the corporates as well. It relates to real estate in Singapore. So real estate in Singapore, the price is holding up and the demand for real estate continues to be there. So we will also get our market share in this part of the loan book. Unknown Analyst: Can I ask you how confident are you about the U.S. dollar? Because you mentioned that you will raise some of the U.S. dollar, you will increase -- you will buy U.S. dollar treasuries based on the asset for the securities book. So how confident are you of the U.S. dollar remaining [indiscernible]. Teck Long Tan: Okay. I think it's a new question. I didn't say anything about U.S. dollar. I think Helen made a comment. Yes, I can start answering this, right? U.S. dollar is still a major currency. So its use is still very prevalent. So although people may talk about the basement trades, that's largely focused in gold, so which also from our perspective is really U.S. dollar is still very dominant at the moment. And gold is while growing in prominence, it's not used for trade or day-to-day use. So in that sense, from a reserve viewpoint, maybe gold has grown a little bit more in prominence because of the volume as well as the price of the gold. But generally, U.S. dollar is still the dominant currency. Unknown Analyst: You are comfortable with only U.S. dollar treasuries. Teck Long Tan: Yes. Unknown Analyst: [Technical Difficulty] insurance products at... Pik Kuen Wong: Yes. I don't think we should speak on behalf of Chin Yee. They have that results session. But I think it's quite normal that you stay focused in doing a business, balancing volume and margin, right? So -- but I don't think we can speak on behalf of them. I think Chin Yee will take the RLAR question. Chin Yee Goh: Okay, RLAR, that is regulatory loss allowances reserve. When you look at our NPA coverage, we do have that as part of the total allowances. How RLAR came about was in the past, whereby there's a requirement to meet -- regulatory requirements to meet the regulatory allowance -- sort of allowances for -- allowances reserved at a minimum level from a regulatory sort of requirement. Now we have already met all that. But given the uncertainty in the environment, we decided not to release that but instead to just keep that. We can actually release that. We -- in terms of the regulatory -- meeting the minimum regulatory requirements anymore. Ching Ching Koh: [indiscernible]. Unknown Analyst: Question is from the -- I think Q1, you mentioned about some cost optimizations that the bank was looking at? [indiscernible] give an update. [indiscernible] about 3% operating cost. Is that sort of within expectations [indiscernible]? Pik Kuen Wong: I think this is part of it, meaning when we talk about cost discipline, we have -- in a way we have grown volume without need to hire a lot more people. I think that is one thing. Synergy, we also save some money on synergy because, for example, Bank of Singapore, a lot of the support functions is -- we have one -- actually one support function to serve both -- it's a separate legal entity, but they're also served by the same support functions. GE, we've discussed a lot more. And I think in the future, that's another opportunity. But very much it's also because of technology investments as well that, as we said, you do things faster. So you can generate more without investing or putting more money. Ching Ching Koh: Okay. It looks like everyone is happy. Unknown Analyst: At least a lot more information this quarter in your presentation really [indiscernible]. Ching Ching Koh: Yes, maybe Helen wants to... Pik Kuen Wong: Yes, I just want to say something. It's -- as Ching Ching said at the beginning, this will be my last results communications with the media. It's been a very fruitful and wonderful 6 years stay in Singapore with a bank that I actually started with. To me, it's always discreet feeling, a bank that I started with and I ended my career with. Retirement is just another phase of life. It doesn't mean that I forget about OCBC and all the wonderful people I have met and worked with, including you guys. So thank you all for the support all these years. You always come up with a very good question and sometimes make me think, a, are we missing something? You are interested in something that must be a reason. So help us to improve ourselves along the way as well. So I want to thank you all the while to -- of supporting the OCBC Group and supporting me very much. I hope that you will continue to provide the support to Teck Long. I'm very sure -- Teck Long has been with us for more than 3.5 years now. So he's part of the leadership team, and I'm very happy we have Teck Long to lead the group going forward. And I'm very sure that he will bring OCBC to the next stage. So a lot of things have happened over the last 6 years. But as again, I have nothing but gratitude and really feel honored to have been the Group CEO for OCBC. So thank you very much.
Operator: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Siting Li, IR Director of the company. Please go ahead, Siting. Siting Li: Thank you, operator. Good evening, and good morning, everyone. Welcome to KE Holdings or Beike's Third Quarter 2025 Earnings Conference Call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website, investors.ke.com. On today's call, we have Mr. Stanley Peng, our Co-Founder, Chairman and Chief Executive Officer; and Mr. Tao Xu, our Executive Director and Chief Financial Officer. Mr. Xu will provide an overview of our business updates and financial performance. Then Mr. Peng will share more on our strategic developments and innovative initiatives. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that Beike's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to the company's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. Certain statistical and other information relating to the industry in which the company is engaged to be mentioned in this call has been obtained from various publicly available official or unofficial sources. Neither the company nor any of its representatives has independently verified such data, which may involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information and estimates. For today's call, the management will use English as the main language. Please note that the Chinese translation is for convenience purpose only. In the case of any discrepancy, management's statements in their original language will prevail. With that, I will now turn the call over to our CFO, Mr. Tao Xu. Please go ahead. Tao Xu: Thank you, Siting, and thank you, everyone, for joining our third quarter 2025 Earnings Conference Call. In Q3, under the strategy of balancing scale and efficiency, we further optimized our business structure, enhanced operational and middle and back office efficiency through AI technology and achieved city level profitability in both our home renovation and rental business before deducting headquarter expenses. The combined contribution profit to company's total gross profit reached a record high. The costs and expenses of our core business segments were further optimized. We also significantly enhanced the execution of shareholder returns with the single quarter share repurchase spending reaching its highest level in past 2 years. Regarding our overall financial performance in Q3, our total GTV was RMB 736.7 billion, remaining flat year-over-year. Total revenues reached RMB 23.1 billion, up 2.1% year-over-year. Gross margin declined by 1.3 percentage points year-over-year to 21.4%. GAAP net income was RMB 747 million, down 36.1% year-over-year. Non-GAAP net income was RMB 1.29 billion, down 27.8% year-over-year. With that overview, I'd like to provide some details on operational and financial performance for each segment. Looking at our housing transaction services, we have been continuously enhancing the productivity and operational performance through the application of AI and other technologies as well as in-depth operational optimization. For our existing home transaction services, we upgraded our AI tool, [indiscernible]. As of end of the third quarter this year, high-quality business opportunities identified though [indiscernible] account for only single-digit percentage of total potential lease, yet contribute over 50% of transaction volume on our platform. On the housing supply side, we launched innovations such as agent specialization module, which agents are sent to specially manage home listing or serve the buyer based on their expertise as well as innovative services, including home staging and open house events. These efforts have enhanced the buyer conversion and the marketing and the sell-through efficiency of the home listings. For our new home transaction services, we have also continuously iterate our AI agent [indiscernible] system for intelligent operations and marketing as well as AI assistant [indiscernible]. In terms of the financial performance, revenue from its in-home transactions reached RMB 6 billion in Q3, down 3.6% year-over-year and down 10.8% quarter-over-quarter. GTV was RMB 505.6 billion, up 5.8% year-over-year and down 13.3% quarter-over-quarter. The GTV growth outpaced revenue on a yearly basis, mainly due to a higher GTV contribution from its in-home transaction facilitated by connected agents for which revenues are recorded on a net basis. While revenue performance outpaced the GTV quarter-over-quarter, mainly due to the structural shift as the revenue contribution from the rental brokerage services increased amid seasonal fluctuations, which have a relatively high take rate. The contribution margin of existing home business was 39% in Q3, a decline of 2 percentage points year-over-year, primarily due to the relatively stable fixed labor cost amid the revenue decline. Sequentially, the contribution margin declined by 1 percentage point due to the decline in revenue exceeding the fixed labor costs. Our new home GTV reached RMB 196.3 billion in Q3, down 13.7% year-over-year and 23.1% quarter-over-quarter. Revenue from the new home transactions was RMB 6.6 billion in Q3, decreasing by 14.1% year-over-year and 23% quarter-over-quarter. Revenue performance was in line with GTV performance both year-over-year and quarter-over-quarter, reflecting our steady monetization capability in new home business. The contribution margin from new home transaction services was 24.1%, down by 0.7 percentage points year-over-year due to an increase in variable costs resulting from our agent benefit improvement last year. On a quarterly basis, the new home contribution margin fell by 0.3 percentage points, largely due to higher variable costs and a smaller decline in fixed labor cost compared with the revenue. For our home renovation and furniture services, we continued to strengthen our core capability to support the long-term sustainable growth. On the product side, we successfully replicated our productized showroom model in multiple cities. On the supply chain side, we expanded our centralized procurement categories and adopt localized sourcing standards and selection process, further reducing the overall unit purchase price to enhance delivery quality with focus on improving construction quality, standardizing on-site management, laying the foundation for a unified system to exercise construction site quality. In terms of the financial performance, revenue from our home renovation and furniture business was RMB 4.3 billion, remaining relatively flat year-over-year. Contribution margin for the segment reached 32%, up 0.8 percentage points year-over-year, primarily driven by the reduced procurement costs resulting from a larger proportion of centralized purchasing and decreased labor cost resulting from enhanced order dispatching efficiency. Sequentially, the contribution margin remained relatively stable. For our home rental service business, on product front, our new 09 products have been launched in 10 cities, offering property owners diversified service options. For unit sales and occupation, our improved operational efficiency through AI-powered housing condition assessment and intelligent pricing while further promoting our quality-based traffic allocation rules to achieve faster housing turnover. In Q3, the conversion ratio of Carefree rent business opportunities to rental deals increased by more than 2 percentage points year-over-year. In terms of the operational management, we enhanced the productivity for the property managers and other personnel through further refinement of the role specialization of labor, the integration of operational process and the empowerment of AI technology. Regarding financial performance, revenue from our home rental services reached a record high of RMB 5.7 billion in Q3, up 45.3% year-over-year, driven by rapid growth in the number of rental units under management. At the end of Q3, we had over 660,000 rental units under management compared with over 370,000 in the same period of 2024. The contribution margin for home rental services was 8.7%, up 4.3 percentage points year-over-year and 0.3 percentage points quarter-over-quarter, largely driven by improved gross margin from our Carefree rent business. As we continue to refine the business model, we have adopted a net revenue recognition approach based on service fees for the certain newly signed properties in line with the nature of the underlying service contracts. In Q3, our revenue from emerging and other services decreased by 18.7% year-over-year and 8.4% quarter-over-quarter to RMB 396 million. Now moving to the other financial metrics in Q3, including other costs and expenses, profitability and cash flow. Our store costs reached RMB 663 million in Q3, decreasing by 5.8% year-over-year and 13% quarter-over-quarter, mainly due to the lower store rental costs. Gross profit dropped by 3.9% year-over-year to RMB 4.9 billion. Gross margin was 21.4%, down 1.3 percentage points year-over-year. The decline was mainly due to the structural impact from a lower revenue proportion of existing home and the new home business, which had relatively high contribution margins as well as the decrease in contribution margin from the existing home business. This was partially offset by the increase in contribution margin from the home rental services. Gross margin declined by 0.5 percentage points quarter-over-quarter in Q3, mainly due to the structural impact as the revenue contribution of new home transaction service declined. In Q3, our GAAP operating expenses totaled RMB 4.3 billion, down 1.8% year-over-year and 6.7% quarter-over-quarter. Notably, G&A expenses were RMB 1.9 billion, relatively flat year-on-year and down by 10.3% quarter-over-quarter, primarily attributable to the decreased bad debt provisions and reduced share-based compensation expenses. Sales and marketing expenses were RMB 1.7 billion, down 10.7% year-over-year, mainly due to the lower personnel expense and reduced advertising and promotion expenses under the efficiency enhancement strategy. On a quarterly basis, the sales and marketing expenses were down 9%, mainly driven by a reduction in labor-related costs. Our R&D expenses were RMB 648 million, up 13.2% year-over-year and 2.3% sequentially, largely driven by higher personnel expenses. In terms of the profitability, GAAP income from operations totaled RMB 608 million in Q3, down 16.4% year-over-year and 42.6% quarter-over-quarter. GAAP operating margin was 2.6%, dropping by 0.6 percentage points from Q3 2024 and 1.4 percentage points quarter-over-quarter. The non-GAAP income from operations totaled RMB 1.17 billion, decreasing 14% year-over-year and 27% quarter-over-quarter. Non-GAAP operating margin was 5.1%, down 1 percentage point from Q3 2024, mainly due to the decline in gross margin. Non-GAAP operating margin was down 1.1 percentage points from the previous quarter, mainly due to the increase in operating expenses ratio sequentially. GAAP net income totaled RMB 747 million in Q3, down 36.1% year-over-year and 42.8% quarter-over-quarter. Non-GAAP net income was RMB 1.29 billion, falling 27.8% year-over-year and 29.4% quarter-over-quarter. Moving to our cash flow and the balance sheet. We generated net operating cash inflow of RMB 851 million in Q3. New home DSO remained at a healthy level with 54 days in Q3. In addition to spending approximately USD 281 million in share repurchase during Q3, our total cash liquidity, excluding customer deposits payable remained at around RMB 70 billion. facing the short-term business challenges brought by external fluctuation and internal strategic transformation, we support and reward our shareholders through consistently active share repurchase to improve the efficiency of the capital operations. From the first to third quarter of this year, we spent USD 139 million, USD 254 million and USD 281 million on share repurchase, respectively, with a cumulative amount of approximately USD 675 million in this year, up 15.7% year-over-year. As of the end of Q3, the number of repurchased shares account for about 3% of the company's total issued shares at the end of 2024. Since the launch of our share repurchase program in September 2022, we had repurchased around USD 2.3 billion worth of shares as of the end of September this year, accounting for about 11.5% of our total issued shares before the program began. We have made progress in Q3 this year in proactively optimizing our business structure, strengthening technology empowerment and enhancing shareholder return. Our forward-looking layout of the home renovation and furniture services and home rental services have both achieved profitability at the city level before deducting headquarter expenses in third quarter. The AI capabilities have shown initial results in driving the business development and improving the work efficiency of the service provider and the middle and back office personnel. We are also fulfilling our shareholder return commitment with greater intensity, repurchasing USD 281 million in a single quarter, increasing 38.3% year-over-year as the industry enters a new stage of high-quality development while taking initiatives in building a residential service ecosystem. With our combination of technological innovation, anticyclical business portfolio and highly efficient and well-structured operating system, we are well positioned to deliver great value to both customers and investors. Thank you. Next, I would like to turn the call to our Chairman and CEO, Stanley. Yongdong Peng: Thank you, Tao. For sharing our business and financial developments for the third quarter, we are strategically shifting our growth engine from scale to efficiency. Today, I'd like to highlight some innovative initiatives we have rolled out across businesses to advance this shift. First, in terms of our core business transaction services, externally, we see new demand from both buyers and sellers under the new norm for China housing market. Home sellers expect stronger marketing capabilities from us. Buyers are counting on us for customer-oriented insights to support their decision-making in areas such as timing, asset planning and listing comparisons. These trends place new requirements on our traditional agent skill model and agents who are great at supporting both buyers and sellers are extremely rare. Since midyear, we have been working to restructure our capabilities across both buyer and seller agents. In Shanghai, we piloted a seller and buyer agent specialization mechanism to enhance our marketing and operating excellence on the home sellers agent side first. The mechanism redefines organizational roles, commission structures and performance initiatives and offer supporting tech products. This in turn allowed buyer-side agents to prioritize quality listings and improve transaction conversion. The underlying logic is that high-quality home listings by engineers not ready made. They require skilled agents to mass market analytics, pricing, property staging, owner engagement and decision-making, precision marketing; second, inventory quality drives customer acquisition. Superior listings inherently attract more serious buyers, driving transaction speed and our brand reputation, which in turn attracts better talent to join us. Therefore, we did several things to implement this. First, we adjusted our organizational structure and incentive mechanisms. We shifted some senior agents into hybrid roles that combine management and home seller focused responsibilities, giving them the authorities to form and lead their own teams dedicated to listing management. Under the ACN commission allocation mechanism, we raised the selling agent share from 40% to over 50%. We are maximizing incentives for top-performing agents to focus on marketing high-quality home listings. This group of home seller focused agents can earn around 25% more than before, assuming our market share remains stable. To mitigate potential pressure on buyers' agents, we reduced the mandatory [indiscernible] commission split, raised the minimum commission for selling agents and offered extra incentives for selling high score listings. Second, we provided agents with systematic [indiscernible] and digitalized products to help them manage listings. In the past, homeowners relationship management, listing presentation and marketing relied on agents' personnel experience that made it hard to replicate and scale. We have built an AI-powered listing score system that captures and codifies the know-how required in 6 key areas: Home listing maintenance completeness; homeowner engagement depth; property condition, for example, renovation recency; listing cross-channel marketing performance; AI-powered pricing competitiveness; buyers' interest, for example, the listings online, offline viewings. These metrics have agents clearly understand what defines a high-quality listing and how to better present and market homes. Homebuyer agents can also focus on selling high score listings to drive better sales conversions. In terms of results, in September, high score listings accounted for more than 75% of transactions. Our average market coverage in Shanghai hit record high in Q3, increased 1.2 percentage points year-over-year and 2.6 percentage points quarter-over-quarter. The experience of homeowners looking to sell quickly also improved. Many homeowners reached out to us proactively to learn how to raise their listing scores. Buyers also naturally prefer high scoring listings, creating a positive cycle that benefits everyone involved. The home seller/buyer side agent specialization in Shanghai is an important initiative designed to meet the changing needs of our customers and marks a milestone in our shift from scale to efficiency. We will continue to track its progress and explore new initiatives on the homebuyers agent side. In addition, we tried innovative approaches to make our new business more efficient. For example, in our home rental business, Q2 marked the first time we excluded headquarter costs from breakeven at the city level and Q3 is expected to contribute over CNY 100 million in profits. Carefree rent, our decentralized long-term rental business, housing businesses inherently faces challenges, including relatively low average selling prices, nonstandardized products and services, extensive service coverage and high maintenance costs, traditionally requiring heavy manpower and variable cost investment for scaling and operating. This sector has struggled with economics of scale industry-wide with no established best practices yet. As newcomers, we embraced this as an opportunity to build an AI-native operation from inception, enabling parallel development of business capabilities, frontline operations and AI intelligence. Through our organizational restructuring, process optimization and AI strategy and products, we are pioneering an AI [indiscernible] efficiency, economically sustainable model. Early results demonstrate significant improvements, offering valuable insights for our other platform business. I'll walk you through 3 major AI-driven breakthroughs across different dimensions. First, AI has been fully integrated into our rental services business, enabling end-to-end intelligent decision-making and business operations. For rental unit sign-ups, AI now powers critical processes, including property lead identification, personnel management and deployment, property evaluation, pricing strategies and homeowner communication. For example, previously, personnel management and operational relied heavily on the various level with supervisors deciding which agent will be responsible for which area. Now through AI-driven grid management supported by our unique dynamic domain data and modeling capabilities, AI can make data-driven determinations. It evaluates factors such as the number and quality of property leads, local supply and demand relationships and personnel capabilities models. Based on this data set, it determines the optimal personnel assignments, regional coverage and organizational structure. AI can simulate up to 90,000 design scenarios per minute, automatically generating the most efficient staffing and operational strategies. This has greatly improved how we allocate our service personnel deployment, configuration and operational scope. We also use AI to guide and execute our core business strategies and that is helping us move forward fully intelligent operations. For rental unit sign-up, we rolled out AI-powered rental unit sign-up assistant that uses real-time data and algorithms to predict market demand, property inventory and price trends. It generates automated sign-up strategies and dynamic pricing recommendations, delivering tailored plans for each property through adaptive decision models as market conditions change, such as customer demand, property inventory and pricing. AI can guide our operations team to make timely adjustments. For example, when there is an oversupply of 3 bedroom units in a certain area, the system automatically triggers price controls and sign-up restrictions. When unit types are in short supply, AI reactivates dormant property leads. Our upcoming AI cloud bot will also automatically contact homeowners of these reactivated properties. In Ningbo, where we began pilot operations in August, our workforce decreased by 10%, while new rental sign-up units grew up 10% even in the off-peak season. For rental unit leasing, our AI inventory management system frequently monitors inventory and checks over managing high-risk or low maintenance properties. It dynamically adjusts pricing and targeted discounts while optimizing traffic to speed up leasing. In Q3, these capabilities accelerated the lease-out of 350,000 units across 11 cities with 90% price adjustment adoption. These efforts generated over RMB 100 million in nationwide cost savings. Second, we use AI and technology to solve the industry's long-standing problems with nonstandardization, enable high-quality, scalable growth. The home rental industry has several characteristics. Home listings are scattered and each home has different and complex internal conditions, making the products nonstandard. Service providers are many and their levels vary. So the workforce is also nonstandard. Market price fluctuates and traditional pricing relies on frontline staff's on-site judgment leading to nonstandard pricing. Operational processes are mostly offline and complex, making sales strategies and service execution nonstandard as well. There are the traditional constraints of the industry, but with the progress of AI, we see changes to achieve both standardization and personalization at the same time. At the property quality and risk assessment stage, we have achieved human AI integration with AI now leading the entire unit sign-up workflows. Our AI property evaluation assistant uses visual recognition and multimodel analysis to intelligently capture indoor features, assess property conditions and evaluate potential risks. It also incorporates market data to generate intelligent AI-driven pricing recommendations. Beyond analyzing photos, the system can interpret property attributes holistically, helping address challenges such as consistent product standards, varying personnel capabilities and pricing accuracy. In the homeowner communication phase, we launched the AI negotiation assistant. This tool packages AI-driven property assessment, dynamic pricing and competitive market data into tailored home sign-up strategies and negotiation scripts, helping our service providers communicate and negotiate with homeowners more effectively. This provides a more professional and friendly experience for our clients, equipping new service providers with the tools they need to grow quickly and learn how to address nonstandard sales issues. We piloted this future in Ningbo and unit sign-up productivity rose by over 10 percentage points in Q3 compared with Q2, ranking #1 nationwide. Third, we achieved a leap in efficiency by adopting different AI applications. During the sign-up stage, our AI reviews system has replaced manual reviews, enabling fully automated risk control. As of September, the AI review function cover 11 cities, processing each case in just 20 seconds on average, making a 60-fold efficiency gain, saving more than 33,000 work hours and intercepting more than 16,000 risky properties. In the leasing stage, we use AI to power content lead marketing, expanding lead generation while reducing labor needs. AI intelligently analyzes and identifies high-quality leads, enhancing leasing efficiency. The AI-driven operational system in our home rental services has enabled us to see the possibility of scalable, yet personalized services for previous fragmented nonstandardized demand, demonstrating the potential for traditional industries to overcome these economics of scale through technological innovation. We now integrate AI across our entire home rental services process and are replicating the system across 13 key cities. Only through continuous innovation can we navigate industry cycle. By implementing home buyer/seller agent specialization and AI-driven home rental operations. We have forged a new path that re-engineers workflows through technology and fuels scale through efficiency. Moving forward, we will deepen AI integration across business scenarios to advance both service providers' capabilities and consumer experiences. As China's housing service industry undergoes this next evolution, we are afforded a historical opportunity to further its transformation guided by our commitment to technology power, high-quality growth and its potential to unlock infinity possibilities for modern living services. This concludes my prepared remarks for today. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from John Lam with UBS. John Lam: [Foreign Language] So let me translate my questions. So for the new home business, in the past, the company has been achieving or outperforming the market in terms of the alpha. But it seems that the magnitude of the alpha has been diminishing. May I know what's the reason why? And also, how should investors look at the company new home business growth potential? Tao Xu: [Foreign Language] Although the near-term performance of our new home transaction business has been affected by the market volatility, we remain confident in its ability to outperform the market in the long run. China's new home market has gradually matured in the past 2 years with supply side risks steadily easing. Against this backdrop, we have shifted from a cautious approach to a more growth-driven strategy. Our new home transaction business has significantly outperformed the broader market in the past few quarters until this second quarter with a higher brokerage penetration in the industry, our broader housing transaction service network and more collaborative projects. In this Q3, our year-over-year growth narrowed relatively to the market, mainly due to the several factors. First, customers on our platform often look at both new and existing home before making a purchase decision. Recently, the prices of existing homes have been considerably more attractive than the prices of comparable of new homes, leading both first-time buyers and the home upgrader to choose existing homes. Second, this is a base effect. The platform's new home transaction had a relatively higher base in last Q3 as many policy-driven new home subscriptions in Q2 were transacted in Q3, causing a timing mismatching with the market data. Third, of course, it is important to note that in recent years, our new home business has grown rapidly from a lower base as we made significant gains in brokerage penetration. The scale of our collaborative projects and our sales through network and capabilities, we estimate the brokerage channel penetration ratio in the new home market has grown to over 50% this year from approximately 30% a few years ago. In cities we operate in, the coverage of our collaborative project has expanded to over 70% from roughly 39% in 2023. To achieve further growth in a higher base, we have several key opportunities. First, we plan to expand into more cities and broaden our target market. Second, broker channel penetration in China still lags behind developed markets, leaving ample room for growth. Third, we leverage refined operation management to enhance the service capability for the new home customers and sales efficiency as well as improve our coverage and sell-through capability for high-end products. Now let's take a closer look at the details. First, we are piloting lighter product offerings to tap in some lower-tier cities through what we call B+ products. Our platform business still has over 150 feature and country-level market now yet to be covered. Building on our commitment to authentic listings, the B+ pilot equips local brokerage stores and agents in more cities with system capability, traffic support and commercialization tools. This lighter operational approach enables more flexible collaboration on home listings and sales and new home sales with our channel partners. As of September 2025, our B+ business has been piloted in 4 cities, and we plan to expand to over 30 cities by end of the year, unlocking additional market opportunities. Second, we see room to grow our sales opportunity with collaborative projects. On to customer end, we will optimize content development and operational strategy for our new home business to reach more buyers and increase conversion rates. On to customer end, we will iterate our partnership models under product offerings to developers. Third, both supply and demand in new home market are increasingly shifting towards the home upgrade projects. On supply side, we will more precisely identify these projects and boost their exposure to both agents and customers. We then match suitable agents to these upgraded projects and direct more customer traffic to them, creating a closed loop among homes, agents and customers. This approach will also help agents strengthen their sales capability for upgrade products and narrow the price gap between the platform average new home unit and the broader market. Thank you. Operator: Your next question comes from Griffin Chan with Citi. Griffin Chan: [Foreign Language] Yes, I'm going to translate my question. So this is Griffin from Citi Property Team. So how did the leasing service business managed to turn last year losses into the operating profit by third quarter this year? And what opportunity remains further improvement going forward? Tao Xu: Yes. Thank you, Griffin. The profitability of our home rental services improved significantly this year. Excluding headquarter locations, city level operating profit breakeven in Q2 and become profitable in fiscal Q3. First, we benefited from economies of scale from rapid growth in both SKU and revenue. The total number of managed units exceeding 660,000 by end of Q3, up 75% year-over-year. Revenue from our home rental service business reached RMB 5.7 billion in Q3, up 45.3% year-over-year. The contribution profit from our home rental services also rose significantly to nearly 500 million in Q3, up 186% year-over-year with contribution margin of 8.7%, up 4.3 percentage points year-over-year. On one hand, the light asset model of our Carefree rent business has given us a higher margin, lower risk rental structure. Starting in Q3, the revenue from newly added rental units and renewed existing unit under Carefree rent has been accounted on a net basis. In Q3, rental units under the net revenue accounting method made up 25% of the total units under management, up 10 percentage points quarter-over-quarter, contributing approximately RMB 470 million in revenue. This structural shift drove RMB 130 million increase in Carefree rent's Q3 contribution profit and lifted its contribution margin by 3 percentage points. At the same time, 2025 has been a year of improving operational efficiency. Streamlined and highly efficient operation have driven the reduction in several cost ratio, adding about RMB 170 million to contribution profit and increasing contribution margin by roughly 1.5 percentage points. Excluding rental costs recognized on a gross basis, the main cost of Carefree rent are labor cost, channel cost, post-rental installation and default costs. The improvement was mainly driven by the optimized operation labor cost. In Q3, the average monthly number of units managed per property manager exceeded 130 compared with over 90 in the same period last year. In the first 3 quarters of this year, average monthly efficiency in unit sales and occupancy rose by approximately 10% and 28% year-over-year, respectively. The default cost ratio declined by 0.1 percentage points, benefiting from our strong leasing capability. In Q3, initial leasing success rate improved by 0.9 percentage points year-over-year. So far this year, contribution profit from our Home Rental Business segment has grown much faster than operating expenses. These expenses mainly comprise headquarter and city level staff compensation and R&D with a quite low expense ratio. A series of operating management tools have consistently improved the productivity of our middle and back office personnel. The average number of units under management by each middle and back office personnel rose by 7.5% year-over-year, while the overall operating expense ratio declined year-over-year. In the coming years, there is a significant room to continuously improve the contribution margin in our Carefree rent business. The key drivers will be the continuous growth potential of the rental unit scale of the Carefree rent and the ongoing improvement of our operational efficiency. From a per UE optimization perspective, we are diversifying our channels for renting out our property to reach broader tenant demographics, increasing the share of our in-house rental occupancy team and reducing reliance on the concentrated broker channels. This is expected to lower the per unit channel cost ratio. In addition, labor costs remain a large part of per unit UE and there is still room for further reduction of the cost ratio. We see the potential to nearly double the number of units managed per property manager, moving towards to an average over 200 units per person. Furthermore, we will keep exploring and expanding diverse value-added services with the home rental ecosystem. We will continue to invest in AI and online digital capability within our home rental service, while other operating expenses should stay relatively stable. As the business continues to scale and we further optimize per unit UE, we expect our home rental service to maintain a strong operating leverage in the year ahead. Thank you. Operator: Your next question comes from Jiong Shao with Barclays. Jiong Shao: Thank you very much for taking my questions. My question is around your renovation business. You have done very well in cities like Beijing and Shanghai. And I was just wondering, for you to do well in those cities, is that because you have high market share with your Lianjia brand in those cities? And what sort of -- do you think that's a key reason? And do you think for cities outside Shanghai and Beijing, how would you kind of motivate your agents to cross-sell or to sell the renovation business when you don't have such a high market share? Tao Xu: Thank you, Shao Jiong. First of all, it is important to note that the home renovation market in second and third-tier cities represent a critical long-term growth driver for our future home renovation business, carrying irreplaceable strategic value. From a market fundamental perspective, compared to the first-tier cities, the cost of purchasing a similar size of property is much lower in small cities. Based on the latest data from our platform, the average price of existing home in Beijing and Shanghai is around RMB 4 million versus just over RMB 1 million in other cities. This price gap presents a meaningful opportunity as customers in second and third-tier cities can allocate a relatively larger budget for the home renovation. In 2024, we recorded approximately 1 million existing home transactions outside Beijing and Shanghai. In these cities, home renovation contract orders generated through our agent network only accounted for around 30% of overall home renovation contract orders. Our conversion rate from existing home transaction to home renovation contract in these cities were just less than 5% compared to over 20% and 10% in Beijing and Shanghai, respectively. Our strategic rationale is clear. Larger scale expansion into additional cities will only picking once the home renovation business underlying operational capability are mature. And the model has been fully proven in the core cities. Therefore, our resources are highly concentrated in core cities at this moment, and we have not yet made a big effort to drive traffic for our home renovation business through non-Lianjia agent channel in the second and third-tier cities so far. This approach is to ensure that every step of our growth is solid and sustainable. Meanwhile, we put in place a multidimensional systematic operational framework to engage with and motivate non-Lianjia agents. It includes 3 components. First, we aim to deepen our operation team's understanding and expertise in home renovations. Our operation teams have also shared knowledge and a proven operational capability to connect the store owners and agents, fostering an ecosystem marked by professional collaboration and shared competency. Second, we rolled out innovative incentive program to build an online brand promotion metrics. By offering incentives such as bigger coins, we encourage more connected store agents to visit our offline home renovation stores and showcase our service through the short video, which then will also upload to the leading social media platforms such as Douyin. Since launch of this program in the late April of this year, more than 30,000 agents in over 30 cities have uploaded over 50,000 short videos. This has cultivated a positive environment of full participation and widespread promotion. Lastly, on top of improving agent capability, we are leveraging AI to boost the contract conversion efficiency. Using AI, we access key attributes of the property within the store owners coverage area such as property age, layout, condition and quantitative scores. This allows us to accurately identify high-scoring homes with a higher likelihood of generating home renovation business. Feedback from the pilot cities has been extremely positive. While high-scoring homes constitute only low single digit of the total home renovation lease, they contribute to over 20% of preliminary home renovation contracts, underscoring AI's value in boosting our operational efficiency. In Q3 this year, our home renovation leads from non-Lianjia agent channels achieved year-over-year growth and the lead to contract conversion rate increased compared with last year's average. In the short term, our approach for the home renovation business remains relatively conservative. In the long run, once our home renovation service meet our established high standards across customer experience, product competitiveness and the delivery quality; we will initiate a more proactive traffic diversion strategy through non-Lianjia agent channels in the cities outside Beijing and Shanghai. Operator: Our next question comes from Timothy Zhao with Goldman Sachs. Timothy Zhao: My question is about your cost and expenses. Could you further elaborate what are the measures for the company to control costs and any effect or outcome that you have seen so far? And what we should expect from this cost and expenses line going forward? Tao Xu: Yes. Thank you, Timothy. Under the strategic guidance of operational efficiency enhancement, all businesses have ultimately implemented a series of optimization measures and achieved the phased results. Now I'd like to elaborate on the cost reduction, achievements of each business line and overall operating expenses in the third quarter of 2025. For our existing home transaction services, we continue to boost the productivity of our Lianjia team and organizational optimization has driven a notable decline in labor cost. Organizational optimization has directly led to a cost reduction with fixed labor costs in Q3 decreasing by more than 20% compared with the peak in Q4 last year. And the labor efficiency has been continuously improving. For new home transaction services, we have both streamlined fixed labor costs and the variable cost structure through streamlining the organizational structure of new home operation team. We have achieved a reduction of more than 40% relatively in relevant fixed labor cost compared to the peak in Q4 last year. On the variable cost side, the gross profit margin per project has been steadily increased by focusing sales strategy to maximize unit sales per single housing project. The commission speed of non-Lianjia channels has decreased by more than 1 percentage point from the peak in Q1 this year. For our home renovation and furniture business, we have effectively lowered the material cost through supply chain integration. By streamlining partner brand selection and SKU counts, we have achieved significant cost savings in procurement. Our centralized purchasing category has expanded from 4 as of Q2 to 13 as of Q3, covering core categories such as wooden doors, flooring and towels. The procurement unit price of some products has decreased by over 20%. The effectiveness of the cost optimization has been reflected in the financial report with the proportion of material-related costs as a percentage of revenue in Q3 decreasing by about 1 percentage point compared to last year's average. For our home rental services, cost reduction has been driven by both technological empowerment and the business model refinement. We have improved the efficiency of the rental housing channel management through AI empowerment and the task specialization of the service providers. The proportion of operating labor cost to revenue in Q3 decreased by around 1 percentage point year-over-year. For store cost, we have reduced fixed expenses through the refined management and closed underperforming stores. The number of actively [indiscernible] stores has been decreased from around 5,600 as of Q4 last year to less than 5,200 at the end of Q3, a decrease of around 8%. Meanwhile, we have actively promoted the rent negotiation with existing industrial owners and achieved average rent reduction of over 10%. Regarding the control of the operating expenses and R&D investments, for G&A expenses, we have achieved efficient cost control through the organizational optimization. On a non-GAAP basis, the G&A expenses of the home renovation business have decreased by more than CNY 100 million compared to the peak in Q3 last year. This was mainly due to the adjustment of the organizational structure. The headquarter's G&A has also been optimized based on the market conditions. For sales and marketing expenses, both marketing spending optimization and the improvement of the labor efficiency have been implemented. On a non-GAAP basis, the sales and marketing expenses of the housing transaction business have decreased by around RMB 90 million compared to the peak in Q3 last year, mainly through the optimization of the advertising and the marketing placements. The related advertising and promotion expenses have declined by more than 20% compared to the peak in Q3 last year. The sales and marketing expenses for home renovation business have decreased more significantly by more than RMB 100 million compared to the peak in Q3 last year. The core driving factors, including AI technology enhancing the operational efficiency of the containers and other front-end staff as well as organizational optimization that improved the workforce structure. For R&D expenses, on the non-GAAP basis, the expenses in Q3 increased by around RMB 79 million year-over-year as the scale of R&D team has expanded steadily. As of Q3, there were more than 2,300 R&D-related personnel, an increase of more than 100 compared with Q3 last year, among which the number of AI-related R&D personnel exceed 600, doubling compared to the same period last year. R&D resources continue to be tilted towards the core areas with R&D investment related to AI in Q3 exceeding RMB 150 million, nearly doubling compared to the same period last year. Our operational efficiency enhancement strategy has a clear execution path. We firmly believe that with the market environment stabilized, our continuous operation optimization will fully release the operating leverage effort. Operator: We are now approaching the end of the conference call. I will now turn the call over to your speaker today, Ms. Siting Li, for closing remarks. Siting Li: Thank you once again for joining us today. If you have any further questions, please feel free to contact Beike's Investor Relations team through the contact information provided on our website. This concludes today's call, and we look forward to speaking with you again next quarter. Thank you, and goodbye.
Operator: Ladies and gentlemen, good morning, and welcome to TIM 9 months 2025 Results Presentation. Paolo Lesbo, Head of Investor Relations, will introduce the event. Paolo Lesbo: Ladies and gentlemen, good morning, and welcome to TIM 9 month 2025 Results Presentation. I am pleased to be here with the CEO, Pietro Labriola; the CFO, Adrian Calaza, and the rest of the management team. Today, we will guide you through the highlights and review the main operating and financial results. As usual, we will close with the Q&A session. Before we begin, a brief reminder. As in previous quarters, Sparkle continues to be reported as discontinued operation, in line with the guidance provided last February. It is therefore excluded from the scope of these results, unless otherwise stated. Please also refer to the safe harbor statement in the appendix for additional details regarding the reporting perimeter. With that, I now hand over to Pietro to start the presentation. Pietro, the floor is yours. Pietro Labriola: Thank you, Paolo, and good morning, everyone. Let me begin with the highlights of today's presentation. TIM delivered a solid operational and financial performance in Q3, both in Italy and Brazil. Year-to-date results are in line with our budget, and we remain on track to meet full year guidance. It's important to note that the shape of our performance reflects the seasonality built in the plan. For this reason, we confirm our full year guidance. In Italy, the pricing environment in the consumer segment showed a slight improvement, with mobile front book price increases already visible in the market and some back book adjustment announced for Q4 by our competitors. Meanwhile, we have also strengthened our partnership with Poste Italiane, signing the MVNO contract and launching TIM Energia powered by Poste, an initiative that extends our presence into a new adjacent market. In the enterprise segment, we posted another quarter of robust growth driven by cloud. We also signed a letter of intent with Poste to establish a joint venture focused on developing proprietary solution, leveraging open source cloud and artificial intelligence. This partnership position TIM and Poste as leading players in the country's digital transformation. We will share more details later in the presentation. In Brazil, market dynamics remain highly rational and TIM Brazil delivered strong results with consistent growth and improved cash generation. In September, TIM successfully returned to the debt capital market for the first time since the 2023 bond issuance and the 2024 net cost separation. We issued a EUR 500 million bond that priced the lowest spread in the past 15 years for TIM and was the euro note with the lowest coupon of a sub-investment grade in the last 3 years. It received an exceptional response from investors with demand 6 times the offer, a clear sign of bringing confidence in the group's solidity. Let me now walk you through the key figures for the group in the 9 months. Total revenues were up 2% to 3% year-on-year with service revenue growing 3%. EBITDA after lease increased 5% to 3%. CapEx stood at EUR 1.2 billion, around 12% of total revenues. As a result, EBITDA after lease minus CapEx rose 10%, reaching EUR 1.5 billion. Equity free cash flow confirmed a structural improvement versus last year when NetCo was still consolidated and progress in line with our budget. Adrian will elaborate on cash flow in a moment. Net debt after lease remained stable at around EUR 7.5 billion with a leverage ratio below 2.1x. At domestic level, performance was equally solid. Total revenues grew 1.2% and service revenue 1.9%. EBITDA after lease increased 4.1%, showing that our operational model continues to scale effectively with cost discipline and repricing initiatives translating directly into profitability. CapEx reached EUR 0.7 billion, around 10% of total revenues. Consequently, EBITDA after lease minus CapEx was up 8%, reaching EUR 0.8 billion. In summary, these numbers confirm that our focus on execution and value creation is paying off. Quarter-after-quarter, we are building a more efficient and profitable team, in line with our industrial plan. The detailed Q3 metrics are available in [indiscernible]. Let's take stock of where we stand against our full year targets. Our metrics are in line with guidance. In Q3, the positive drivers we had anticipated started to kick in, supporting the expected domestic EBITDA after lease growth. In fact, domestic EBITDA after lease in Q3 was EUR 30 million higher than in Q2, up 6% quarter-on-quarter. Year-on-year growth was slightly softer at 4%, reflecting a tough comparison base. The Q3 domestic EBITDA after lease margin improved by 0.8 percentage points year-on-year and by 0.9 percentage points sequentially. Looking ahead, year-on-year growth in Q4 will be markedly stronger, benefiting from easy comps. Let me recall the main positive drivers progressively coming into play. First, the full effect of the back book price increases implemented also in Q3. Second, the usual seasonality of the enterprise business, which typically accelerates in Q4. This year, this effect would be amplified by a strong contribution from the National Strategic app. Third, additional OpEx efficiencies generated by the cost transformation program. Fourth, labor cost savings following the renewal in July of the solidarity agreement, which provides for a reduction in working hours for TIM employees until the end of 2026. In terms of cash generation, equity free cash flow after lease was positive at EUR 50 million in Q3. This result was fully in line with our expectations. It was lower than last year, mainly due to one-off effects. Adrian will provide more details on this dynamic in a moment. We expect cash generation to significantly accelerate in Q4, supported by higher EBITDA after lease and a strong contribution from net working capital, which typically benefits from favorable seasonality in the last quarter. We remain confident of lending smoothly in line with our full year target of EUR 500 million of equity free cash flow with some potential upside. Net debt after lease at the end of September was broadly stable at around EUR 7.5 billion, just EUR 50 million higher than in Q2, reflecting the impact of the buyback and minority dividends of TIM Brazil. Overall, our full year guidance is confirmed. Let's now move on to review the performance of the 3 entities. In consumer, the trend remains positive and fully aligned with the objectives of our value strategy. Year-to-date, total revenues for TIM consumers were broadly stable at EUR 4.5 billion down 0.4% year-on-year with service revenue split. In Q3, service revenues were slightly negative at minus 0.5% year-on-year, mainly reflecting a lower contribution from MVNOs, while retail services remained stable. At the end of September, we launched Team Energia powered by Poste, a significant add-on to our customer platform and the first tangible initiative of former cooperation with Poste. We are pleased with the market's positive response, especially considering that we have not yet carried out any dedicated communication campaign. Back book price adjustments continue in Q3, mainly in mobile. Year-to-date, we repriced around 4 million wireline and treated 4 million mobile consumer lines. The benefits are clearly visible. Wireline ARPU increased, mobile ARPU remains stable and churn stayed under control, a remarkable outcome given the multiple price adjustment implemented over time. This validates the effectiveness of our volume-to-value strategy launched in 2022 and we know that similar action have recently been announced in the market, starting from Q4. Wireline net adds were stable in Q3 and on a 9-month basis, the trend improved significantly versus last year. In parallel, we continued our push of FTTH and 5G fixed and wireless access with net debt growing 9% and more than doubling year-to-date, respectively. Mobile net debt saw a slight sequential deterioration. However, the number portability balance remained neutral also in Q3, confirming the trend observed in the first half. As mentioned in previous earnings calls, SIM cards involved in number portability and an ARPU of around EUR 12, EUR 13 compared with about EUR 1 for the other SIMs. This means that most of the mobile lines lost year-to-date had the limited impact on service revenue. Finally, a note on our customer platform. TIM Vision service revenue continued to grow steadily, up around 5% year-to-date. In enterprise, we are pleased to report the 13th consecutive quarter of growth. The performance remains solid and fully consistent with our strategy to focus on high-value ICT services. Over the first 9 months, total revenues grew mid-single digit to EUR 2.4 billion, with service revenue up more than 5%. Following the unboxing event held in October, it is now even clearer why TIM Enterprise continue to stand out in the European context. Our distinctive edge come from the combination of a unique portfolio of assets and advanced capabilities in cloud, IoT and cybersecurity. This positions TIM as a leading provider of secure and sovereign digital services for the country. Year-to-date, cloud remains the key growth driver with service revenue up 23% year-on-year, reinforcing TIM's position as well as Italy's leading ICT players. Revenues from other IT declined by 5% as growth in Security and IoT was offset by a contraction in the licensed businesses, reflecting our deliberate portfolio reshaping to phase out low margin activities and focus on higher value solution. Connectivity performed as expected, showing a slight decline. Within the mix, fixed connectivity remains stable year-on-year, while mobile declined due to the phase out of a major public administration contract that we deliberately choose not renew. This decision is consistent with our strategy to avoid low or negative margin tenders. The value backlog contracts signed but not yet activated is expected to reach around EUR 4 billion by year end, up 5% versus last year. Moving to Brazil, results once again confirm strong execution and market leadership. The market remained healthy and rational and TIM Brazil continued to deliver profitable growth, reaffirming its position as the most efficient operator in the country. Year-to-date, top line grew mid-single digit, driven by mobile service revenue. Customer base monetization remains a key focus with successful upselling from prepaid to postpaid, leading to the highest ARPU in the market. Meanwhile, 5G network expansion continued at pace with TIM maintaining its leadership in 5G coverage. Now reaching more than 1,000 cities. Efficient operational execution supported robust EBITDA growth and margin expansion. In the 9 months, OpEx remained below inflation and EBITDA after lease exceeded 38% of revenues, up 7% year-on-year. TIM Brazil also delivered strong cash generation with EBITDA after lease minus CapEx growing double digit. These results demonstrate that the operational discipline that has driven success in Brazil are the same principle regarding the transformation of our domestic business. In both markets, the formula is the same. Focus, efficiency and value creation and the results speak for themselves. I'll now hand over to Adrian for the detailed financial results. Adrian Calaza: Thank you, Pietro, and good morning, everyone. Before moving to cash flow and debt, let me start a few comments on CapEx and OpEx. At group level, CapEx was stable at EUR 1.2 billion in the first 9 months and EUR 0.4 billion in Q3. Accordingly, CapEx intensity remained soft at around 11% of revenues, mainly due to phasing, but we expect CapEx to pick up in Q4, both in Italy and Brazil as it did last year. About 25% of CapEx was customer-driven, while the majority was allocated to infrastructure investments, in particular, mobile networks, IP backbone, and data centers, where we continue to increase our capacity to cope the significant growth on cloud services. Group OpEx increased modestly in the 9 months, up 0.9% year-on-year, mainly due to TIM Brazil, while domestic OpEx remained broadly flat. Notably, in Q3, domestic OpEx were down 0.7% year-on-year, thanks to lower industrial costs, including the MSA and labor costs, partially compensated by volume-driven costs. I remind you that Q3 last year was the first one with official figures following network disposal. Therefore, we are pleased to confirm similar trends compared to the pro forma basis. In Italy, both OpEx and CapEx discipline continued to be insured by the transformation plan. As a reminder, progress is measured against initial OpEx and CapEx trajectory that is the cost base line we would have incurred without the plan. We currently have more than 80 transformation initiatives underway which have delivered over EUR 130 million of incremental benefits year-to-date. Our efforts are focused on 4 main areas: the commissioning legacy technology consolidating ICT vendors, aligning service levels with actual customer needs and optimizing labor costs through the renewed solidarity agreement. Net debt after lease at the end of Q3 was broadly stable at EUR 7.5 billion. Let me highlight the main differences versus last year to clarify the cash flow dynamics and address the questions you might have in mind. First, working capital. In Q3, absorption was higher than last year, mainly due to a reduction in days payable outstanding. As part of our vendor consolidation efforts, we reduced the number of suppliers in certain purchasing categories, securing better pricing conditions in exchange for a slightly shorter payment terms. This effect was concentrated in Q3 when the change was implemented and will not repeat in coming quarters. Second, financial charges. In Q3 2024, cash interest expenses were EUR 27 million lower, reflecting a remarkable increase of the mark-to-market valuation of securities in our portfolio, keeping aside such 2024 one-off performance driven by the reduction in the interest rates. The financial charges are slightly down year-on-year. Third, cash taxes and other. Last year benefited from dividends received from INWIT through Daphne also a one-off factor. And fourth, payback. In Q3, we had EUR 49 million equivalent outflow related to share buyback at TIM Brazil. As Pietro mentioned, we have good visibility on cash generation for Q4. We expect a ramp up supported by both higher EBITDA after lease and a robust contribution from the networking capital, which typically benefits from favorable seasonality in the last quarter of the year. We remain on track to achieve or even exceed our full year target of EUR 500 million in equity free cash flow after lease with leverage below 1.9x. To conclude, as you know, yesterday was my final day as group CFO. This almost 4 years have been an incredible journey reached with challenges, but mainly of rewarding moments of growth and transformation. Looking back, I am deeply proud to see the group firmly on a positive path, not just financially but above all, operationally. I'm grateful to Pietro for his vision and courage and for giving me the opportunity to contribute to this journey. My thanks to all our colleagues, both in Italy and Brazil for the unwavering commitment. To my peers in Pietro's leadership team for their patient and friendship and especially to my team for their unconditional support and extraordinary capacity. Special thanks to the financial community and our shareholders who believed in this transformation story. It was an honor to serve alongside you all, and I am confident that the group's momentum will continue with Piergiorgio to whom I wish every success as he takes on this role. With that, I hand over to Pietro for the very last time. Pietro Labriola: Thank you, Adrian. Today, we are also sharing some high level updates on the strategic partnership we are developing with Poste. A more detailed disclosure of the expected synergy will come next year when we update our plan. Starting with initiatives within TIM Consumer. The MVNO contract has been signed and customer migration are set to begin in Q1 2026. As mentioned earlier, TIM Energia powered by Poste is showing strong early traction, confirming the cross-selling potential we can leverage together. Additional cross-selling initiatives, targeting retail and SMB customers are currently under evaluation. Moving to TIM Enterprise. We are exploring cost-saving opportunities through joint procurement initiatives and we have signed a letter of intent to establish a joint venture on cloud services, focused on generative AI and open source technologies. This JV will position TIM and Poste as front runners in the country's digital transformation, further strengthening enterprise positioning as a key player in sovereign initiatives. A more comprehensive update will follow next year. Let's now move to the final slide for the closing remarks. To wrap up, our 9-month results are fully on track to meet full year targets, both operationally and financially. We confirm our guidance for the full year. We're advancing the strategic partnership with Poste to generate synergies between the 2 groups. The MVNO contract and the TIM Energia powered by Poste are the first initiatives unlocking mutual benefits with more to come to further expand our respective product portfolios. In the enterprise place, both groups play a central role in Italy's digital ecosystem. TIM in the telecom infrastructure and cross services and Poste in public digital services. Our partnership remains key to enabling secure nationally controlled digital transition. We are delivering what we said we will deliver, and we'll continue to execute with consistency and discipline. Before closing, I would like to take a moment to thank Adrian. His contribution over this year has been fundamentally transforming the company, not all in terms of financial results, but above all, in restoring the discipline, transparency and credibility that's now define TIM. Adrian, thank you for your professionalism and the deep commitment to the group. At the same time, I'm very pleased to welcome back Piergiorgio, returning to TIM after several years. His deep knowledge of the sector and of our company we ensure continuity and competence. Two essential qualities in a market where understanding the business and the technology is an imperative. The best way to predict the future is to bid it. And that's exactly what we are doing because, as I always say, inaction is not an option. With that, we are ready to take your questions. Operator: [Operator Instructions] The first question is from Mathieu Robilliard at Barclays. Mathieu Robilliard: First, I wanted to thank Adrian for all the collaboration, transparency over the years and obviously, welcome Piergiorgio. With that, I had a few questions. The first 1 was in terms of the Consumer division. So obviously, very impressive ARPU progression on the fix continues, a bit less this year -- or this quarter rather on mobile, but the trajectory is good. Meanwhile, however, the volumes continue to be a bit depressed. So my question was a bit forward-looking, which is if we look into 2026, and we think about how this -- the top line, the service revenue can progress. Do you expect to have improving volumes to support the growth of the service revenues? Or is it still going to be based essentially on ARPU progression. And is there room for that? So that's the first question. The second question was about the migration of the use of the Open Fiber network versus the one of FiberCop for fiber. If you could maybe give us a sense of how is your base progressing there? And I wanted to check what kind of contract you had with Open Fiber. I understand that with FiberCop, you have no volume commitment, which gives you a lot of flexibility. I was wondering if that's the same thing with Open Fiber. And lastly, if I may, on M&A, obviously, we've seen some press reported news that some players could engage some discussions. And I was wondering if you would welcome that kind of scenario in Italy. Pietro Labriola: Thank you, Mathieu. I will answer immediately to the third question related to the M&A. I think that I must be repetitive because I'm saying to all the markets since several quarters that. Whoever will be that we proceed with the market consolidation in Italy will be a good sign for us then can be TIM to manage the situation or can be another player. I think that it's really important because this is a trigger that we allow to continue and to improve the network efficiency and the efficiency on the cost base. So I'm very happy if someone will do a first move and will proceed on that. It's important to remember when in 2022, we started to talk about these things, no one was believing us. When we're saying that from volume to value was the driver of the growth, no one was believing us. Now also looking at the result of a lot of players, not only in Italy, but also in Europe, everybody are using this claim from volume to value. And the market consolidation in Italy is no more a dream because the free step succeed, that is Vodafone Fastweb. And I'm quite optimistic that quite soon, there would be a further step. Related to the consumer division, I will leave Adrian to elaborate more on that, having in mind that on the mobile and Adrian will explain better, we can expect also in the reduction of the volume because, as he will explain a part of the cancellation as related to seasonality phenomenon and to the past commercial approach, not only TIM, but of everybody. On the fix, you were mentioning that we are proceeding. And so we are also quite optimistic on the consumer. Let me give also a more strategic outlook on the consumer market. In the past, I was always more confident in the improvement coming from the industrial cost base, market consolidation and these kind of things. And I was more worried about the possibility of a real growth of the ARPU. I spent the last 10 days in an innovation trip, and I have now a more optimistic view. Why that? All the AI, all the new functionality that you are experiencing in the market and everybody described about the future, we request mainly 3 things: low latency, higher uplink and higher throughput. In the actual offer, we have nothing of that. So these 3 pillars will become one of the main driver. I'm talking about medium, long term about potential ARPU increase. And in such a case, different from the customer platform will be mainly connectivity with a very high margin. Now I'll leave Adrian to answer. Adrian Calaza: Thank you, Pietro. Thank you, Mathieu, for the question. So we see a positive outlook going towards '26, meaning that we continue to believe we can go on with the price increases. The price increases of this year proved to be successful, and we also expanded a little bit the segment in Q4. So we will continue in Q4. That will be positive, of course, on the ARPU contribution. Equally, I have to point out that yes, on fixed, we still see some negative networks, but a large proportion of that, very large is due to the voice-only customers that are phasing out the voice fixed technology and that is actually considered in the plan. So if we look at the net broadband, we are improving and we continue to believe we will improve, thanks to several factors. One is exactly what you mentioned, the improved coverage of FTTH network, thanks also to the agreement with Open Fiber. So we are growing in terms of acquisition and transformation of technology on the Open Fiber network that we are continually working on. And also, especially from last summer due to the very wide progression of FWA which, for us, FWA 5G for TIM is a new technology that is also coming with very high margin. As Pietro was pointing out, we see an improvement that you also noticed in our portability trend in the mobile market. The mobile market is somehow stabilizing, and we measure a sizable improvement of the net active customer year-over-year. That is improving. And so we think that this phenomenon will continue to increase because, as Pietro was pointing out, the market is deflating in terms of rotation and volumes, which is, of course, coming with benefits on the ARPU dilution and on the net balance effect. Pietro Labriola: Is it fine, Mathieu? Mathieu Robilliard: Just on -- thank you so much. But just in terms of the type of contract you have with Open Fiber, is it a volume commitment? Or is it on a per-line basis. Just to understand if it's similar to what you have with FiberCop, I don't know if you want to disclose that. Adrian Calaza: It is an agreement that is complementary to FiberCop, of course -- complementary in terms of coverage, we use that mostly on a per line basis but is a wholesale agreement that is complementary to FiberCop. Pietro Labriola: But in any case, immaterial. Open Fiber as offer on the market that are per line or with a minimum commitment based keeping the price flat for the next years. So we use a mix on that based on our convenience in the different areas. Operator: The next question is from Fabio Pavan at Mediobanca. Fabio Pavan: Yes. Before asking questions, I would love also to thank Adrian for supporting this. Yes, very precious and we will also welcome Piergiorgio on board. Coming to the questions. First one is a follow-up on what Pietro, you just said. So there is anything that you can do in order to support sector consolidation even if you are not at the driving seat? Second question is on Poste and the letter of intent signed on the cloud side. Could you give us some more color about how would you, let's say, approach the market? Is it going to be something targeting Poste customer base, is it going to be a bundled offer. Pietro Labriola: Okay. Thank you, Fabio. Let's start from the second question about the JV with Poste. I will leave Elio to elaborate more on that also because this was a very clever idea that Elio elaborate and that was accepted also by the counterpart. But in any case, if you think in this way, we'll talk about unboxing TIM Enterprise 1 month ago, we told to everybody that for us it was very important to fill up the value chain that today we are managing through some external partner. Now the idea is that, that was very well explained by Elio that we want to do that internally. We don't want to do everything internally, but we'll do that, that has a much future-proof reliability. Now I leave to Elio to talk about the JV. Elio Schiavo: Thanks, Pietro, and thanks, Fabio, for the question. So we made pretty clear that in our strategy, there are 3 things that we need to hear about. One is the insourcing of capabilities because this will allow TIM Enterprise to improve margins. The second 1 is we have been very vocal, as you know very well, during the last few months about this opportunity of sovereign cloud and because we believe that from this country and the continent Europe more in general, they need to face -- they need to embrace the opportunity of creating a kind of digital independency. And for doing this, it's clear, you need to develop open source capabilities, which is something that Poste will provide within this -- in the creation of this joint venture. And the third point is that we need to embrace as much as possible model and model by model of artificial intelligence. So the idea is to create a structure which is fast, agile, flexible, able to attract talents and able to integrate vertical capabilities resulting potentially from M&A activities. So -- and so the aim of this company will be to serve both Poste and TIM for embracing the new technologies and at the same time, to provide the market with a solution that today -- an end-to-end solution on new technologies that today, we don't see in the market. And as I said, the 3 areas of focus will be cloud migration and sourcing capabilities, open-source platform and artificial intelligence. Hope I answered the question. Pietro Labriola: And what is really important that for the first time after several years, we are a newcomer. So we don't start from legacy. And this is what will have passed because just to give you an idea, if you are already a system integrator with a lot of developers, you will have to face the challenge of the AI that will have the software development. We start now from scratch. So we'll be able to explore since the beginning, the possibility to increase the productivity with the number of developers that are lower. In the meantime, focus on open source is key in the development also of our sovereign cloud strategy because this is the area in which you have less dependence by other countries' technology. It doesn't mean that this is a complete alternative to the partnership with the hyperscaler. We'll continue to partner with them because they are key also in terms of innovation. About the consumer segment, what they want to highlight Fabio is that, as we told during the call, the performance that we are having today on TIM Energia powered by Poste is a multiple of what we are thinking to have without having launched yet an advertising campaign. So this is a first test to try to understand us, our customer platform strategy can work. Let's remember, sometimes we forget that we are now the second content platform in Italy. And now we started with the Energia that will pass for the increase. We are working also for further activity on the consumer side, as we mentioned, we are starting the portfolio of both companies, Poste and TIM and we are trying to understand how to exploit the channel for this activity. These are all things that will develop more in detail during our next 3-year plan presentation. About the first question that is related to the sector consolidation, it's clear that we are very supportive. It doesn't mean that we can accept anything that will transform in a weaker company TIM, but I think that the rationality in this market is becoming more normality, so we are very welcome in any kind of market consolidation that will make this market more equilibrate and rationale. Operator: The next question is from Keval Khiroya at Deutsche Bank. Keval Khiroya: I have 2 and good luck as well, Adrian, from my side. So firstly, your financial expense remain high whilst your cost of debt on new issuance has been falling and you highlighted the EUR 500 million bond you issued. What financial expenses assumptions have you baked into your guidance for the next 2 years? And is there any opportunity to optimize these further? And secondly, can you give us your latest expectations on the concession fee case? I think you previously expected a year-end outcome on that. Adrian Calaza: Yes. Kevin, thank you for the question. As a matter of fact, financial expenses, we've been mentioning -- I think it was a couple of quarters ago and also in the plan that the run rate for 2025 was something between EUR 150 million and EUR 160 million per quarter, and we are on the lower end of that number. Last year, we had some positives that were one-off mainly coming from some mark-to-markets that we counted, but we are on track. And as a matter of fact, slightly below with what were our projections at the beginning of the year. Going forward, clearly, this is a number that will probably go down, especially because of the net financial position and the gross debt will be reducing going forward. In terms of average interest rate of our gross debt, the domestic, it's clearly that the bonds of lowest coupons, so the ones that were issued in 2015, 2016 are maturing and the weight of the issuance that we did in '22, '23, with much higher coupons is more important. So it's not a matter of average interest rate, but more a matter of the evolution of the gross debt, but obviously, the numbers should be reducing in the coming quarters. But again, just to mention the EUR 150 million of financial expenses of this quarter is it's slightly better than what we projected. Pietro Labriola: About the concession fee, as you can imagine, formally, we don't have any further detail informally too, but the only thing that I can share with you and that is public is that in the process of approval of the state balance, it was put in a provision for 2026 for the payment of some litigation and was expressively mentioned that there could be also the TIM one. It doesn't mean anything. But again, you can understand. Operator: The next question is from Javier Borrachero at Kepler. Javier Borrachero: So my question, Pietro for you, a bit of follow-up on this cash windfalls. So I mentioned the concession. Maybe on the earnouts, maybe you can also give us some color on where you still think that the Open Fiber, FiberCop merger earnout is still possible or maybe now it's too late. And on the energy one, if that is -- if you are more confident that here, you can maybe get some cash. And regarding all the proceeds from all these cash windfall, say, concession fee, earn-out, et cetera, what is now your view given that the share price has had a phenomenal performance year-to-date doubling. What is now your view in terms of the use of that cash in terms of the balance between dividends and share buybacks based both on your own what is already guided in terms of shareholder remuneration for the next few years, but also in terms of any extra proceeds that you may get going forward? Pietro Labriola: Javier, so first of all, about the -- the first point is that the exceptional performance of the stock. If I may, it was strange the previous value because in terms of multiple, you see that we are still slightly below the average of the European Telco. So it's not strange the actual value, it's strange the value in the past. And if I may just for me and Adrian, the plan in place for which we are today at EUR 0.50 is the same that was presented in April 2024 in March 2024, when the stock was down 25%. So it's just a matter of the trust and execution, nothing changed. About all the proceeds, the earnouts on and so forth. About the earnout, I'm still optimistic on the fact that we can get something. We never declare that we get all the amount. We always told that we can get something. And the deadline for the expiration is the end of 2026. But the earnout is due, not only in a case of a merge, but also strategic commercial partnership that will generate synergies. So while I can understand in some way, some worries related to a potential to merge at last time for the approval. Also, if we have to remember that in the case of the [indiscernible] deal at European level, it took 6 months for the approval. So I'm optimistic that something will happen also because looking at what is happening also in the press, I'm optimistic that all the discussions and all the fight we bring everybody to see rational because rationality drive the return on investment also for the private equity and something will happen. It's important to remember that we have 0 in terms of earnout in our plan. Then in the case in which the concession fee and all these things will happen. At that time, we will evaluate what is the best. It doesn't mean that we don't have a clear understanding, but the number of pieces that are moving at the same time, oblige us to have several options. So I don't have -- we don't have in mind, just 1 option. We have several options. But everybody, all the different options will be driven by market-friendly approach. And about the plan, we stay stick to the plan. We continue to maintain the guidance about the shareholder remuneration. And so we move forward in that way. Operator: Next question is from Giorgio Tavolini at Intermonte. Giorgio Tavolini: The first question is on Deutsche Telekom that has recently announced a EUR 1 billion collaboration with NVIDIA to build an AI factory in Germany. Do you believe TIM Enterprise could play a role in developing similar giga factories in Italy possible through joint venture with other national players beyond Poste Italiane. I mentioned this because I saw your role in the national strategic hub and the need to ensure data sovereignty. The second question is on sector consolidation and the recent rumors about a potential Wind Tre Iliad merger. So beyond the team potentially being a passive beneficiary of the market repair. I was wondering if such a merger could pave the way for a consolidation between TIM and Poste Mobile since it would ease the antitrust concern and now that TIM, Iliad deal would be completely off the table. And the third question is on the recent proposal on inflation index fee increase for Telco tariffs that was proposed by a political party. I was wondering if you think this measure could be reconsidered by policymakers to help restore sector profitability and return on investments. And in particular, you raised the prices for the fourth consecutive year. So is it correct that if this measure is introduced, this would extend all the players in the market, including Iliad to push their prices above the current ones? Pietro Labriola: Giorgio, let's start from the third one, then I will leave to Elio to answer to the first one. About the index, we will continue to discuss with the different, let me say, stakeholder about that because I think that this is a rational approach and sooner or later, my expectation is that also on the fiber business wholesale, it will be needed a kind of inflation index. If it will happen, it's quite clear that must be reflected also in the retail price. So this is not this year, but this is something mainly in Italy. I have to remember that it happened already in U.K., if I'm not wrong in Netherlands. So this is a trend in the market. Then let's remember that we have the lowest price in Europe. So I'm quite optimistic to that if it will not be this year, but sooner or later, it will happen. Related to the prices increase, I have to remember and then I will ask Andrea to give also more color that a part of the price increase that we did was with the kind of more formal approach, not in terms of giga because Italy has packaged with a huge amount of Giga, but about 5G. I have to say thank you also to Leo our CTO because we were able to move from the last place in the ranking for the 5G quality to the first place. And it allowed to Andrea also to do price up also based on the 5G., but we are still talking about what they tell the 5G of marketing, not real 5G with low latency, that will be the next step for a further price increase and we'll continue also next year with this kind of approach. About the sector consolidation, we are positive about that. It's clear that any kind of further simplification of the market structure is more than welcome. So let's take the window, we don't have to anticipate, but again, we have a clear idea about the possible scenario. Thanks to God, we are no more playing poker, but we are starting to play a chess game. And so every time we have to think what could be the further moves. And we have a clear understanding about what could be the different further moves that we have to act on in relation to the events about Deutsche Telekom, I leave it to Elio and then if Andrea wants to add something about the repricing, we will do and before to Elio and then to Andrea. Elio Schiavo: Thanks, Pietro. So thanks for the questions. First of all, let me underline that this news about the partnership between Deutsche Telekom and NVIDIA confirms that the Telco industry is back again to the center of the innovation process. And this depends on -- basically on the fact that infrastructure, both the network and the colocation became and will be very, very relevant going forward because as you can imagine, majority of those new technologies will need a house where to stay and a network that can help them to move data at a very fast speed. So -- and we are at the center of that business environment. So in the country, as you mentioned, that there are many giga-motions we look at this in a very pragmatic way. First of all, there is nothing giga that can happen in this country without TIM being involved because at the very end, you need to connect to the market. We are the only one having bandwidth for doing it. And we are in talks with NVIDIA. And as I said, we are looking at this, trying to size how big is the effort, but more importantly, how big is the opportunity that can be taken together. Clearly, and the Deutsche Telekom is the clear example. It's very difficult for them to do this without having a big Telco on board and I guess we are the ones they want to deal with. But -- so we will -- we will try to understand, as I said, very pragmatically this what will mean. And the way we will measure this is what is the length, the duration, and the size of the ROI that we can extract both together from this business. But let's say, we are talking to them, and we do believe that there is a good opportunity to be taken. Pietro Labriola: Before turning to Andrea also to elaborate something on top of what Elio told sometimes we focus too much in something that is real estate or computing capacity. But computing capacity is nothing without connectivity. Also, mask that is much more well-known than me in elastic talk is explained that he's foreseeing a future in 3, 5 years where the computing capacity will be distributed, but what will be needed is low latency and uplink. And we have the 5G frequencies, and so we are the one that can provide low latency. We don't have the ownership of the passive fiber, but latency, throughput at uplink come through the electronic that you put in the last mile and the last you must have a very wide spreaded backbone. And also on that, we are the best player. So if you add this capability, the ones that were mentioned by Elio it's clear that we continue in this kind of technological future to be the best player to get the main part of the cake. Andrea Rossini: Thank you, Pietro. Thank you, Giorgio. So this gives us the opportunity also to talk a bit more about our replacing action and strategy and as also Pietro pointed out, we did price ups, but we also gave more benefits to the customer. And in particular, during the last years, also thanks to great work done by Leo Capdeville with the technology team. We upgraded millions -- literally millions of customers to 5G, to the basic level of 5G. We did also something that other operators have not done yet, which is forward-looking. We created a 2 level of 5G, a basic level, which is optimizing use of network because as you know, 5G is much more efficient in terms of use of bandwidth and energy. And we created a top level of 5G, let me say, quality, which we sell for premium. So this gives us an opportunity also to upgrade ARPU going forward and optimize network efficiency. Now as also Pietro pointed out, we are in favor since many years of a general increase of prices to the customer base. We have worked a lot because we believe that sustainability in a sector in which the usage of network is increasing, is coming with price increase. So we are in favor of price inflation. And we believe that this, especially together with consolidation in the market can be a structural solution to the sustainability of the network. So looking forward, by the way, as Pietro pointed out, also with more segmentation of service on latency, uplink use of network with AI, we can see an ARPU increase in the mobile market because demand of connectivity is always increasing. Operator: The next question is from Domenico Ghilotti at Equita. Domenico Ghilotti: Well, first of all, I joined the other analysts and say goodbye to Adrian, and thanks for your support. And well, just a couple of questions remaining. One is on the Sparkle deal. If there is any update on the transaction? And then on the cash flow, can you help us understanding how was the impact of the vendor consolidation that you were mentioning? And also from the let's call it, extraordinary working capital item that you were flagging in the past for 2025. Pietro Labriola: Thank you, Domenico, about Sparkle. We are proceeding that. We are waiting for the approval from some local authorities. I think there are 2 or 3 for which we are still waiting. So sometimes the closing could be at the beginning of 2026 and not in the last quarter 2025, but all the things are proceeding very well, while about the cash flow, I leave to Adrian. Adrian Calaza: Domenico, thank you for your words. On the cash flow, yes, and this is something that we've been working for a period, and it was also commented during the Enterprise Day, a month ago, it was -- one of the targets was in the consolidation and obviously consolidating those vendors in some of the main OTT is the payment terms clearly are shorter. It has had an impact of something around between 6 and 7 days in terms of DPOs, so it was fully absorbed in the quarter. This is an onetime effect. And going forward, we expect an improvement on Enterprise margin as we projected in the plan. In terms of extraordinary items were those that we disclosed when we presented the plan in February. Remember that there were mainly 2 effects along the year. It was the -- all the unfolding of the -- of the [indiscernible] and there is some effect on this quarter was mainly on the [indiscernible]. So no additional extraordinary effect rather than those. So on the first quarter, we expect only the effects of the [indiscernible]. And as you know, the fourth quarter is always the most intense positively in terms of working capital. So we are on track as we mentioned and probably slightly by better. We'll see the fourth quarter is, again, the biggest in terms of cash flow generation. Operator: The next question is from Paul Sidney at Berenberg. Paul Sidney: Just a couple of questions for me, please, building on a couple of the questions that we've had already. Firstly, in terms of the Poste and cloud and AI JV LOI signing. We know very well what TIM Enterprise capabilities are in this area, but could you just expand a little bit about what capabilities Poste will bring to this JV in this area? And then secondly, just staying on the theme of price changes. We've seen you successfully put through price changes over the year. We've seen some very welcome recent price increases from Fastweb on mobile, Vodafone Fixed Wind on their back book as well. You mentioned the prices have landed well for TIM for yourselves. But I just wondered, has there been any adverse reaction in the wider market from the press, sort of consumer groups, the government even -- because obviously, when you look at these price increases on a percentage basis, they can be pretty material. But great to get your thoughts. Pietro Labriola: About the second question, then I can leave to Andrea, but in practice, what we are doing is that we are increasing the price. There is a right of our customer to cancel the contract if he doesn't agree about that because we are in a more severe market environment from this point of view. So there is nothing specific and then also to be also more clear, we are not doing price increase in a blended way. Andrea has developed a very strong CVM, customer value management. And so the evaluation of the target of the customer or for the price increase is based also on the willingness to pay for an improvement of the service. With the propension to cancellation, so on and so forth. So it's a traditional marketing activity that we're performing better, sometimes than the other. I can tell you that in the past, we've seen us changing the wording of the message, respecting the law can change also the level of churn that you will expire, but again, this is not a Telco activity. This is a marketing activity. So we are -- sometimes we are better than other to work on the marketing side. About the Poste JV, I [indiscernible] but in a nutshell, sometimes some of you are considering Poste as the traditional main services. A lot of you do not know that Poste has hired during the last years, several hundred people expert in open source activity and developing. So they have also specific know-how in this area, and it will help. So this is part of the contribution that they can put inside this kind of activity. Adrian, I don't know if you want to add something? Adrian Calaza: Just to add a few information to what Pietro said. So -- this is clearly unknown as Pietro mentioned as well, actually, Poste has a huge open source operations, they have almost 500 in open source engineers. And the idea is that they will contribute a few hundreds of them. So you believe 250, 300 will join the joint venture. And the idea is that, that will be the Army that will help us to create this open source platform to tackle the cloud sovereign business. So we will contribute the hybrid cloud migration capability that will contribute the open source capability. Both together, we will try to attract talents for developing an AI business that, as I said, will serve both TIM and Poste and the market. Pietro Labriola: As we mentioned during unboxing TIM Enterprise, we are talking about sovereignty, digital sovereignty, and have [indiscernible] also on our side on this project is a further reinforcement of, let me say, a neutrality towards other technology and is reinforcement about the sovereignty. Operator: The next question is from Andrea Todeschini at Akros. Andrea Todeschini: So first one would be on the contract that you have with the tower companies for your mobile network. I believe there -- the contract should be up for a new one in the first half of next year. So I was wondering if you do see some room for potential savings coming from renegotiating that contract and if there's anything you can share with us? And second question regards the equity free cash flow guidance for full year '25. So we clearly know that it's really back-end loaded in the fourth quarter. I was wondering if you could see if you have any visibility for some possible upside, so not just reaching the guidance but maybe doing a little bit better in the full year. Pietro Labriola: Andrea great. You are the less shy person because I think that this is a question that everybody was asking, we confirm the guidance. We're optimistic that we can do also something better. But as we told also in the last call, the market to our company will never forgive any kind of underperformance. So, we want to stay focusing deliver the guidance with the optimism that we can do better. About the TowerCo, I have to remember to everybody the list of the main point of our cost. First one, MSA with FiberCop. Second, cost of labor, third energy, fourth TowerCo. So in a professional and serious way, we are talking with our main partner about possibility of efficiency in the interest of both companies. Operator: The next question is from Andrea Devita at Bank Intesa. Andrea Devita: So on the consumer company, looking at the ARPU, just wondering whether after further EUR 1.7 million reprice in Q3 alone. So we haven't seen yet a rebound, so flattish minus in Q3. So if we could expect a rebound in Q4, at least or otherwise, if it is the balance of customers in, customers out [indiscernible] ARPU pressures again. And again, on consumer, I saw that there was 1 percentage point service revenues took out from the -- from the MVNO. So wondering whether this will accelerate in Q4? And finally, again, on consumer, whether it is already material, the contribution and if you could roughly quantify of adjacency and energy and so on in terms of service revenue growth contribution in Q3. Pietro Labriola: I will Andrea to elaborate on that. The only point about the MVNO that is very important that it was already included in our budget. So just to be clear that we are not surprised is something that we are forecasting and planning and that we are managing. Adrian Calaza: Thank you, Pietro. So on the ARPU, starting from your first question, indeed, you're right, mobile ARPU is basically balancing repricing, price ups with ARPU dilution that is coming from the difference between front book and back book. This is a dynamic that is in the market. And therefore, we consider that, let me say, ARPU stability or slight improvement as we show in the 9 months of '25 is what we are aiming for in the current market condition. As I explained before, we see improvement in the market because we see a declining number of rotation in the market, the mobile number profitability balance has improved and therefore, the dilution effect on the customer base ARPU is somehow decreasing. We also, as Pietro pointed out at the beginning of this presentation, with slight sign of improvement on the front book pricing by some competitors. Therefore, this compensation is probably improving going forward, that's possible to bring a rebound in the ARPU in the future quarters. Now coming to your question on ARPU, still, of course, the effect of radiation services is more visible on fixed ARPU because in fixed ARPU, we incorporate more services and that is also a market that is giving us the opportunity to upsell customers, for instance, with content services. So that is more visible on the fixed side. MVNOs as Pietro pointed out, I think the essential answer is, yes, we see a decrease, but this was planned due to the fact that, of course, Fastweb is bringing more and more traffic on their own network now that they consolidated with Vodafone. And this was in the plan. And the value of aviation market is for the time being, so what we call the customer platform approach is visible mostly on devices, connected devices and TIM Vision, which is bringing actually a growth to the -- as you see also in the chart, in the 9 months of '25, thanks to the fact that we grow the customer base significantly, and we also grow the portfolio of services. Energy, we launched in October, so certainly it's not visible yet, but we started on a good foot. Operator: The next question is from Ben Rickett at New Street. Ben Rickett: I just had 2 questions, please, on Fixed Wireless Access. So firstly, I was really interested in where you're seeing demand for your Fixed Wireless Access product -- is that mainly in rural areas? Or do you also see demand in areas that have fiber coverage? And second question, I was estimating that about 8% of your broadband base is now on Fixed Wireless Access. I was interested, do you have an idea how high that could go before it starts to impact the mobile network quality that your mobile subscribers experienced. Pietro Labriola: Generally speaking, it's so important to explain what we can foresee for the future about the Fixed Wireless Access Technology. With Andrea and with Leo, we have started to see also evolution where the installation of the fixed [indiscernible] assets will become more easy, self-installable and the rate of coverage will move from 3.5 to 5 kilometers. This will be an important element in our pocket to optimize the cost structure. And it's not only a matter of cost structure. Sometimes, and this happened for everything in our life, if you want something, you want to buy and use. If we have to wait as a customer, I mean, too much time and so the installation of the fiber can get more time, it becomes an issue. Why? Because people will change their mind, while mobile today in the easiest way is go in a shop, get a chip, you have a plan, you come back home and with the tethering, you are already working. This is the reason for which with Andrea and Leo, we are working also in the future to a possible solution that is an hybrid solution to [indiscernible] Andrea because if not we say that I speak to Mark. Andrea Rossini: Thank you, Pietro. I mean, this gives us the opportunity to actually beat the expectation of Pietro because we launched that very proposition at the beginning of last week. So we launched, let me say, innovative proposition that is combining FWA connectivity that is immediately available to the customer out of the shop. And that when the fiber comes, then that connectivity can be either given back to TIM or it can be used for a second home. By the way, in a nomadic way, so it can be brought as a sort of super Wi-Fi add-on to the mobile customer. So that proposition we launched last week. It's an initial, let me say, experiment. But we believe that there is market, as Pietro pointed out for a further expansion Equally, on FWA, today, we use it complementary to fiber. So let me point out that today, we do not overlap FWA to FTTH areas. We use it also mostly complementary to FTTC because FTTC performance in many areas is actually quite good. And so customer have better service with FTTC. Today, we see most sales in areas where we do not have FTTH coverage that are not necessarily rural because Italy is a very complex market with many small towns that are not covered by FTTH. So the market is quite huge, and you can also see it from the authority data that the market of the FWA is quite big. Up to a few months ago, team did not have a wide 5G coverage available. And now thanks to the work by Leo, we have a very wide coverage of the territory with 5G, just to your question, what is the amount we can support before affecting mobile traffic. We believe we have a long run to go because at present, we still have a few customers on 5G, and we have capacity that is capacity that is increasing. And of course, we can find also technological solution, but maybe Leo want to comment more that can actually give more capacity to the FWA. Operator: The last question is from David Wright at Bank of America. David Wright: Yes, I think you indicated Pietro before that the [indiscernible] causation still in consideration. It looks like that could drag into next year. That being the case, I don't think that S.p.A. will be net income positive this year. But if you could just give us some guidance there. So is there any obligation to pay, say the share dividends in 2026 as a shift in the cash flow? And if the gas station doesn't trigger those payments this year. Do you consider the [indiscernible] save share take out differently, there's a little bit less pressure to do so. Just your thoughts around that would be useful. Pietro Labriola: David, you can understand that all these hypotheses are price sensitive also on the value of the stock. So due to fact that we have to guess on something, I think that it's better to not go too much in detail. But what I want to reassure you and to everybody is that whatever we will do will be market friendly. And again, we are analyzing all the possible scenario that will help the corporate structure of our company, but also in the meantime, with the best market friendly approach. David Wright: Where is S.p.A. 9 months earnings? Is that published? Have I missed that? Pietro Labriola: No, I was telling that we tried to answer to you as best as possible based on the sensitive data that we are discussing. Before to close the call and to leave to Paolo Lesbo, I want again to thank you Adrian for all these years since 2015. But -- what is important to remember to everybody that Adrian is in the Board of TIM Brazil, and he will continue to stay in the Board of TIM Brazil also for the next year. It will help us also due to high knowledge that he has about the Brazilian country and the one which we work here from Italy. We will continue to help us to drive the group towards a further increase in our evaluation. Thank you, Adrian. Paolo Lesbo: Okay. Thank you very much, everybody, for your participation today. We will be back beginning of next year with full year results, which we are very confident will be fully in line with yours and our expectation. Thank you, have a nice rest of the day. Bye-bye. Operator: Ladies and gentlemen, the conference is over. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the LEM Holding S.A. half year results 2025-'26. [Operator Instructions] Let me now turn the floor over to your host, Frank Rehfeld, CEO. Frank Rehfeld: Thank you very much. Good morning, ladies and gentlemen, and a warm welcome to the presentation of our half year results '25-'26. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm here together with Antoine Chulia, our CFO. For those who are not yet familiar with LEM, LEM is providing sensors for measuring electrical parameters, namely current, voltage and energy, and with those help our customers and society to transition to a sustainable future. Here, you see the agenda for today's presentation. After my opening remarks, I will give you more detail on the business performance of LEM. Antoine Chulia, our CFO, will then introduce the financial results. And I'm going to outline what we expect in the future as well as talk about the adjustments we did with respect to our midterm ambitions. As you might remember, we had a tough start into '25-'26. Flat sales at constant currencies in comparison to the previous year. However, both the gross margin and consequently also the EBIT margin were under pressure in Q1. Despite not seeing a significant improvement on the top line in constant currencies in Q2, we managed to improve in Q2, both before mentioned KPIs and Antoine will go here in greater detail. For the first 6 months, the 5.3% decline in our top line can be fully attributed to FX losses, whereas the segments growing and those declining were balancing out each other. We were in particular happy with the development in Automation, Automotive and Track and saw good momentum in China. We are also happy to share that we are fully on track with our Fit for Growth program that helps us to trim our indirect costs. You might also remember that we reported a CHF 12 million negative cash flow a year ago and managed to improve the cash flow to CHF 5.6 million in '25-'26 first half. We will come to the guidance for this year that you see here in the numbers as well as the updated midterm financial ambitions at the end of the presentation again. Now with that, let's move on to the business performance in more detail. Following our business structure, you see here the development of the 5 businesses in comparison to the same period in '24-'25. I will focus on the numbers in constant currencies, as you know, that LEM is doing about 40% of its business in renminbi. That has been strongly depreciating after the announcement of the tariffs by the U.S.A. We are happy to share that the Automation business that started to slightly grow again after 4 rather flat quarters. Our Automotive business with strong focus to China has been growing by 9% H1 versus H1 last year, and saw an even more significant volume growth. And the Track business was growing even stronger. However, we also saw weak segments like Renewable Energy and Energy Distribution that I will explain in greater detail in the following slides. On this page, you see the distribution of our businesses relative to each other. What becomes clear is that there has been movement in all businesses. Looking at our 2 biggest businesses first, Automation grew, in particular, in the second quarter nicely by more than 4% since inventories normalized and Automotive, despite seeing a shrink in Q2 in CHF, continued to grow in renminbi. The businesses in the smaller segments have been changing position. The very strong development of our Traction business has been making it our third biggest business, whereas Renewable Energy has been shrinking by 2 percentage points, similar to the Energy Distribution & High-Precision business that also lost 2 percentage points relative. Now let's go through the businesses one-by-one, starting with our biggest business, the Automation business that almost represents 30% of our global business. You see a small growth in Q2 against Q2 last year, linked to normalized inventory levels, as already mentioned. This growth materializes mainly in power levels above 1 kilowatt for LEM and happens across all regions. Nevertheless, this a 3% reduction 6 months on 6 months that is to be attributed to currency -- in constant currencies, this business has been growing by 3%. Our Automotive business saw a nice growth of 9% in constant currencies, 2% in CHF. Growth areas were China and Europe, where in particular, the Americas suffered from the policy changes the U.S. administration has been implementing. We continue improving our market position in China. We are working mainly with Chinese OEMs and Tier 1s that we are expecting to further expand globally. We also saw positive momentum in Europe with increasing new energy vehicle sales and the ramp-up of some of our automotive products in the market. Rest of Asia depends very much on exports that were weak, in particular, towards the Americas, and we don't see a short-term change coming. Renewable Energy representing now 14% of our global business declined in constant currencies by 15%. Despite growing photovoltaic installations, the average content of current sensing by inverter is going to further decline step-by-step and the price pressure is going to remain high. We are expecting this to remain a segment that is as competitive as Automotive. The developments in Europe go into 2 directions. Domestic solar will be completely dominated by Chinese players and therefore, served by us in China, whereas large commercial projects will see European sources, and we expect that we are restarting to grow in this subsegment with our European customers. Notable are the positive developments in Rest of Asia, both in Japan and India with local government investments that we expect to continue. The Energy Distribution & High-Precision business became our smallest segment with 13% of our total turnover, and it also continued to shrink at 15% 6 months on 6 months. The lion's share in this segment is the DC metering for fast chargers that remained challenging both in Europe and the U.S. as the new energy vehicle sales developed below the installation rates on the one hand. On the other hand, some of our customers also lost market share. The Chinese export business for DC fast chargers remained stable. The High-Precision subsegments were rather weak due to lower demand in automotive EV testing, whereas the UPS, the uninterruptible power supplies were nicely picking up with the increasing installations in data centers. Looking at the Track business was the surely biggest [ fund ] in this quarter. This takes up now 17% of our total business and developed with a growth rate of 15% in constant currencies very positively. The development happened across all regions based on the ongoing investments into public infrastructure and the increasing standardization of regulations across Europe. The consequence of the standardization is that this requires to retrofit energy meters across all of Europe. Projecting this business now from a regional perspective, we see important changes in comparison to last year. Our business share in China remained stable at constant currencies, however, shrank due to the depreciation of the renminbi. Therefore, it takes now 37% of our total business, 2 percentage points less than for the first 6 months last year. The segments Automation, Automotive and Track contributed, as previously mentioned. The Rest of Asia business showed a slight growth 6 months over 6 months and an even nicer growth in Q2 with more than 12%. The main contribution was coming here from traction. Just to report here the progress of our plant in Malaysia. We are meanwhile producing the same volume than in Bulgaria despite the fact that the sales share is still substantially lower, and we see an increasing demand of customers who look for either a dual sourcing both from China and Malaysia or even a relocation of their production towards Malaysia. This confirms our strategic decision to set up this new site and that, on the other hand, is still burdening our P&L since it reduces the overall loading of our manufacturing footprint. Clearly, disappointing sales in EMEA shrinking 7% 6 months over 6 months, where the reduction in EDHP and Renewable was balanced out by Automotive, Traction and Automation. The Americas numbers are including the tariffs that we are passing on to our customers, and the business is overall stable, albeit below expectation looking at the development in Automotive. Nevertheless, the successes with catalog distributors give us positive signals for the future. With this, I would like to hand over to Antoine for the financial results. Antoine Chulia: Thanks, Frank. Good morning, everyone. Thank you for joining our Q2 earnings call, and I'm Antoine Chulia, Chief Financial Officer. I'm happy to walk you through LEM's financial performance for the period ending September 30, 2025, broadly showing a welcome recovery trend after some challenging results recently. As Frank explained, at CHF 148 million, our sales declined by 5% in the first half of the year, which translated to a positive growth of 0.5% at constant exchange rate. Q2 saw a slightly higher performance at minus 4% or plus 1.2% at constant exchange rates. Our gross margin dropped by almost 15% to CHF 59 million in the first half, mainly due to Forex, price and mix, but Q2 showed early signs of recovery at CHF 30 million, down roughly 10% from Q2 last year. Thanks to a large reduction in operational expenditures under the Fit for Growth program, EBIT reached CHF 11.4 million in the first half, of which CHF 7.2 million in Q2, an increase of more than 7% from the prior year. This represents about 7.7% of return on sales for the half year and just south of 10% for Q2. Now before restructuring costs, this margin is topping 11%. As we reported in Q1, our gross margin slipped in H1 from prior year's level, just out of 40% of revenue. This is a 400-bps drop. Now we observed a 150-basis point recovery in Q2 following the Q1 drop due to price pressures pretty much across the business spectrum, but driven by China in renewable and industry in particular. We've explained some of these pressures by overcapacity in some of these markets, combined with an aggressive commercial stance since the end of last year but we've started to adjust towards a more selective approach. In addition, supply activity in Q2 is coming with better manufacturing and sourcing variance contribution. Our SG&A spend landed on CHF 31.5 million for the first half, a sharp decline from the prior year by 13% and with further sequential savings in Q2. These savings are heavily concentrated on the general and admin expenses, both in personnel and non-personnel, leveraging reduction in force as well as productivity gains from our [ Pulse ] program with our recent ERP implementation. In addition to the SG&A reduction, savings in R&D were achieved with Fit for Growth through a reduction in overall R&D personnel, but more importantly, an alignment of our footprint towards Asia. This yields a reduction of more than 20%, which is enabled by constant prioritization of R&D efforts as we aim to increase the overall R&D efficiency and time to market. Our financial results improved by CHF 1 million to a CHF 30 million loss for the half year period. The loss is mainly driven by the service cost of our debt, but the improvement from last year stems from a more favorable Forex drag. Income tax-wise, we're back to our historical effective tax rate performance around 18%, on par with last year's, especially in the second half. The first half performance last year was lifted by a favorable onetime affecting the country tax mix, both in expected and effective rates. So our overall P&L performance in H1 showed an overall compression from the prior year, landing on a net profit of 6.8% of sales, representing a 90 basis points drop. This flipped in Q2, though, thanks to a recovery on all lines, except for revenue. Margin rate improved and both operational expenses and financial expenses decreased further, yielding to both operational and net profits well above last year at CHF 7.2 million and CHF 4.8 million, respectively. Working capital inflated due to large catch-up payments since March, including severance and separation costs in the context of the Fit for Growth program. Our net debt position improved in the meantime as we continue to derisk and deleverage this balance sheet and aiming for and lending above 40% equity ratio. Aside from cost control, we focused our efforts this past semester on cash management, generating CHF 5.6 million in free cash flow to the firm from a large burn of CHF 11.6 million in the prior year. On a lower profit and EBITDA than last year and in spite of large restructuring outlays, we managed to stay on top and lift our operating flows and reduce our capital expenditures and tax flows. This cash flow focus will remain one of our core priorities in the current environment. So with this, I'll hand it over to Frank, who will explain on how we see this environment moving forward. Frank Rehfeld: Thanks a lot, Antoine. So let me now share our outlook for the business. Overall, the business environment is not substantially changing. We hear anecdotically about some positive outlook expected for 2026 in some segments. However, we don't see those reflecting in our bookings yet. Therefore, we remain prudent considering the volatile business environment as well as our -- and as the possible exchange rate developments and the fact that historically, the second half of our business was always weaker than the first. Consequentially, we guide towards a sales range of CHF 265 million to CHF 290 million and a high single-digit EBIT margin as a result from the Fit for Growth efforts. We've decided to update our midterm financial guidance reflecting the developments in our market. As a reminder for all of us, LEM's core market of current sensing has been going through different phases. For a long time, LEM has been acting in a niche market in which we had a rather dominant position. This was a small market with limited growth potential, however, very stable. Things changed once sustainability gained importance around 2018, where the market size as well as the growth potential increased. But at the same time, the market became also more attractive for additional competition. We saw faster growth in this phase and we were accordingly more optimistic with reference to our outlook. COVID, the semiconductor crisis and the strengthening of Chinese competition was ending this market phase, and we find ourselves back in a new reality, a new market reality for us, our customers like the machine building industry or automotive as well as our peers to which we reacted with our Fit for Growth program that was launched a year ago. So we expect now a market adjustment and stabilization to continue through '26-'27 and afterwards, an annual growth rate in the corridor of 4% to 7% in constant currencies. We target an EBIT margin corridor of 10% to 15%, depending on currency and market development since we will maintain strict cost discipline and focus on financial resilience. What remains unchanged, however, is the base on which our strategy has been built. We are convinced that the trend to sustainability is going to continue despite the headwinds that we are currently seeing. We are well positioned to capture the growth that is eventually coming back from this megatrend towards electrification, renewable energy generation and energy efficiency. The important R&D investments that we made towards integrated current sensing, TMR as well as forward integration like the DC meter get encouraging customer feedback that gives us confidence that those investments will pay back. The importance to be close to our increasingly Asian customers as well as being fast is reflected in our footprint and the time-to-market improvements that we are seeing. And the manufacturing footprint, strongly Asia-based but balanced between China and outside of China enables us to flexibly react to geopolitical shifts. I close here and would like to thank you all for your attention. Before opening the Q&A, I would like to invite you already for the 9 months earnings call on February 6, 2026. With this, we are ready to take your questions. Operator: [Operator Instructions] And the first question is from Charlie Fehrenbach, AWP. Charlie Fehrenbach: My question regards your midterm guidance. A year ago, you postponed your goals already for 2 years. You still mentioned there a sales level of CHF 600 million and an EBIT margin of 20% and more, which should be able to reach, I think, after the year '29 and 2030. Now you have the new guidance, 10% to 15% margin, and this growth perspective of 4% to 7%. So the old goals, can we forget about them, this CHF 600 million and this 20%? Frank Rehfeld: Yes. Thanks a lot, Charlie for your question. So let's first understand that the business realities have been further, let's say, burdened by geopolitical decisions, tariffs. So the market reality has been changing. So do we -- you said, can we forget about the CHF 600 million? I would clearly say no. However, the time until this will be achieved is probably even longer than what we were believing a year ago. What is for sure not helping is that on the one hand, our core markets move more to Asia, but at the same time, we report our growth in Swiss francs, right? And every depreciation of the renminbi basically costs us several percentage points in our growth story. So I hope this answers the question. Charlie Fehrenbach: Okay. Yes. You mentioned the sales now the EBIT margin of 20% also is something which could be reached far in the future? Frank Rehfeld: I mean, let's be careful to talk about far in the future, in particular for EBIT because here the question is how the markets are further developing. As you've been hearing, business in China is, for sure, confronted with higher competitiveness levels and higher price pressure. So therefore, we've been moving 5 percentage points down at least for the foreseeable future. Whether this is possible again it's probably possible again to reach 15% to 20%, probably a bit too early to say. Operator: And the next question is from Tommaso Operto, UBS. Tommaso Operto: So a couple of questions. I'll take them one-by-one. Firstly, maybe on Nexperia, I mean, there's been lots of headlines. Could you share if this has impacted you as well as the supplier? Frank Rehfeld: Yes. Tommaso, so we were in the lucky position to be, for the time being, not affected. Obviously, we've been starting a lot of actions to see also how vulnerable we would be, what sort of second sources we have. And as you know, we do more than 60% of our manufacturing in China and Nexperia supplies out of China, out of Dongguan, and we were basically not affected and believe that potentially this remains like this because what I hear is that the situation becomes less critical than we were expecting still a couple of days ago. Tommaso Operto: Okay. And then maybe on your margin guidance, those 10% to 15% EBIT margin, what kind of gross margins does that imply? I mean you -- in Q2, you managed to go back to above 40% gross margins. Is that more or less what you can expect? Basically that would enable you to reach those 10% to 15%? Or is gross margins further improving from here in order to achieve those 10% to 15%? Antoine Chulia: Tommaso, I'll take this one. Yes, we're expecting 40% to be kind of the new floor moving forward. As we grow, and you heard our cautious stance here on future growth. As we grow, we should be able to expand on this one a bit. But remember that we're facing kind of structural headwinds here, especially if growth happens in Chinese markets and/or automotive markets, right? So we'll battle both these headwinds as we grow. The 40% is probably the new benchmark moving forward and anything north of this. Tommaso Operto: So better capacity utilization basically compensating for higher price competitiveness? Antoine Chulia: Right. Tommaso Operto: Okay. And last question on the full year guidance for sales, I mean, in H1, you achieved CHF 148 million. If I just would annualize that, it would be already clearly above the top end of your guidance range. Frank, you mentioned some seasonality impacting here. Is that really the main driver why you think H2 is going to be so much lower than H1 at the midpoint? Or is that also taking into account further FX headwinds or even potentially deteriorating end markets? Frank Rehfeld: Yes. I think a very good question. And so in particular, one end market will be surely deteriorating, and this is the renewable end market because here, the feed-in tariffs will have -- or the abandoning of the feed-in tariffs in China will have a negative impact on growth for the Chinese market, for sure, not for the export from China, but at least for the local market. So there, we will -- we basically expect weaker numbers. And we also have indications that the Chinese market overall will potentially develop in the second half and less strong than it was in the first half. Operator: And the next question is from Bernd Laux, ZKB. Bernd Laux: Two questions I have left. One is regarding free cash flow. You have achieved the turnaround in the first half. Do you expect that to be continued, so free cash flow to also be positive for the second half of this year? And the second question is regarding your investment in integrated current sensing and in TMR in particular, you slightly mentioned you have made progress. Can you be more specific here and tell us about how far away are you from maturity so that these products can really be sold in large quantities into the market? And do you expect cannibalization of existing applications? Or is this only or almost only new applications that can be entered? Antoine Chulia: Thanks, Bernd. I'll take your first question on free cash flow. We're definitely expecting free cash flow to be positive moving forward. Thanks to a lift in our working capital performance as we keep focusing on these actions. And that's a very high-level summary, but it's been the focus of our efforts in the first half. So we're expecting to see more results in the second half from this. We're staying very cautious from a capital expenditure standpoint as well. So overall -- and we're expecting also probably less cash outlays from restructuring, right? So overall, we're cautiously optimistic here free cash flow for the second half. Frank Rehfeld: Good. And I take the ICS TMR question. And for sure, you basically had a multitude of some -- sub-questions. Maybe allow me to quickly summarize the picture here. So this is the activity that we do in cooperation with TDK. And the products that we've been developing there together has now been sampled to several customers, both in the automotive and in the non-automotive business, and we've been receiving overwhelmingly positive feedback. Do we expect cannibalization? Rather not because our today's business in the area of integrated current sensing is rather small. So therefore, there is majority growth, growth, growth. Talking about launch, so we will launch the product in 2026. However, looking into, let's say, the typical qualification cycles that we have at our customers, we should not expect now an enormous sales contribution in '26. Even '27 will be probably still a bit slow until really the applications are then picking up and getting launched and getting them in mass production. So I think here, we need to be a bit more patient. This market is not an, let's say, iPhone market where suddenly everybody switches to a new iPhone. These are rather slow ramp-up processes. Operator: And the next question is from [ Raymond Renahon with Asaybanc] Unknown Analyst: Yes. Looking at your midterm new growth target in sales of 4% to 7% in local currencies, not in Swiss francs. I mean, given that you are moving more and more into volume markets, mass markets, there must be an underlying assumption here about volumes and prices. The only conclusion can be that volumes have to go up much more than the 4% to 7% that prices, of course, then on the other hand, will continue to go down. Is that the correct assumption? Frank Rehfeld: Yes. I think -- thanks for the question. I think this is precisely the correct assumption. By the way, not a surprise for a component business, where you see regularly a price down per measuring point like we also see. And the more this business becomes in Chinese business, and the more volume increase you need to see a bit of increase in the sales eventually, yes. So that is exactly the right assumption. Unknown Analyst: Okay. Now could you share these assumptions with us? I mean there must be numbers behind this 4% to 7% on volume assumptions and price assumptions you have baked into that? Frank Rehfeld: Unfortunately, we cannot share them. You can imagine that these are also relevant, not only for you, but also for competition. And let's be honest, we have seen certain developments in the past and for sure, taking them, extrapolated them into the future, whether all that holds true, it also depends a little bit on the product mix, the more, let's say, high-value products like a DC meter come in, that also distorts the picture. So it will be not that easy to construct here a picture. Unknown Analyst: Okay. when looking at the margins, I mean, taking out the restructuring costs, you should basically already be around 10% EBIT this year. I mean if you say high single-digit EBIT margin, but there are restructuring costs still there. So basically, net of restructuring, you would already be at the lower end. So from that perspective, you should reach the lower end clearly next year, right? That is the first one. And then the second question, looking further in the future, it is a race between catching up the lower price levels, which will go down further versus operating leverage. I mean, higher utilization rates. They have to overcompensate the price pressure. That is basically what then results in the margin, right? Frank Rehfeld: Yes, that's right. You're basically confirming the bottom and the floor of our guidance. So that's exactly what we're seeing. So we expect to be at 10% post -- well, post and pre restructuring actually moving forward, right, at current levels. There's -- the uncertainty here on the price front is actually -- we're looking at the net contribution of price and cost, right? So basically, the difference between what we're able to save on throughput costs as opposed to how much we're giving away. I mentioned that we can extract from the market. And we expect that to be a slight negative moving forward. Obviously, in the scenario where we're growing in more competitive markets, it's going to be more of a negative. But that's basically the main reason why we don't want to signal too much of an upside from the bottom, right, from the floor of 10% as well as you noted, there's upside if the content of that growth is favorable. Remember also that we are quite highly leveraged from an operational standpoint, which has affected us in the short-term since our investment in Malaysia. It is actually a good thing moving forward as we expect to leverage on that fixed base of manufacturing costs, right? So that's one, that's another driver that would offset some of this negative net cost impact. Operator: [Operator Instructions] I would like to hand over for the questions from the chat. Unknown Executive: We have a question from [ Jose Veros ] who is asking if he could give some color regarding the restructuring program going forward and what cost base we target in the next 2 years? Antoine Chulia: So we -- thanks for the question. We intend to fully execute Fit for Growth. We're not quite there yet, even though we've seen some strong contribution to the P&L so far. So we will -- first, we will execute Fit for Growth as intended in the coming months. Our objective is to defend the current profitability level, as I was explaining in the previous questions. Hence, adjust our cost footprint depending on the sales development. And that's the key here, right? Everything depends on sales development moving forward. So we've shown that we're able to adjust to lower volumes and be cautious and selective with our spend. So we'll continue doing so. But no one knows at this stage what the future holds, right? So we will continue to be extremely nimble and flexible with our cost base. Unknown Executive: Then we have a second question from Jose Veros who is asking if you could speak a bit about competition, how is LEM differentiating vis-a-vis other players? And if there would be a way to target more niche markets like in the past in order to avoid high competition? Frank Rehfeld: I think a very good question for sure, referring a bit also to the strategic reflections that we have in the team. So LEM differentiates clearly by having the widest portfolio in application, having customer closeness across the world with all our American, European, Chinese customers, and having the application experience and basically having probably overall the biggest scale that we have in terms of applications, products, but also volumes. And this brings us into the privileged position that the products that we are defining are really very close to the customer needs and allow us to basically deliver really what customers expect that the rounds of optimization are reduced. And we clearly see this reflected in the feedback that we are getting from our customers. Now talking about the niches versus, let's say, the big volume. I think in the past, LEM has been always playing in both areas. And I think we also have to -- and on the one hand, the level of competitiveness that you need in order to be successful in the Chinese market, I think, is a must and an important reference or benchmark to understand where we are. And at the same time, for sure, you try to discover more growth areas, be it in smart grid, be it in new technologies like TMR, where we also basically then see the next level of development. To only do niche business will not allow us to be really on a competitive scale. So I'm deeply convinced we need to do both. Unknown Executive: Then we have a third question from Jose Veros regarding M&A. Would LEM consider M&A? And if yes, how would this be financed? Frank Rehfeld: Maybe I take this. We've been saying in the past, we would not go for M&A in order to increase our sales turnover. And I can tell you that there are a couple of competitors on the market where basically the mother companies look for alternative solutions, but we don't really consider this as the right way moving forward because we would in the midterm lose their business because customers would then look for other alternatives when that all goes to them. So here, our customer strategies actually speak against such a growth option. However, what we said is when we see technologically and that partnering or M&A would make sense, then we would move forward. And you've seen this when we, for instance, been acquiring R&D teams in Munich in order to strengthen our ICS capabilities or when we moved into the partnership with TDK in order to bring the ICS business forward. Unknown Executive: Then we have received a question from Gian Marco Gadini from Kepler Cheuvreux. Could you give a bit of color on the impact of volumes and prices on revenue in Q2 and H1 of '25-'26? Antoine Chulia: Yes. Thanks, Gian Marco. So this has been a hot button here since Q1. And I think not just for them, by the way. We've seen a large price drag in most markets in the past 6 months, but it's been led by our Chinese business, especially in Automation and to a lesser extent, in Automotive. So this impact has somewhat slowed down in Q2 as we've been more selective and prudent in our commercial efforts. Also remember that there was a demand trough in Renewable in China following the end of the feed-in tariffs, and that resulted in overcapacity in the market and the corresponding price pressures. Now overall, you can think of our flat revenue performance as a 4% to 5% volume increase, offset by 4% to 5% price drag in the first half. We expect this level of delta price to reduce moving forward to improve moving forward as we're learning to operate in this kind of environment. I hope that answers your question. Unknown Executive: There's a second question from Gian Marco, whether we are able to reallocate production capacity from one segment to another to offset negative developments of specific segments like Energy Renewables? Frank Rehfeld: I would answer the question with partially yes. So we don't have -- or we try when we plan product and plan our new developments to allocate those products not only to a single market. This sometimes works, not always. And this -- in these cases, we have the opportunity to basically shift demand between different segments. However, with increasing volumes, the -- let's say, specific solutions that you need in order to be competitive and that eventually also create payback, this is increasing. So also the more and more specific very segment directed products need to be developed in order to be competitive. Right. I hope this answers the question. Unknown Executive: And then we have a question from [ Thomas Boorie ], who's asking whether the goal for R&D is still 8% to 10% of sales? Frank Rehfeld: Yes. So that's still the sort of range in which we operate. Obviously, when you suddenly see a dip in your top line, it looks like an artificial inflation of your R&D cost. We obviously don't then trim digitally the percentages down. But we believe that for a company active in the high-tech sector, that is a healthy amount that we need to invest in order to remain competitive and prepare for the future. Unknown Executive: So operator, we have no more questions in the chat. So there are more questions in the telephone conference. Operator: There are now new questions in the phone conference. One is coming from Miro Zuzak from JMS Invest. Miro Zuzak: Can you hear me? Frank Rehfeld: Yes. Miro Zuzak: I have a couple of them. I take them one-by-one, please, if I may. The first one is regarding the range that you have given for sales in the current year. It's quite a range. So CHF 25 million from CHF 265 million to CHF 290 million. And if I try to model the lower end now in the segments, it's really hard to model the lower end in the sense it would be really a collapse more or less in the sales. Is it fair to assume that the lower end is really like really the lowest that you could imagine? Or are there scenarios where you think could be even worse? I'm also reflecting on the comments that you made on China and also on the fact that China was flat on a constant currency basis year-to-date? Frank Rehfeld: Good. So thanks, Miro for your question. Now true, the range is a rather big range. Now unfortunately, we've been seeing a lot of rock and roll in the market in the past. And unfortunately, 2 weeks ago, we were even not clear whether the whole electronics business would not see a more severe hits based on a player like Nexperia basically not being able anymore to deliver. So we were considering all this, considering the uncertainty from the exchange rate and therefore, came up also with a guidance that rather have this big range. But it's true. We work every day on actually rather being at the higher end if this is possible. So that's where we are standing. But unfortunately, the last probably 12 years have been teaching us that we were also probably sometimes a bit too positive in our expectations what is still possible in this market. Miro Zuzak: Okay. Very clear. And connected to that, and second question regarding the EBIT guidance. So high single digit implies 7%, 8%, 9%, something in this range, which is not such a large range. So it seems like there is not much operating leverage in the top line regarding your incremental margin. Is it because like the less secure or the areas with the least visibility has the lowest margins? Antoine Chulia: It's a good question. Look, I think it has to do also with the -- again, the content of the growth, right? We are being cautious here price-wise. We are defending our price levels. The top end, the high end of our sales guidance I think might assume some or it may include some more, I'd say, aggressivity price-wise, right? And so obviously, we would benefit from the volume, but this would be a scenario where we're operating at current prices or even or slightly lower prices in some segments. So that would -- the tailwind on volume and on operating leverage would be partly offset by the price drag. The other around, it works too, right? So the low end of the range is -- we would definitely defend our profitability and defend the low volume and the low cost coverage through more selectivity price-wise. Miro Zuzak: Very clear. And third question, if I may, you elaborated on the 40% as a floor for the gross margin. Now looking into the upcoming 2 years where you gave guidance on EBIT, it's almost unthinkable to or even possible to model 15% EBIT margin, taking only 40% gross margin? Or is the cost lines, the G&A cost really to decline even significantly further than it already did in Q2. I mean you did a great job. We can see that in the numbers. But is it -- can you elaborate on that? Would the 15% imply a higher gross margin than 40%? Antoine Chulia: Yes, there's -- definitely, yes. Miro Zuzak: Okay. Antoine Chulia: To reach 15%, we would have to generate more than our floor for margin, yes. Miro Zuzak: And the last question regarding cash flow and net debt. So your net debt went down by CHF 5 million more than the cash flow statement would imply. And you can see that on Page 13, if I'm not mistaken, in the report, the fair value changes and others, CHF 4.8 million negative number, which declined or decreased your interest-bearing debt. Could you please explain what that is? Antoine Chulia: There's a Forex lift on this one. I mean, lift -- some of the improvement is coming from Forex, the same way it's impacting our sales the other way, right? So that's the biggest contribution. Miro Zuzak: But that means that would be, for example, U.S. dollar liabilities or Chinese renminbi liabilities that you have? Antoine Chulia: Yes, there would be non-CHF liabilities. Miro Zuzak: And which currencies is it U.S. dollars or Chinese renminbi? Antoine Chulia: It's a blend, and it's -- yes, some of that is renminbi, yes. Operator: And the last question is a follow-up from Tommaso Operto, UBS. Tommaso Operto: Just a quick follow-up on the Fit for Growth program. I mean this cost program was -- so I mean, I apologize in case this is repetitive. But what I didn't quite understand, it was announced a year ago when you still had a different midterm ambition or a guidance of the CHF 600 million. And now you kind of adjust to this new reality. So my question is, does this mean -- does this new top line guidance indicate that potentially there would be an additional cost program? Or are you still fine even with the new market reality with the current Fit for Growth program? Frank Rehfeld: Right. I think very, very good question, Tommaso, I think probably one cannot be repetitive on this question because it's one of the -- let's say, really complex topics. So you remember, we basically started to implement the program in -- planned it in November and then basically saw some effects in Q4 where we saw the restructuring cost and the positives we started to see in April. Now this program runs according to plan, and we clearly see that we are saving the planned range in this financial year and also go for further savings. You remember, we said CHF 18 million to CHF 22 million in '25-'26 and an additional CHF 15 million then in the next financial year. So that's what we currently plan, and that's what we are all aligned about. Now it depends for sure how the market is developing. At the moment, we don't -- clearly don't foresee any further restructuring necessary because we do have a base that will allow us to go forward in the way we've been planning this. But again, therefore, also, you remember we were cautious with '26-'27. On the one hand, we hear positive, I called it anecdotically evidence that maybe '26 comes better, but our bookings don't show that yet. So therefore, we rather talk about the stabilization this year and then a pick up and then after '26 and '27. So that's basically the current planning base. But when this, for whatever reason, would be again put into question because geopolitically short-term something happens, then a potential further restructuring could not be excluded. Tommaso Operto: Okay. Got it. And then a last question on order levels. And I mean, in Q2, orders were sequentially down quite significantly, right? And at the beginning of this fiscal year, you started to take into account different shorter-term orders as well, and yet they have declined so significantly. So could you maybe elaborate where that cutoff is and how we can kind of compare the current order levels to the levels a year ago? Frank Rehfeld: I mean looking at orders, and you remember what we already exchanged in previous discussions, the times where you can mathematically take order levels and then extrapolate them and mathematically say that is then exactly the sales is getting increasingly difficult. I give you a couple of examples, what we saw when, for instance, the tariffs were announced is that some important OEMs, car OEMs were canceling certain new energy vehicle car lines or pushing them out. We saw suddenly drops in our Rest of Asia business that is mainly guided towards exports into the Western market. So we saw quite some surprising effects that then also were reflected in the order book with negative orders of pushouts and cancellations. So therefore, unfortunately, lead times are a bit difficult to simply extrapolate out of the orders what then the real sales is going to become. Hopefully, you can live with this level of uncertainty as we have to. Antoine Chulia: And Tommaso, things are technically comparable, right, year-over-year. I think what we're looking at here is -- this is a reflection of the subjective part of how we book orders. And here, the keyword is caution, right? We've learned from the noise in the market and in customers' behavior in the past 6 months. We are being very cautious with how much orders we're capturing in our book and especially as the long-term visibility is very, very muddy, very blurry, right? So overall, we're seeing less visibility. So we're being more cautious in how we're capturing orders. Frank Rehfeld: Right. Looking at the time, I would like to thank each and everybody of you for your interest in LEM, for your time, you've been invested to follow us here, and looking forward that we stay in touch and that we latest talk again on the 6th of February. Thanks a lot and have a great week. Thank you. Bye-bye. Antoine Chulia: Thanks, everyone. Bye.
Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Motorcar Parts of America, Inc. Fiscal 2026 Second Quarter Conference Call. [Operator Instructions] And I'd now like to turn the call over to Gary Maier, Vice President, Corporate Communications and Investor Relations. Please go ahead. Gary Maier: Thank you, Eric, and thanks, everyone, for joining us for our fiscal second quarter call. Before I turn the call over to Selwyn Joffe, Chairman, President and Chief Executive Officer; and David Lee, the company's Chief Financial Officer, I'd like to remind everyone of the safe harbor statement included in today's press release. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements, including statements made during today's conference call. Such forward-looking statements are based on the company's current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those anticipated by the company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties, some of which are beyond the control of the company and are subject to change based upon various factors. In particular, expectations about anticipated future growth and opportunities with customers may not be achieved. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the ongoing risks and uncertainties of the company's business, I refer you to the various filings with the SEC. With that, I'd like to begin the call and turn the call over to Selwyn. Selwyn Joffe: Thank you, Gary. I appreciate everyone joining us today. We have experienced strong consecutive quarters, and I want to highlight our first half performance, and David will discuss both the quarter and 6-month period in more detail as well as trailing 12-month metrics. For the first half, we reported continued sales growth of $31.8 million or 8.4%, gross profit improvement of $6.2 million or 8.8%, strong operating cash flow of $31.9 million and net bank debt reduction of $24.6 million as well as share repurchases of 287,910 shares for $3.4 million at an average share price of $11.65. This reflects well on our annual guidance and the future. We continue to focus on opportunities to further enhance shareholder value. We remain focused and committed to being the leading supplier of nondiscretionary automotive aftermarket parts. Our team is focused on continuous improvement and success. We are excited by the opportunities for growth moving forward, particularly given the rapidly changing industry environment. Equally important, we believe our financial strength and flexibility provide a distinct competitive advantage. As you know, we offer a well-respected portfolio of products and services and have the capacity and ability to benefit from our state-of-the-art North American operational footprint. In short, we are well positioned to be the industry leader. As I've highlighted before, the average age of U.S. light vehicles has risen to 12.8 years from 12.6 years in 2024. In addition, the number of vehicles on the road climbed to 293.5 million from 289 million a year ago. We expect increased replacement opportunities for the life of vehicles, particularly with consumers holding on to their cars for longer and new car prices recently reaching all-time highs. We are encouraged by the continued success of our second largest product category, brake offerings, which includes brake calipers manufactured at our production operation in Mexico. Our team is doing an exceptional job to further gain market share for the entire brake product line as well as of our other nondiscretionary product offerings. We continue to leverage our strengths, offering our customers great products, industry-leading SKU coverage and order fill rates, supported by value-added merchandising and marketing support. In short, we are all committed and focused on our customers, offering quality products and services with rational pricing. Our quality-built brand name products are offered to the professional installer market through warehouse distributors and continue to gain market share. As production volume increases for certain newer hard part products such as brake-related offerings, we expect enhanced operating efficiency and overall margin improvement. With regard to our heavy-duty business, we continue to leverage our reputation and industry position in this market, particularly with regard to supplying alternatives and starters to our channel partners who are leaders in the heavy-duty aftermarket segment. Our growth opportunities continue to gain momentum. We are becoming an increasingly important supplier to the heavy-duty rotating electric market with opportunities to expand our Quality-Built brand name. We are experiencing increased demand for our aftermarket products in Mexico, which complements our existing strategic operational and distribution footprint there. As our U.S.-based retailers and warehouse distributor customers expand throughout Latin and South America, we are well positioned to benefit while supporting their growth. With regard to our Diagnostic business, our JBT-1 Bench Top Tester leads the industry and the installed base is continuing to grow with additional service-related revenue related to software and database updates anticipated. We also expect more opportunities outside North America as the business evolves, including potential new applications that complement and leverage our technology. We remain focused on benefiting from cost reduction initiatives to enhance margins, including strategic supply chain sourcing changes and capitalizing on our North American footprint. As I mentioned, we believe the outlook is bright for nondiscretionary aftermarket parts for the internal combustion engine market, and we are focused on leveraging our capability and capacity to offer a broad range of SKUs for all makes and models with the newer or older vehicles. While the industry has expressed some recent headwinds due to consumers deferring certain repairs as well as the impact of the recent government shutdown, deferment is not really a long-term option for our nondiscretionary products. If your car doesn't start or stop, you're not driving. We believe that there are meaningful opportunities for further growth as the competitive landscape changes. Before I turn the call over to David to review our results in details, let me summarize. From a sales perspective, we expect continued organic growth for our business, supported by favorable long-term industry tailwinds and our strong financial position. Our commercial heavy-duty market continues to grow. Our brake-related business is gaining further traction, particularly brake calipers. In addition, our sales in the Mexico market are growing nicely, and we expect this momentum will continue and expand throughout the region. Finally, our diagnostic business continues to grow nicely, and we look forward to ongoing success. I should mention that net sales for the quarter reflected 2 unusual events that offset each other. First, we reduced our customer core returns accrual in connection with the realignment of inventory at certain customer distribution centers, which resulted in a onetime gain for the quarter. This onetime revenue recognition of $14.8 million nominally contributed $643,000 to profitability, reduced gross margin by 1.1% and was completely neutral to cash flow. In simple terms, we lost some business and picked up some other business. Second, one of our largest customers delayed purchases in an amount that offset the core revenue. This delay is temporary, and we anticipate it will result in increased orders during the second half of the year. I want to emphasize that we are excited by our progress and future opportunities and that we are confirming our guidance for fiscal 2026. This onetime core revenue is not included in our revenue guidance. As referenced in the exhibits to our earnings release, there are various factors relating to our financial performance that are noncash and beyond our control, particularly noncash mark-to-market foreign exchange, which can have a positive or negative impact on our Mexican lease liabilities and forward contracts that we purchase. We are focused on opportunities to minimize noncash expenses such as gains or losses related to foreign exchange, including funding our Mexican operations with pesos from our sales in Mexico. As our sales in Mexico continue to grow, we have reduced our purchases of forward peso contracts. We expect over time, we will eliminate the need to purchase these contracts. I would now like to turn the call over to David. David Lee: Thank you, Selwyn, and good morning, everyone. Let me summarize key financial performance metrics for the fiscal '26 second quarter that we highlighted in this morning's news release and additional information will be available in the 10-Q that will be filed later today. Net sales increased 6.4% to $221.5 million. Gross profit increased 3.5% to a second quarter record of $42.7 million, generated $21.9 million of cash from operating activities and reduced net bank debt by $17.7 million to $56.7 million, repurchased 90,114 shares for $1.4 million at an average price of $15.41. Now let me discuss our results in more detail. Net sales for the fiscal '26 second quarter increased $13.3 million or 6.4% to $221.5 million from $208.2 million in the prior year. Net sales for the quarter reflect $14.8 million of core revenue in connection with the realignment of inventory at certain customer distribution centers, offset by the timing of purchases by one of our largest customers, as Selwyn mentioned previously. Gross profit for the fiscal '26 second quarter increased 3.5% to a second quarter record of $42.7 million from $41.3 million a year earlier. I should mention that gross profit for the quarter was also impacted by noncash expenses. The noncash expenses reflect core and finished goods premium amortization and revaluation of cores on customer shelves, which are unique to certain of our products and required by GAAP. The total for all noncash expenses in the quarter was approximately $3.6 million or a 3% impact to gross margin as detailed in Exhibit 3 in this morning's press release. Gross margin for the fiscal '26 second quarter was 19.3% compared with 19.8% a year earlier. In addition to the noncash expenses previously explained, gross margin for the fiscal '26 second quarter was also impacted by onetime cash expenses of $698,000 or a 0.3% impact to gross margin as detailed in Exhibit 3 of this morning's earnings press release. I should note, excluding the noncash expenses and onetime cash expenses, gross margin on an adjusted basis increased slightly as detailed in Exhibit 3. Aside from higher sales volume, particularly from certain of our newer product offerings, which supports increased absorption of costs, we remain focused on other initiatives to enhance gross margins. Operating expenses were $26.4 million for the fiscal '26 second quarter compared with $28.8 million last year, which benefited from a $1.5 million noncash mark-to-market foreign exchange gain compared with a $5.4 million noncash mark-to-market foreign exchange loss in the prior year. The remaining increase includes increased general and administrative expenses at our offshore locations, increased commissions and increased research and development expenses. Operating income for the fiscal '26 second quarter increased 30.8% to $16.4 million from $12.5 million in the prior year. Interest expense for the fiscal second quarter decreased by $1.5 million to $12.7 million from $14.2 million a year ago, reflecting lower average outstanding balances under the company's credit facility and lower interest rates compared with a year ago. For the second quarter, income tax expense was $3.6 million compared with $912,000 for the prior year. The effective tax rate for the fiscal '26 second quarter reflects in part the inability to recognize the benefit of losses at certain jurisdictions. However, we expect these losses will be utilized against future profits, which will benefit future tax rates. Obviously, there are various factors impacting the tax effect. Net loss for the fiscal '26 second quarter was $2.1 million or $0.11 per share compared with a net loss of $3 million or $0.15 per share for the prior year. Net loss was impacted by noncash expenses of $4.8 million or $0.25 per share and was impacted by onetime cash expenses of $523,000 or $0.03 per share as detailed in Exhibit 1. As previously explained, higher sales volumes and operating efficiencies will further improve results. EBITDA for the fiscal second quarter was $16.5 million, reflecting $6.3 million of noncash expenses and $698,000 of onetime cash expenses detailed in Exhibit 5 of this morning's earnings press release. EBITDA before the impact of noncash expenses and onetime cash expenses mentioned above was $23.5 million for the second quarter. Now let me discuss the 6-month results. Net sales for the fiscal '26 6-month period increased $31.8 million or 8.4% to a record $409.8 million from $378.1 million. Net sales for the 6-month period reflects $14.8 million of core revenue in connection with the realignment of inventory at certain customer distribution centers, offset by the timing of purchases by one of our largest customers. Gross profit for the fiscal '26 6-month period increased to a record $76.6 million from $70.5 million a year earlier. Gross margin for the fiscal '26 6-month period was 18.7% compared with 18.6% a year earlier. Gross margin for the fiscal '26 6-month period was impacted by $7.4 million or 2.5% of noncash expenses and $2.1 million or 0.5% of onetime cash expenses as detailed in Exhibit 4. Net income for the fiscal '26 6-month period was $893,000 or $0.04 per diluted share, impacted by noncash expenses of $3.5 million or $0.17 per diluted share and onetime cash expenses of $1.6 million or $0.08 per diluted share compared with a net loss of $21 million or $1.07 per share a year ago, impacted by various items detailed in Exhibit 2 in this morning's earnings press release. EBITDA for the fiscal '26 6-month period was $37.2 million. EBITDA was impacted by $4.6 million of noncash expenses as well as $2.1 million in onetime cash expenses detailed in Exhibit 5 of this morning's earnings press release. EBITDA before the impact of noncash and onetime cash expenses mentioned above was $43.9 million for the current period. Now let me move on to cash flow and key corporate items. The company generated cash of $21.9 million in operating activities during the fiscal '26 second quarter and generated $31.9 million in operating activities for the fiscal '26 6-month period compared with $2 million for the prior year fiscal '25 6-month period. We remain focused on increasing operating profit and gross margin and generating positive cash flow, supported by growth and operating efficiencies from our global footprint expansion. In addition to our goal of generating increased operating profits, we expect further opportunities to neutralizing working capital, supported by customer product demand planning, enhanced inventory management and expanding our vendor payment terms. Net bank debt decreased by $17.7 million during the fiscal '26 second quarter to $56.7 million from $74.4 million and decreased $24.6 million during the fiscal '26 6-month period to $56.7 million from $81.4 million. As explained previously, EBITDA before the impact of noncash and onetime cash expenses mentioned above was $43.9 million for the 6 months ended September 30, 2025. Based on information provided above and in our previous filings, EBITDA for the 12 months ended September 30, 2025, was $73.9 million. EBITDA before the impact of noncash and onetime cash expenses was $95.5 million for the same period. To recap, our net bank debt was $56.7 million at September 30, 2025, compared with EBITDA before the impact of noncash and onetime cash expenses mentioned above of $95.5 million for the 12 months ended September 30, 2025. For the past 2 years through September 30, 2025, we have generated cash from operating activities of approximately $122 million or approximately $6.21 per outstanding share on average, and we reduced net bank debt by approximately $98 million. For the 12 months ended September 30, 2025, we have generated cash from operating activities of approximately $75 million. Our liquidity remains very strong with total cash and availability of approximately $161 million. During the fiscal '26 second quarter, the company repurchased 90,114 shares for $1.4 million at an average price of $15.41 under its current authorization program, supported by solid cash generation from operating activities. For the 6-month period, the company repurchased 287,910 shares for $3.4 million at an average share price of $11.65. For further explanation on the reconciliation of items that impacted results and non-GAAP financial measures, please refer to Exhibits 1 through 5 in this morning's earnings press release. I would now like to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Brian Nagel with Oppenheimer. Brian Nagel: So a couple of questions. First off, Selwyn, you mentioned in your comments just on the effects of deferral. This has been a topic that we've heard from a number of companies within your space later. So I guess the question I have is if you could expand a little bit. I mean recognizing like you said in your comments, I mean, this is a break-fix type industry. So any type of deferral will be short-lived. But I guess the question I have is, what are you seeing? Is there -- was there a measurable impact on the quarter from the deferral. Selwyn Joffe: Yes. There's some -- okay, great. Yes. So the questions are regarding the deferral. I think it's -- there's a customer that has gone through some operational changes, in particular, relating to their warehousing and as a result of that, we've had some purchases deferred for the quarter. We believe that customer is committed to continuing inventory levels and don't believe that there is any fundamental difference to that. And so the -- we mentioned the $14 million of core revenue was offset by a reduction of about the same amount by that deferral. And we expect that we'll pick up that deferral in the back 6 months of that year. So I think the net wash -- I mean, all in all, the numbers would have been better had we not had the deferral. But excluding the revenue that -- from the core revenue, I mean, it still meets all of our annual guidance expectations. And quite frankly, we're excited about the performance of the company right now with significant cash flow generation, debt payback, cash flows basically coming from profitability and working capital, excluding the calls. And the fundamental outlook for our business, while there are some changes in the revenue, that's not abnormal for us, we expect that we will continue to maintain our momentum. Brian Nagel: That's helpful. And then I guess the second question -- so that was -- the second question I have is just on consumer behavior. And I think you mentioned -- maybe we're probably -- I think we're using the term deferral twice. I mean that's in terms of specific customer of yours. But then also, if I heard you correctly, you were talking about at the consumer lever -- I'm sorry, at the consumer level, you're seeing some type of maybe demand deferral as consumers are pushing off projects longer. I just want to make sure I heard that correctly because that's something I think we've heard elsewhere. Selwyn Joffe: Yes, yes. I think anywhere with this discretion, Brian, there seems to be some deferral and some uncertainty. But for the majority of our products, for all of our products, they're nondiscretionary. The vehicle will not operate without replacing them. It is -- you are capable of deferring -- replacing your brakes for a little bit, but not too long. I mean you've got to get the job done. So I think with our product lineup, the deferral -- that deferral is different than the onetime deferral on some restructuring of warehousing. But that deferral, I think, is more nominal on us than others. Operator: Your next question comes from the line of Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: Can you talk about just market share trending? Any trends in market share for your core as well as braking business? And then additionally, there's been some news flow regarding the First Brands situation. Wondering if you could talk about whether or not there are any sort of knock-on effects from what's going on there? And then I've got a follow-up. Selwyn Joffe: Yes. I think market share for us, I mean, it fluctuates a little bit, but I don't see any major material changes in market share right now. I think if we look at the momentum of our business, our brake-related products are certainly the ones that are picking up momentum faster than others. Relative to First Brands, difficult for me to comment. I mean it's sad that something like that is cast a veil over our industry. Having said that, I think for customers that are reliable, have integrity, have great -- good products and I mean, I think there's going to be lots of opportunities. So I mean -- but really much more than that, I couldn't comment. Derek Soderberg: Got it. And then as my follow-up, I wanted to touch on cash flow. Really good generation here. It looks like trailing 12 months free cash flow is around $70 million, something like that. And you guys have been buying back shares. Can you talk about how you plan on utilizing further cash flow? Wondering if the repurchases will continue? And then just looking at debt levels, how comfortable are you with where it's at? Do you plan on continuing to reduce debt as well? Selwyn Joffe: Yes. I think, look, in light of what's happened to the stock today, I mean, certainly, I think really to the extent we have liquidity to the extent that we think that there's an undervaluation. I mean, I think that we'll continue to buy back stock. I mean we do have an authorization out there to repurchase stock. So we'll have to look at that and continue, as far as the debt levels, I mean, our debt levels are very low. I think it continue -- will continue to get lower. Right now, we think that having liquidity is going to leave us in a good stead to be able to take advantage of numerous opportunities that will be unfolding in the marketplace. And so we're excited about that. I think we're sitting in a good position and having lots of liquidity will be helpful. Operator: There are no further questions at this time. I would now like to turn the call over to Selwyn Joffe for closing remarks. Please go ahead. Selwyn Joffe: Thank you. In summary, I mean, we continue to be bullish about our outlook. We remain laser-focused on further efficiencies and fully benefiting from a not easily duplicated global platform to meet demand and grow market share for our nondiscretionary products as well as for our diagnostic testing business. We continue to leverage our expertise and solid customer and supply partnerships. Our liquidity is strong. Our leverage is low, and we have the resources, capacity and capability to further enhance shareholder value. Let me reiterate our strategic focus, growing sales of our existing product lines, continuous operational efficiency improvements to further enhance margins, and we are making great progress there, mitigating tariffs and increasing cash conversion by increased profitability and neutralization of working capital. In closing, we appreciate the contributions of all our team members who are continuously focused on providing the highest level of service. We are all committed to being the industry leader for parts and solutions that move our world today and tomorrow. We also appreciate the continued support of our shareholders and thank everyone again for joining us for the call. We look forward to speaking with you when we host our fiscal 2026 third quarter conference call in February and at various investor conferences and meetings. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good morning, everyone, and welcome to the Perma-Fix Fiscal Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, David Waldman of Crescendo Communications. David, the floor is yours. David Waldman: Thank you, Jenny. Good morning, everyone. Welcome to Perma-Fix Environmental Services Third Quarter 2025 Conference Call. On the call with us this morning are Mark Duff, President and CEO; Dr. Louis Centofanti, Executive Vice President of Strategic Initiatives; and Ben Naccarato, Chief Financial Officer. The company issued a press release this morning containing third quarter 2025 financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and include certain non-GAAP financial measures. All statements on this conference call other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the company to differ materially from such statements. These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission as well as this morning's press release. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. In addition, today's discussion will include references to non-GAAP measures. Perma-Fix believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. I'd now like to turn the call over to Mark Duff. Please go ahead, Mark. Mark Duff: All right. Thanks, David. Good morning, everyone, and thank you for joining us today. We're pleased to report another quarter of solid financial and operational progress for Perma-Fix. Our revenue increased $17.5 million compared to $16.8 million in the same period last year, while gross profit more than doubled to $2.6 million, up from $1.3 million a year ago. Gross margin expanded to 14.6% from 7.9%, driven primarily by higher waste volumes and a more favorable mix within our Treatment operations, partially offset by increased fixed cost. Gross margin also increased by 38% from Q2, reflecting continued operational progress and a stronger overall mix. We also achieved a meaningful improvement in EBITDA versus the prior quarter, reflecting stronger throughput and continued execution discipline. Overall, these results demonstrate consistent progress in margin expansion, backlog growth and positioning Perma-Fix for long-term sustainable growth across our Treatment, PFAS and nuclear services programs. Our Treatment segment continued to deliver strong performance. Segment revenue increased 45% year-over-year to $13.1 million, up from $9.1 million in Q3 of '24. While segment gross margin improved to 17.3% from 4.5%. The improvement was driven up by higher waste volumes, higher throughput at our plants and solid execution across both commercial and DOE projects. Waste sales totaled $14.6 million, up from $8.4 million in the same period last year, a 74% increase. Our Treatment backlog ended the quarter at $15.4 million, up from $7.9 million a year ago, providing a strong visibility through year-end and into 2026. Automation, digital scheduling and plant optimization initiatives are all improving productivity and throughput while maintaining safety performance overall. We're now realizing the full benefit of these investments contributing to higher throughput and sequential margin improvement. We also continue to support international waste shipments, which remain on schedule and are expected to continue into the first half of 2026, adding backlog, stability and revenue diversity. We continue to process waste rooms from Europe and North America and are evaluating new shipment request tied to upcoming 2026 European Union programs. Turning to Hanford, this is one of the most significant and long-term growth opportunities in our company's history. The Department of Energy's direct feed low activity wage facility, also known as DFLAW, initiated hot commissioning in early October, ahead of the October 15 tri-party agreement milestone. Melter 1 is now converting tank waste into stable glass, marking a major milestone in DOE's environmental cleanup mission. Under DOE's record decision for the Hanford DFLAW program, Perma-Fix Northwest is the designated commercial treatment pathway for secondary waste streams generated during the vitrification operations. These include process liquids and solid residues that require off-site treatment at licensed facilities. This designation establishes the opportunity for a multi-decade high-volume revenues for Perma-Fix as DFLAW meets the objectives for the cleanup of Hanford over the next several decades. We expect to begin receiving affluent waste shipments from DFLAW later in Q4 or early Q1 of 2026 following DOE's initial production phase and associated waste characterization. Although DOE's tri-party agreement allows up to 3 years to reach design capacity for throughput, internal DOE goals indicate an earlier ramp-up and Perma-Fix Northwest is fully prepared to meet that. Earlier this year, we completed the union transition under our UA Local 598 agreement in the Tri-Cities region for our Perma-Fix Northwest plant. This has improved labor stability, increased hiring efficiency and allows multi-shift operations to meet DOE throughput requirements while maintaining excellent safety performance. Taken together, the record decision designation, DOE progress, facility upgrades and a workforce stability position puts Perma-Fix in a position as a critical commercial link in the DOE's waste treatment chain, a role that provides long-term recurring revenue as DOE's cleanup mission advances. Our PFAS destruction initiative continues to advance both technically and commercially. At our Florida facility, the first-generation Perma-FAS system operated reliably through the quarter, achieving complete destruction of PFAS compounds at a 10% to 20% cost advantage to incineration and with 0 air emissions. System performance improved month-over-month following Q3 upgrades and increased throughput [Technical Difficulty] Operator: Please wait a little while we reconnect to our speakers. Apologies for the technical issue there. We'll reconnect them very shortly. Appreciate your patience everybody, we're just reconnecting Mark. Apologies, everybody, for the delay there, Mark should be collecting very shortly with us again. I'm very sorry for the delay. Mark should be reconnecting with us any second. And we have Mark back in the conference, Mark your back live in the conference. Again, apologies for the technical issue. Mark Duff: Okay. I'm not sure where I got cut off, I was talking... Ben Naccarato: Mark, I think it was around when you talked about the waste shipments in 2026 in the tri-party agreement. After the union discussion try it from there. Mark Duff: All right, give me one minute here. All right. We're going for at a few sentences. I'll jump in right after the union agreement. Discussion taken together, the record decision designation, DOE progress, facility upgrades and workforce stability position Perma-Fix Northwest as a critical commercial link and waste treatment chain, a role that provides long-term recurring revenue as DOE's cleanup mission advances. Our PFAS destruction initiative continues to advance both technically and commercially. At our Florida facility, the first-generation PFAS system operated reliably throughout the quarter, achieving complete destruction of PFAS compound at a 10% to 20% cost advantage to incineration with our program, it has 0 air emissions as well. System performance improved month-over-month following Q3 upgrades, the increased throughput and uptime. We currently have 20,000 gallons of backlog under contract and anticipated commitments for another 25,000 gallons expected before year-end, keeping the unit fully utilized through early 2026. Construction of our second-generation PFAS unit near Oak Ridge, Tennessee is nearing completion with commissioning expected in Q1 of 2026 following some minor supply chain delays. The system should process 1,000 gallons per shift, which is also scalable to 2,000 gallons per shift, tripling capacity and lowering unit costs. We're engaged with multiple industrial, municipal and federal customers for multiyear destruction programs, and we expect demand to grow as regulatory requirements tighten. Perma-Fix remains one of the few companies with proven commercial scale non-incineration PFAS destruction capabilities, positioning us as a leader in this rapidly expanding market. Our Services segment reported $4.3 million in revenue compared with $7.7 million in Q3 of '24. That decline was primarily driven by DOE and DoD project delays and slower award timing, which paused some procurements and project activities. We also continued collaboration with BWXT on the DOE's West Valley end state contract, where our waste management scope remains central to the site's long-term remediation strategy. Our federal bid pipeline remains strong with multi-agency opportunities representing over $200 million in potential contract values. We expect a rebound in field activity in Q4 as DOE and DoD programs resume under approved funding. Looking ahead, we entered the fourth quarter with strong visibility and positive momentum. Our Treatment segment continues to perform at record levels, supported by DOE and commercial demand and steady international shipments. Our PFAS business is scaling rapidly in capacity and customer adoption, and our Hanford operations are poised to benefit from one of the largest and longest-running environmental cleanup programs in U.S. history. While the temporary government shutdown may impact services timing, we expect higher DOE project activity as funding normalizes. We also expect to benefit from DOE project starts and pent-up demand created by the temporary shutdown, which should contribute additional backlog realized in Q1 of '26. Across the company, our priorities remain clear: convert backlog efficiently, scale PFAS commercialization, capitalize on DOE opportunities such as those at Hanford and maintain a disciplined cost management program. Perma-Fix today is financially stronger, operationally efficient and strategically aligned with multiple long-term duration growth programs that will drive performance for years to come. It's also worth noting that given the high fixed cost nature of our business, each incremental increase in revenue and throughput drives substantial operating leverage. As we continue to grow volumes across treatment and PFAS operations, we expect to realize meaningful economies of scale that will translate into expanding margins, accelerating profitability and increasing cash generation in the quarters and years ahead. We're proud of the team's execution this quarter and confident in our ability to build on this momentum as we move into 2026. I thank you. I'll turn it over to Ben. Ben Naccarato: Thank you, Mark. Thank you, Mark. Our revenue -- total revenue for the quarter was $17.5 million, an increase of $642,000 or roughly 4% from the $16.8 million in the third quarter of '24. The improvement was driven entirely by continued improvement in our Treatment operations, partially offset by lower activity within the Service segment. Our revenue in the Treatment segment increased approximately $4 million year-over-year, reflecting higher overall waste volumes, increased average pricing and improved throughput at several facilities. These gains were supported by increases from both commercial and international waste customers. Revenue in the Services segment declined by approximately $3.4 million from prior year quarter, primarily due to fewer active projects and the timing of new contract start-ups. Our gross profit for the quarter improved to $2.6 million or 14.6% of revenue compared with $1.3 million in the same period last year, an increase of $1.3 million or 91.7%. As with revenue, this improvement was driven entirely by the Treatment segment, which saw gross profit increase on higher revenue and better margins, while the Services segment experienced a decline due to the lower revenue and overall lower project margin. We continue to focus on optimizing plant performance, controlling our costs and maintaining efficiency and project execution, all of which contributed to our overall margin improvement year-over-year. SG&A expenses were $4.1 million, up approximately $451,000 from prior year. The increase reflects higher personnel-related costs and expenses primarily at our executive levels, and additional project -- our professional services expense, including legal and consulting activities. These increases were partially offset by reductions to other administrative and marketing-related costs. We remain committed to managing overhead while continuing to invest in areas that support long-term growth. Our EBITDA from continuing operations was a loss of $1.5 million compared to a loss of $2.1 million in the prior year quarter, reflecting an improvement of roughly $600,000. Net loss for the quarter was $1.8 million compared with $9 million loss last year. Of course, that also included $6.4 million of noncash tax expense related for the valuation allowance on our deferred tax assets. As a result, our net loss per share improved to $0.10 compared with $0.57 in the prior year. From a balance sheet perspective, we ended the quarter with $16.4 million in cash, approximately $18.4 million in working capital and total debt of approximately $1.9 million, primarily owed to our key lender, PNC Bank. Cash used from operations was $8.3 million and cash used in investing activities from continuing operations was $2.7 million. We continue to focus on maintaining strong liquidity position with modest debt, which provides us flexibility to support strategic initiatives and future capital needs. With that, I'll turn the call back over to the operator for questions. Operator: [Operator Instructions] Our first question is coming from Howard Brous of Wellington Shields. Howard Brous: Mark, Ben, a good quarter. Let's start with the government shutdown. How long will this shutdown impact your business, if at all? Mark Duff: Well, we really have seen very minimal impact on waste treatment. The Department of Energy has specifically provided guidance to their sites and facilities to halt shipments of waste that are not otherwise driven by compliance for compliance reasons, which has resulted in some delayed shipments. The waste is still there. So we expect it to start rolling again right after the shutdown is over. We're encouraged by the progress that everyone I'm sure has seen overnight. I do want to underscore as well, this has had no impact on Hanford, that we've been able to see on any of our projects we work with them, particularly DFLAW, but the other ones as well. But we have seen impacts on projects and projects have been delayed, some mobilizations have been delayed, and we're not allowed to visit sites that we need to get reimbursed for travel for. In other words, they're not covering things like that. So there is an impact overall. But we expect it to be limited primarily because of our backlog that we described. We have a real solid backlog, best backlog we've had in years. And so we should be good for a while. And in fact, we hope that the pent-up demand really starts to release here in December so that we can build it back up strongly for Q1 and -- which is typically our weakest quarter of the year. But we're very encouraged by our backlog and our sales. Our sales are going great. And we feel like we'll make it through any problem and minimize the overall impact of the shutdown. Howard Brous: So I guess the status of the grouting program at Hanford is effectively not going to be affected. Is that a correct comment? Mark Duff: The grouting program shouldn't be. There's 2 components to the grouting program. One is the long-term program, which is the driver to meet the compliance with the 22 tanks they have to retrieve by 2040. That's a tri-party agreement milestone. And we're expecting an RFP on that, which won't be in place for a couple of years as they build that extraction system on those tanks. However, DOE and this administration is continuing to explore other expedited grouting options that will supplement DFLAW and the objectives associated with the East Tank Farm where DFLAW is located. So no specific details on that other than that this administration really wants to focus on closing tanks within their 4 years. And that's very evident by looking at different alternatives to try to expedite some of the grounding opportunities. So there's more to come on that, not any really good solid details that have been made public, but DOE certainly is interested in grouting unlike before as a supplement to DFLAW. Howard Brous: So with DFLAW operating, can I ask the question -- will I ask it how much waste do you anticipate receiving and when? Mark Duff: That's a tough question, Howard. Right now, it takes several months for any government facility to -- once they generate waste, they have to characterize it and document that characterization, what they call a profile, which has to get approved by the receiving entity as well as the disposal site, whatever is going to happen with it. It also is required for transport. All that is going on now. They have to package it and then ship it. So we expect them to start moving waste sometime in December, maybe late December, maybe early January, in that ballpark. And last I saw in the press, and this is a couple of weeks ago, I think they had received like 40,000 or 50,000 gallons of waste. I'm not sure how much they're processing versus receiving. I did hear that they got the second melter rolling. So they've been through that. So to answer your question, we're still confident or comfortable, I should say, that the original DOE estimate, which they put in the rod of 8,000 cubic meters a year annually is still an applicable number. There's no indication to realize or to think otherwise. And if you -- again, if you scale that back to a smaller capacity that they're likely to be running at for the next several months, we'd expect the $1 million to $2 million in revenue per month beginning sometime in early '26 in the January, February time frame. So again, that's somewhat speculation. We don't know what the waste streams look like exactly. We have been in discussions with them. So we know some things that are going on, but not the whole gamut of different types of waste and exactly what the details are regarding the characterization. So -- but to answer your question, $1 million to $2 million a month beginning in early '26 is what we're focused on and seeing that ramp up through the year. Howard Brous: What kind of gross margins could you anticipate from that? Mark Duff: We can't get into specific details of gross margins other than to say that they align pretty much with what we typically see in our gross margins across the company for that -- the waste treatment segment. Howard Brous: All right. Last question. PFAS for 2026, where do you see the program going? And going further? Mark Duff: Yes. PFAS, it's moving a lot slower than we'd originally anticipated, but it's making really good progress now. And the sales group is really doing well and so is the engineering team. Right now, we're projecting about $150,000 a month in revenue through this quarter with the potential of increasing that closer to $200,000 in Q2, a little bit later in '26, we expect to get closer to $500,000 a month in revenue, certainly by the end of '26 with the new system coming online in Q2. So we'll start to see some significant contributions to EBITDA in the second quarter next year. And where we really see ourselves lining in the PFAS market, which is largely led by Louis Centofanti is that we see ourselves sticking with the liquid markets, and getting to a point where we can scale down our large systems so that we can deploy them in the field and support companies and projects that have large volumes of liquids that isn't practical to ship. And so we're going to stick with that, approach to it for the next couple of quarters and continue our R&D and engineering design work on scaling those systems down so they can be more portable, which is a market that's pretty much untouched by others. And we see that expanding as landfills begin to see more and more PFAS in our leachate and those types of things. So we're very excited about the progress. We're very excited about the technology. It's exceeding expectations. It's taking a little bit longer to get it to market than we had originally anticipated. Howard Brous: Congratulations on the quarter and the guidance. Mark Duff: Thanks, Howard. Operator: And our next question is coming from Aaron Spychalla of Craig-Hallum. Aaron your line is live. Just bear with me a second. I'll see if I can get line's live. Aaron, can you hear us? Aaron Spychalla: I can. Can you hear me? Operator: Okay. Yes, it was the other line that was in the queue. So I've unmuted the other line instead. All right. So that's all good to go. Aaron Spychalla: Maybe first on treatment. Backlog was quite impressive, the highest in some time. Can you just maybe talk about confidence in continued growth there and margins? You kind of talked about some commercial also international shipments. Maybe just a little bit more detail there. Mark Duff: Sure. We've been very fortunate to be able to get significant quantities of waste, as I mentioned in the last couple of quarters, Aaron, from Mexico and Canada. Mexico is largely done for the time being, but Canada should continue. We're also seeing more shipments from Germany. And in '26 -- late '26, we should start seeing it from Italy from our big project, which is running ahead of schedule actually. But we also have our eyes set on several other initiatives internationally as well that will contribute to this waste backlog in addition to what we've already got under contract, particularly from Canada. As far as the confidence in the backlog, we are receiving more waste than expected from the H2C contract. I think I mentioned it last quarter, where DOE, both the headquarters and the site office and the contractors are realizing that the value of shipping some of their waste that are on site to us now that they used to treat on site at government facilities is providing value to them. So we're starting to see more waste receipts from H2C, the tank waste contractor as well as other programs on site from the other contractors. So we're starting to see increased volumes outside of DFLAW. We're also seeing more waste associated with the NNSA. That's the weapon side of DOE. We're seeing that increase as well. So to answer your question, right now, we see significant momentum on the government side, but also on the commercial and international side, all at the same time. So we expect this kind of momentum to carry us into the summer at least. We always see a little bit of a slowdown in receipts in Q1, somewhat because of the weather and field activity slowdown. But with the backlog we've got, it should have a limited impact this year in Q1. Aaron Spychalla: All right. And then maybe on the services side of the house, how do you see that business performing in the coming quarters? Any update on West Valley and Rad Mac, and you kind of mentioned in the release pursuing some new growth opportunities in government and commercial there? Mark Duff: Yes. Aaron, we do have several $30 million dollar jobs that we're bidding right now, and they're all competitive, so it's tough to speculate. But -- we're well positioned. It's the kind of work we do. We have several contracts that are ongoing now that are ramp -- just ramping up. In fact, we have one commercial contract that begins today. It was supposed to begin several months ago. So that will help us through this quarter, meeting our goals for growth. We have 2 large projects with the Buffalo core. They're also continuing to roll. They will slow down because of the snow, one is in Niagara, one is at Harshaw Chemical. Those will slow down in the winter and Q1, most likely for a couple of months. But we're confident with the number of opportunities we're seeing, which is how we typically gauge our potential future with services as we continue to see opportunities to get good quality bids put in. We try to win our share. We've lost a few that we had hoped to win this quarter, earlier in the quarter and in the summer, but we should be able to sustain where we are right now for several more quarters with the hopes of winning a couple of those new ones I just mentioned. As far as West Valley goes, West Valley is in an unusual state right now where they're working on planning with limited field activity. They do have it. We're not involved with it. Ours is focused on waste management scope. That doesn't really get kicked in until Q2 maybe of next year or a little bit later. And then we start to ramp up to support this project schedule they've got. So it still will be a little bit longer before we see the revenue we had hoped for, but we still have great communications with the site, we are providing some services, just not the levels that we had hoped to or plan to upon award, but we're waiting to see that project progress and our scope of work will be funded, and we'll start to see that revenue from it. Aaron Spychalla: All right. And then maybe last, just broadly on CapEx. You talked about some of the areas of investment to come in the coming quarters just given some of these areas of growth? Mark Duff: Yes. We expect DFLAW -- excuse me, we expect PFAS, Perma-FAS system at Oak Ridge to wrap up here in the next couple of months. And that CapEx will slow down, at least for the time being, as we get those units rolling and focus more on revenue generation. We will start looking at that downsized unit that I mentioned, but I don't expect that to be a significant drain on capital initially, at least not until the second quarter or third. We still have some expansion planned for Perma-Fix Northwest to support DFLAW. We feel like we'll be able to ramp up with the receipts. So we're hesitant to make those investments until we see that revenue coming in, the backlog coming in. But we continue to put investment in Northwest to support DFLAW as well as grouting and some of the other waste streams we're receiving from them. So Ben, you might be able to provide more specific numbers in regards to our CapEx expenditures expected for the next couple of quarters? Ben Naccarato: Yes. I think through the end of the year, that's where the heavy spending is going to be on the peak, the second reactor. That will probably -- will probably come in between $5 million, $5.5 million range for the total year spending. So another $2 million or so. And then next year, as Mark said, we'll probably trend back to sort of our norm, which is in the $2 million to $3 million a year range in total. And again, that's dependent on the needs with DFLAW. That's the only wildcard that's could be a bit higher depending on volumes. Operator: [Operator Instructions] And our next question is coming from Aaron Warwick of Breakout Investors. Aaron Warwick: Just some clarification maybe on that West Valley. Is it accurate that the opportunity there and your expectation there still remains the same. It's just been pushed back a little further? Or are you now expecting less revenue from that project overall? Mark Duff: Yes, Aaron, that's a good question. We -- I think we've talked about before, we were expecting to come right out of the chute with a significant amount of scope. And what we had feared was the waste management scope that we're aligned with might get pushed back a little bit within the overall spending profile for the site, and that's exactly what's happened. So they're focused on a number of other things for the next several months. And the waste management portion of that has been pushed back as well. So we do expect it to ramp up. It's anticipated that the West Valley budgets will increase significantly in '27. '26 will be somewhat flat. '27 is when to start really moving dirt and generating waste as they implement their baseline objectives, which is remediation and some demolition and cleaning out several large waste tanks as well as moving their legacy waste off-site. Once they start moving those waste and it shows up in the baseline, then our expectations will be realized. So we still expect to attain that revenue goal, but it may just be later in '26 before it really ramps up to the levels that we were hoping for initially. And then we see it being sustainable after that. Aaron Warwick: And then on Hanford, if I heard you correctly, there's no noticeable difference or slowdown there because of the government shutdown? And is that -- is it sort of the expectation or the understanding that that's funded enough that no matter how long the shutdown would go on, that's -- they're going to be continuing there with the cleanup at this pace? Mark Duff: Yes. That is expected, Dave (sic) [ Aaron ], I would have said that about a couple of other programs a couple of months ago, if you had to ask me as well, that did shut down or slow down. The reason I'm so confident that DFLAW won't -- and again, this is not official government answer. But the way that plant operates, you cannot shut down the melters. Once you start the melters, they have to stay on. And so the melters are running. They've got all the systems there and waste in the queue to start -- to continue vitrification. And with the visibility there and the funding backlog we've got for that plant, I can't imagine a scenario where they would slow it down because of the shutdown. And it's just too important and the momentum they have, they have to keep it moving. So it'd be very unlikely. Aaron Warwick: Yes, that makes a lot of sense. Final thing for me, I guess, would be on the PFAS. I'm sorry if I missed it when you were responding to Howard's question, but is there any -- what's the thinking there in terms of -- at one point, you had talked about potentially licensing agreements, partnerships. What's the thinking there on that as you go into 2026 and you get this bigger plant up and operating? Mark Duff: Yes. I mean partnerships are critical to our future, and we're spending a lot of time on those. We have 2 or 3 companies that we're very excited about, that we fit very well together to -- as far as our objectives and we'll provide some back some good, solid, sustained backlog. And those are underway. Right now, we'll be supported by the second generation unit. The smaller units that I mentioned are still moving as far as a goal that we have once we get the Gen 2.0 system operating and then we'll basically redesign it for a smaller application that could be on site. We're not really certain at this point, Aaron, whether we'll sell that or do a technology fee on that or license on that versus operating ourselves. We really have to get a little further down the road on the engineering side to see what can be done with our unit on that front. But we do see dozens of applications for it, and that would be a very sustainable high margin and a unique approach as this PFAS market continues to unfold, and it just gets less and less economical to ship large quantities of water for treatment. There's still a good backlog for the 2 plants we've got, but the larger market is going to be on-site remediation. Aaron Warwick: What's the -- I mean, what's holding up those partnerships at this point? Is it getting that second Gen system up and running? Mark Duff: Yes. I wouldn't say it's holding it up, but it's certainly key. We're working with those companies now treating their waste, but larger volumes remain out there, and they've toured our facilities, met with us in most cases, repeatedly, and they're waiting to see that the big system run to show how it can run at a very sustainable level. So the production levels are high and the destruction rates meet expectations. It's just taking longer to move forward. But yes, some of it is the Gen 2.0 system, but other is just how long it takes to work through the agreements. Aaron Warwick: And are you thinking Q1 '26 with that, are you thinking like that's something towards the end of Q1? Or is that something we might see even sooner? Mark Duff: Yes. Right now, we're scheduled for the first or second week of February to have the system operating notwithstanding any of the problems. So we expect to be generating pretty good revenue by sometime in March. Operator: Our next question is coming from Anthony Harpel of -- who's a private investor. Anthony Harpel: I have a question entirely unrelated to Hanford and PFAS. As you may or may not know, thorium, which is a naturally occurring radioactive metal is produced as a byproduct in rare earth's mining and processing operations. And when you process rare earth minerals, the thorium that is present in them is separated out, is treated as a radioactive contaminant and is stored as low-level radioactive waste. Because the White House finally recognizes the vital national importance of having secure access to rare earths. It is, as I'm sure you're aware, laser-focused on increasing domestic rare earth mining and processing capacity and on striking deals with U.S. allies to provide us supply suitable for use. Given this policy shift, we've seen in Washington and the increase over time in the mining and processing of rare earth minerals, which we're likely to see now as a direct result, it seems reasonable, at least to me, to conclude that we're also likely to see increased production of thorium. And it's my understanding that there is not a significant commercial market for thorium as a nuclear fuel. So can you please discuss whether or not there is a role for Perma-Fix and its treatment technology to play domestically and/or internationally? And what seems at least to me to be a potentially new and growing domestic and international market opportunity involving the treatment of low-level radioactive waste that, in this case, is produced as a byproduct in the mining and processing of rare earth minerals. Mark Duff: This is an interesting question, Anthony. Yes, we actually are looking at our application of our technology into the rare earth -- there's some talking in the background -- mining. Specifically, Anthony, in regards to our soil sorter. So our soil sorter has always been applied to remediation activities where we're trying to separate radioactively contaminated soils from non-radioactive contaminated soils. What we have several bids out right now, at least one that looks like it's pretty promising and a couple of other potentials as we're working with mining companies to do the opposite, is to define what is -- as they're doing mining, as they're moving dirt, defining which components should be separated into piles for processing. And particularly on the uranium side of the house, we haven't talked to anybody on thorium, but we are working with several companies now to see if there's application and actually deploy an application for the soil sorting process as a means of concentrating the tailings or the source term as it comes out of the mine or out of the processing unit to provide a sorting application, which will provide significant efficiency in segregating the valuable minerals from the nonvaluable minerals. So we are working that. I haven't spent a lot of time talking about thorium specifically, but we have on other rare earth mines. We met with several other companies that are in rare earth mining recently and are pursuing that market on a couple of different fronts. Anthony Harpel: And how far along are you in those discussions? Mark Duff: We have a bid out right now. We're waiting here on. It's a small bid, but it's an important one. And we should hear about that one. I think once we get that rolling, if it works the way we believe it will and the client believes it will, we could start seeing some revenue from that in the summer. And -- but we have other irons in the fire. If that one doesn't move forward, these things come and go pretty quickly. So we're hoping we can talk about that in a couple of quarters. Anthony Harpel: And who are you finding competing with you in those particular bids? Mark Duff: That's a pretty unique niche. I don't know if -- I don't know -- I don't want to mention any other companies, but there are other companies that have sorting units that aren't as advanced as ours from regards to a separation capability, particularly on the software side of the house and some of the engineering we've done. So we haven't seen anyone with this exact application for uranium, but there are other ones that could, but we haven't seen much competition on this specific application. Anthony Harpel: Just in terms of -- since you are -- since you do seem to be exploring this as a market opportunity, how would you -- how are you thinking about potentially monetizing it? And is just licensing your technology a possibility? Mark Duff: It's always a possibility. But we're not looking at that right now. We're really looking more proof-of-concept position right now and then scaling it up to larger mining applications. So we really haven't focused too much on that side of it yet Anthony. Operator: And our next question is coming from [ Steven Fein ] of Sofie LLC. Unknown Analyst: How fast you -- talking about Hanford. When would you -- you had mentioned in past calls, Mark, that their maximum capability is 1 million gallons. So how fast would you think they could ramp up to 1 million gallons? Mark Duff: It's 1 million gallons a year, you're talking about that, as Brian recall, that is the design capacity of the DFLAW system. Yes. The -- what I can tell you, I don't know enough about how it's performing, Steve to really give you a solid answer. But I do know that they're committed to having to reach that milestone in 3 years, and they're trying to get to a 40% level in the next 1.5 years or so. So I don't know how official that is, but I know that we're trying to get to the 40% level soon and then 70% level and then 100% level within the 3-year period and accelerating that as much as possible. So I just don't know how it's performing. We don't have the information on the system right now to tell you how fast it can get to, I'm afraid. Unknown Analyst: So you're telling me they're treating of 1 million gallons, the ability could take 3 years? Mark Duff: They have a legally binding milestone to be there in 3 years. That's the only thing I can tell you. I do know they're trying to get there much faster than that. And there's no reason, technically, they shouldn't be able to, but theoretically, but I don't know -- I don't have their schedules, Steve, I'm afraid. Unknown Analyst: So that's at a presumed 30% to 40% efficiency, which means that if they got to the 1 million, they're only treating -- they're only going to be able to vitrify 300,000 to 400,000 gallons and the rest would assumably be waste, secondary waste? Mark Duff: No. That 1,000 gallons is the input from the pretreated tank. So they have right now, they keep that tank at about 800,000 gallons full, and they'll treat from that tank that they pretreated waste and put it into 1 million gallons a year at full capacity. Unknown Analyst: And that will be what in 3 years? Mark Duff: They have to do that within 3 years. Unknown Analyst: But of that 1 million gallons, the efficiency historically of vitrification, am I correct, is somewhere between 30% to 40%. So that means that they're only going to be actually vitrifying 300,000 to 400,000 of that input of 1 million gallons. Mark Duff: No, I don't think you're correct on that, Steve. I'm talking about a one-for-one for every gallon that comes out of that tank, 800,000 gallon tank and goes into the DFLAW unit, that counts as 1 gallon of waste. Not to be confused with what's being pulled out of the tank initially where they have to mix it with a slurry to get it out of the tank. That's a different calculation. This is basically a waste that's been pretreated, pulled out of the tanks and is sitting there to be fed into DFLAW as 1 million gallons a year. Unknown Analyst: So they're going to vitrify 1 million gallons? Mark Duff: That's correct. Unknown Analyst: Okay. So when they vitrify 1 million gallons, how much are you estimating will be secondary waste? Mark Duff: DOE's estimate is they will generate 8,000 cubic meters of waste a year as defined in the ROD from January '23. Unknown Analyst: And how much is that in gallons? Mark Duff: I was just going to say, Steve, it's impossible to convert that to gallons because it's about a dozen different waste streams. There's several different liquid or liquid waste affluence that will come off of that plant. There's also a significant amount of solid waste like filters and personal protective equipment and components that they replace repeatedly. There are not liquids that are included in that 8,000 cubic meters. So I don't -- I can't tell you how many gallons will come off of it other than to say the total is estimated to be about 8,000 cubic meters a year. Unknown Analyst: Okay. So [ 8 million cubic ]. all right. So you don't -- you have -- how many gallons is 1,000 cubic meters? Mark Duff: I don't have the calculation in front of me, Steve. Unknown Analyst: Okay. whatever. I just -- what I'm just -- where I'm going is my understanding you have about 300,000, 330,000 gallons treat ability at Hanford. So I guess my question is how fast will you get there? What does it take for Hanford to process for you to be given 300,000 gallons, let's say? Mark Duff: Yes. Our total capacity right now, let's clarify that, is 400,000 gallons we can grout -- of liquid we can grout a year, okay? Once we get a new permit in place, which we expect to be in place that's renewal of our old permit, we expect that to be placed on January 1 right thereabout, then we'll have the capacity to go to 1.1 million right away. So basically, 100,000 gallons a month beginning in January. We have the capacity to do that. We don't expect DFLAW to come anywhere close to that as far as reaching that potential. Grouting on this new -- this next phase I mentioned, which is the long-term project that is on the West side could be 3 million gallons a year. So we'll have to expand and get to that, but we won't have to do that for a couple of years. But to answer your question, we have -- we're very confident we have complete capacity to handle whatever DFLAW puts out at full capacity. We may have to increase or apply some capital for expansion just for efficiency and to keep up. But right now, we're expecting to be able to handle at a minimum 40% to 50% of full capacity and we will ramp up as they ramp up. Unknown Analyst: Okay. And then let's say, they throw in the west side, you'll be able to handle that simultaneously? Mark Duff: Yes, we'll have to -- we'll likely need some capital investment to be able to handle 3 million gallons a year. It depends on the quantities that were awarded. But yes, we will -- we have the facility under roof. We'll need to expand the operational capacity inside of it, which will not be a dramatic capital expenditure, but we will be ready for that. We'll know years ahead of time that we'll need to expand for that. Unknown Analyst: And the West side, is there competition from like your competitors? Mark Duff: Yes. In the West side, that's the RFP I mentioned we're expecting before the end of the year. They'll be looking for commercial quotes from anyone interested, and we will have some competition on that. But keep in mind -- we're the only one's local that have that... Unknown Analyst: Exactly. And you're not -- you're talking regular waste. All right. Then one more question. Relative to the PFAS, so after you get the 1,000 gallons going, where do you go from there? Let's say, you reach capacity with this new plant you're building in Oak Ridge and the 1,000 gallons, and that's all -- that's working. So what's the next step? The smaller things that you're going to do on site? Or are you going to build a bigger tank? Mark Duff: Yes. No, there's -- right now, we're building this unit in Oak Ridge with a 1,000-gallon reactor on it. But an infrastructure, in other words, waste storage and processing capacity to bolt on another 1,000-gallon reactor. So for minimal cost, basically the cost of the reactor. So the infrastructure is in place -- so this one we'll be able to go to 1,000 gallons right away. Within 6 or 8 months, if we wanted to, we could have another reactor in there and it rolling as well. So we do have a very efficient way of putting another unit or another reactor into that system quite quickly within a couple of quarters. Yes. So we'll be able to expand that. And then as I mentioned, we are pursuing mobile units as well to support treatment on site. Unknown Analyst: With regard to the mobile units, which I find very exciting, how can you look at that not from the standpoint that you're operating them because wouldn't you be concerned if you had the customer operating it that you're giving away your secrets? Mark Duff: Yes. No, I don't think that's going to be a concern about giving away secrets with the license fee, that type of thing. These things operate very efficiently. So it only takes about 2 people to operate one of our large units. I'm going to ask Louis Centofanti on the phone too, if you have any want to add to that, Louis? Louis Centofanti: Yes. No, when we look at on-site, the technology will be adapted to the customers' needs. So the units that will go on site will -- each one has to be somewhat adapted to their needs and how we work with them. If you're going into a large water treatment plant or something where they already have staff, the last thing you want, you probably want to do is add more people, you would have some deal with the operators. So we don't see a problem with that. A variety of options that will have to be negotiated individually, depending on what [indiscernible]. Unknown Analyst: Yes. I think the real statement here is irrespective how you go, PFAS represents a totally new industry for you guys, which is exciting. Louis Centofanti: Yes. And it is. And we also see the service side building around it because we're presently also picking up waste. We're also doing cleanouts that are coming with it. So we see a whole business market around the PFAS type systems. A lot of it right today is very development. We're learning a lot about how to do all these things. We've got a variety of potential teaming partners we're moving the line up with. And so it's grounding an opportunity. And we think the technology is -- the more we run it, the more comfortable we are that it can pretty much do whatever needs to be done with a client. So no better what he has on fluorinated, our system is versatile enough to pretty much take care of anything. Operator: Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to Mark for any closing comments. Mark Duff: All right. Thank you, Jenny. As we move into the final quarter of 2025, our focus remains clear that is to convert backlog efficiently, scale our PFAS commercialization and execute on DOE opportunities at Hanford. The operational improvements we implemented earlier this year are delivering measurable results and the continued progress at Perma-Fix Northwest and our PFAS program across DOE and DOE engagements gives us confidence that this momentum will carry into '26. While federal procurement timing always varies, our backlog, field execution and customer activity levels remain strong and continue to expand with a record treatment backlog, improving margins and accelerating PFAS adoption, PFAS -- excuse me, Perma-Fix is positioned for a strong finish in 2025 and a breakout year ahead. We appreciate your continued support, and look forward to updating you next quarter as we advance our mission to deliver sustainable environmental solutions for our government and commercial clients. Thank you. Operator: Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Telos Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Allison Phillipp, Director of Communications. Please go ahead. Allison Phillipp: Good morning. Thank you for joining us to discuss Telos Corporation's Third Quarter 2025 financial results. With me today is John Wood, Chairman and CEO of Telos; and Mark Bendza, Executive Vice President and CFO of Telos. Let me quickly review the format of today's presentation. Mark will begin with remarks on our third quarter 2025 results. Next, John will discuss business highlights from the quarter. Then Mark will follow up with fourth quarter guidance before turning back to John to wrap up. We will then open the line for Q&A, where Mark Griffin, Executive Vice President of Security Solutions, will also join us. The third quarter financial results were issued earlier today and are posted on the Telos Investor Relations website where this call is being simultaneously webcast. Additionally, we have provided presentation slides on our Investor Relations website. Before we begin, we want to emphasize that some of our statements on this call including all of those relating to 2025 and 2026 company performance, plans and operations, are forward-looking statements and are made under the safe harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ for various reasons, including the factors described in today's financial results summary and the comments made during this conference call and in our SEC filings. We do not undertake any duty to update any forward-looking statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental and clarifying measures to help investors understand Telos' financial performance. These non-GAAP financial measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our third quarter results summary and on the Investor Relations portion of our website. Please also note that financial comparisons are year-over-year unless otherwise specified. The webcast replay of this call will be available on our company website under the Investor Relations link. With that, I'll turn the call over to Mark. Mark Bendza: Thank you, Allison, and good morning, everyone. I'm pleased to say that we have a lot of good news to share again this quarter. Before we get into the details on the slides, let's run through the main points upfront. Our business has been scaling in a very meaningful way this year, leading the way our major programs in Telos ID layered on top of a strong base of recurring revenue streams with high renewal rates from sophisticated government and commercial customers throughout our information assurance, and secure communications portfolio. Our operational and financial performance inflected in a very positive way in the first quarter of this year with a return to revenue growth, profitable adjusted EBITDA and strong cash flow. That trend accelerated in the second quarter and then stepped up significantly in the third quarter. Our third quarter results significantly exceeded expectations, and we're raising our outlook for the second half of 2025. Our updated outlook for the second half reflects higher revenue, adjusted EBITDA and adjusted EBITDA margin than previously indicated as well as a more favorable weighting of second half revenue to the third quarter. In addition, cash flow remains very strong, and we continued share repurchases in the third quarter. Lastly, we have a robust portfolio of existing programs that we forecast will deliver double-digit growth in revenue and adjusted EBITDA again next year, even before the addition of any new business wins through the end of 2026. With that introduction, let's get into more detail beginning on Slide 3. Telos has again overdelivered on key financial metrics in the third quarter, exceeding both revenue and profit guidance. Revenue grew 116% in the quarter to $51.4 million, above our guidance range of $44 million to $47 million. Telos ID drove the outperformance above the top end of the guidance range. GAAP gross margin was 39.9%, and cash gross margin was 44.8%, both above our guidance range due to outperformance in all lines of business and also well above the gross margins that we reported in the second quarter. As I said last quarter, given the breadth of revenue streams in our portfolio, gross margins will naturally fluctuate within our historical range from quarter-to-quarter based on revenue mix. As you'll see in our fourth quarter guidance, we expect margins to mix lower sequentially next quarter. Adjusted operating expenses in the third quarter were approximately $500,000 better than guidance due to ongoing cost discipline throughout the company. As a result of better than forecasted revenue, gross margin and operating expenses, adjusted EBITDA also exceeded the top end of our guidance range. Adjusted EBITDA was $10.1 million, above our guidance range of $4 million to $5.7 million. Adjusted EBITDA margin was 19.6%. And incremental adjusted EBITDA margin was 51.5%, or put differently for each dollar of revenue growth, $0.51 converted to adjusted EBITDA. Lastly, in part as a result of our company-wide working capital initiatives, we delivered another quarter of robust cash flow. Operating cash flow in the quarter was $9.1 million. Free cash flow was $6.6 million or a 12.8% free cash flow margin. And we deployed approximately $3.6 million to repurchase over 584,000 shares at a weighted average price of $6.23 per share. Since our fourth quarter 2024 earnings call, we've been saying that we expect significant year-over-year improvements in revenue, profit and cash flow for the full year 2025. So let's turn to Slide 4 for a brief review of our year-over-year performance in the first 9 months of the year. We've discussed the business and programmatic drivers behind our year-over-year performance for the first 9 months in each of our quarterly narratives, so I won't repeat them here. But I do think it's worthwhile to quantify the pronounced step-up in our financial performance during that time period on a cumulative basis. Specifically, revenue grew 44%. Cash gross margin, although fluctuating quarter-to-quarter expanded 30 basis points to 43%. Incremental adjusted EBITDA margin was 56.1% or again, put differently for every dollar of revenue growth, $0.56 converted to adjusted EBITDA. Adjusted EBITDA grew by $20.3 million and moved from a loss in 2024 to a 9.2% positive margin in 2025. Free cash flow improved by nearly $40 million and moved from a cash burn position in 2024 to a 12.7% positive free cash flow margin in 2025. And lastly, we've deployed $7.6 million to repurchase 2.1 million shares at a weighted average price of $3.69 per share. I will now turn it over to John for an overview of recent business highlights. John? John Wood: Thanks, Mark, and good morning, everyone. Let's turn to Slide 5. First, I'm thrilled to report that we launched our new Xacta.ai product in early October and have already secured our first enterprise customer. The Telos team is extremely excited about this new technology and the opportunities it presents for our company as well as for our customers. Xacta.ai is a powerful enterprise AI software capability added to our Xacta platform, which has already proved the proven solution for cyber risk management compliance for some of the world's most security-conscious organizations. The foundation of our unique approach to AI is our ability to seed our solution with over 25 years of cybersecurity expertise. The result is a solution with the capabilities to create a true force multiplier for organizations that strive to do more challenging security work with fewer resources. Xacta.ai has the ability to provide users with smart insights that enable quick identification and resolution of potential compliance gaps. It also supports enhanced decision-making with actionable data to accelerate compliance initiatives. Finally, in real-world testing, we've documented potential improvements in efficiencies up to 93% across cyber governance, risk and compliance, or GRC tasks in addition to savings already realized from previous Xacta versions. Again, a true force multiplier for organizations that strive to do more with less in an increasingly complex cybersecurity environment. We plan to continue to evolve our platform and our AI capabilities with increased automation as well as the expected addition of new Agentic features to further enhance effectiveness and efficiency. We're very excited about the future for our Xacta platform given this recent leap forward in the development of our product. Second, I'll provide a quick update on our TSA PreCheck program. I'm pleased to report that we have now achieved our stated objective of reaching 500 enrollment locations this year. We currently have 504 locations across 41 states and Puerto Rico. We're pleased with this progress that we've made on this rollout as we strive to provide a convenient solution for travelers across the country and to be a trusted partner on this important national security program. Going forward, we will continue to evaluate our enrollment location network for improvements in market coverage while working with the TSA to ensure we are offering an attractive option for our customers. I'm now going to turn the call back to Mark, who's going to discuss fourth quarter guidance. Mark? Mark Bendza: Thanks, John. Let's turn to Slide 6. For the fourth quarter, we forecast revenue to grow 67% to 76% year-over-year to a range of $44 million to $46.3 million. We forecast cash gross margin to be approximately 40% to 41%, lower sequentially due to normal quarterly fluctuations in revenue mix as described earlier. We forecast adjusted EBITDA of $4 million to $5.7 million or an adjusted EBITDA margin of 9.1% to 12.3%. Overall, fourth quarter guidance reflects a stronger than previously forecasted second half, a more favorable weighting of second half revenue to the third quarter and potential for short-term administrative delays due to the federal government shutdown. Compared to our commentary on our last earnings call, at the midpoint of guidance, second half revenue is now forecasted to be higher by $5.6 million or 6%. Adjusted EBITDA is forecasted to be higher by $5.2 million or 54% and adjusted EBITDA margin is forecasted to be approximately 470 basis points higher. Lastly, we'll provide further detail about our 2026 outlook on our fourth quarter earnings call in March. But in the meantime, we currently forecast that our portfolio of existing programs will deliver double-digit growth in revenue and adjusted EBITDA again next year, even before the addition of any new business wins through the end of 2026. We forecast existing programs will generate approximately $180 million of revenue, primarily driven by growth in Telos ID partially offset by contraction in secure networks. Additional upside revenue in 2026 would come from sales of our newly released Xacta.ai software and new program wins from our multibillion-dollar pipeline of new business opportunities. With that, I'll turn it back to John. John Wood: Thanks, Mark. Let's turn to Slide 7. To recap, our business has continued to scale in a very meaningful way this year, largely due to programs in Telos ID. We achieved a 116% year-over-year revenue growth in the third quarter and significantly exceeded revenue and adjusted EBITDA guidance. We continue to produce robust cash flow, which funded additional share repurchases in the quarter. We are very excited about the opportunities that our new Xacta.ai solution presents for our company and for our customers. We expect that year-over-year growth will continue into the fourth quarter and are pleased to report an improved second half outlook versus the outlook provided on our last earnings call in August. And finally, we look forward to another year of double-digit growth in 2026. And with that, we're happy to take questions. Mark Bendza: Operator, please open the line for Q&A. Thank you. Operator: [Operator Instructions] And our first question comes from the line of Zach Cummins of B. Riley Securities. Zach Cummins: Congrats on the strong results here. Just starting with the outlook, Mark, I think you mentioned a little bit of a headwind potentially from the government shutdown in Q4. As that pertains to potential award decisions going into 2026. Any impact to some of those decisions getting pushed a little further to the right? Mark Bendza: Yes. So a couple of things, Zach. In the fourth quarter, the impact of the government shutdown, I'd say is, at this point, appropriately captured in our range on both revenue and adjusted EBITDA line. I'd say what we're seeing in terms of government shutdown is there's a few things. First, awards are essentially stalled for the time being and generally sliding to the right. And then there's been various other administrative delays, things around things like collections on invoices or getting renewals executed or option [indiscernible] executed impact on the P&L has been relatively modest, but it's been more administrative delays like I described in the script. And then like I said, on the award side, generally awards being delayed for the time being. John and Mark, I don't know if there's anything you want to add to that? John Wood: No, I think that's a fair way of capturing it. They will hold off on awards until the governments turn back on, but it's not -- nothing has been taken off the table. Mark Bendza: Yes. Pipeline into '26 is still substantial. There's a lot of opportunity in there. It's still a multibillion-dollar pipeline, with a good chunk of that expected to be awarded, say, over the next 6 months with several tens of millions of dollars of revenue opportunity in 2026 on top of the $180 million from pre-existing programs. Zach Cummins: Understood. That's really helpful. And John, I just wanted to ask you a question about your new Xacta.ai products. It seems like it's getting pretty solid traction out the gate with one major enterprise-wide deployment. I believe press released that a few weeks ago. But can you just give us a sense of maybe the initial feedback that you've been getting from the product? And what are the plans in terms of trying to scale that as we move forward into 2026? John Wood: Well, the first thing we're going to do is -- and we've been doing this is really offer it into our installed base. So customers already see value out of Xacta by itself. But when you include a RAG, which allows you to reduce the hallucinations, if you will, within a large language model, it really makes it very, very simple or much more simple for a customer to implement their needs for security and compliance because essentially, the language model itself and the RAG together generate it for the customer. And it generates it in very, very quickly. I think our test results are something like up to 93% improvement in time. Operator: Our next question comes from the line of Matthew [ Calitri ] of Needham & Company. Unknown Analyst: This is [ Matt Calitri ] over at Needham. And congrats on the strong results. Sticking on Xacta, what is the specific impact on the shutdown and broader pressure from continuing resolution been on conversations there? And how are you commuting the value proposition of the offering amidst the uncertainty? John Wood: So this shutdown will be behind us soon. I think the issue is during a shutdown sometimes your customer is just not there because they've been furloughed. So I think there's a piece of that that's there. The good news is that previously, we have been out in front of this before we even announced Xacta.ai, showing our customer base, our installed customer base, getting their feedback, and I think people are really excited about it, honestly, because it also means that when you use Xacta.ai, you don't need the same level of professional services as you have to have used in the past. Mark Bendza: Yes. Maybe what I'll add to that is we had a first enterprise sale to a customer before the shutdown straight out of the gate when we launched the product. Several other large customers have been very interested. Those conversations have pushed to rise a little bit as a result of the shutdown, but good traction straight out of the gate. John Wood: Yes. Unknown Analyst: That's great to hear. And then are there any other hurdles to adoption there? Or do you think we can see an inflection of sorts once budgets open up? John Wood: I don't see anything that's going to hold back from people wanting to use Xacta.ai. Operator: Our next question comes from the line of Bradley Clark of BMO Capital Markets. Bradley Clark: Congrats on the results. On the TSA PreCheck program, you've reached your 500 location goals for 2025. And I want to understand a little bit more sort of the plan for going forward 2026 in terms of growth of this program through other new locations or you mentioned sort of evaluating your market position. And so I just want to take a step back and now that we've reached our enrollment location target, how are we thinking about growth of this program going forward? Mark Bendza: Brad, thanks for the question. So we are now operating at scale in that program. We've been working towards our 500 locations for some time now. We've actually now exceeded that target. So in terms of our physical location and our IT infrastructure, we are now at scale nationwide. Now that we're up and running, we will continue to evolve that network of locations, continue to develop new partnerships, continue to find new and innovative ways to reach travelers and serve travelers. So this is really just the beginning. We're really excited to be at scale. And I think there's a lot of upside over the next few years in that program. Maybe Mark, Chris might have something to add. Mark Griffin: Bradley, yes, as a TSA expansion program, as Mark indicated, we'll continue to look for those areas that are underserved, both from a location point of view, but also those customer bases. So as indicated in the script, we will continue to look for expansion in those areas to serve the -- not only TSA, but serve the community of enrollment and renewal populations as well. So we're very excited about the expansion capabilities, and it was a great achievement. We feel to get to our 500 locations, but we'll continue to look for enhancements and expansion from there. Operator: Our next question comes from the line of Rudy Kessinger of D.A. Davidson. Rudy Kessinger: Congrats on another nice quarter here. I'm trying to think the $180 million baseline for existing programs for next year, I'm just trying to size up how much you could potentially add on top of that because if you look at 2025 and the revenue you're going to do and take out the $70 million from existing programs, the $50 million to $75 million from DMDC and then PreCheck. It seems like the actual revenue you've got this year from new business programs was pretty minimal. And I think I heard you say, several tens of million potential revenue for next year. Just how -- when will you know that? Should those be wins that will be awarded within the next few months after the shutdown is over, like how much visibility do you add to that likelihood of those deals being awarded to you, et cetera? Mark Griffin: Rudy, Mark Griffin. Yes, the pipeline that we have is still robust and growing. And so we've seen, even during the government shutdown, the pipeline is increasing and nothing is getting canceled at this point. As Mark indicated earlier, broadly speaking, awards are just paused and kind of moving to the right, but the portfolio in the pipeline between identity in some of the projects that we feel very confident on potentially can drop in the next few months, but more likely are probably positioned more into 2026 in the first half. And so we'll see some activity there that would add to that baseline that Mark talked about earlier. John Wood: Plus additional Xacta.ai software sales. Mark Griffin: Right. Rudy Kessinger: Okay. Got it. And then my second question was on Xacta.ai. I guess if you -- like is there an upsell potential to existing Xacta customers on Xacta.ai? And if so, like what would be the minimum uplift if you're able to get adoption of it? John Wood: Yes. I don't know if you heard me say earlier, Rudy, our primary target to start is our existing installed base. And in general, I would say a great deal of excitement by our customers in the release of Xacta.ai. Unfortunately, when the government shut down temporarily, put things on pause a little bit. But now that we're seeing our way to the end of that pause and the end of the shutdown, I think it will come break backs for us. Operator: Our next question comes from the line of Nehal Chokshi of Northland Capital Markets. Nehal Chokshi: Congrats on another strong results. The $180 million baseline for calendar '26 implies what percent of the annualized full run rates for your DMDC program and PreCheck? Mark Bendza: Nehal, I'm not going to get into programmatic detail, but what I can tell you is that $180 million, so just do the math, that $180 million implies $17 million of growth at the midpoint of our 2025 guide. That $17 million is comprised roughly of $28 million of growth at Security Solutions, net of $11 million of contraction at Secure Networks and substantially all of that $28 million growth at Solutions is coming from Telos ID, which, as you know, is the business that contains those programs. Nehal Chokshi: Okay. All right. And then you also say that the pipeline can bring tens of millions to revenue for calendar '26 above the $180 million baseline. Can you walk us through how you come to that range there? Mark Bendza: Yes. So pipeline is roughly $5 billion right now, correct me, about 1/3 of that is over the next, say, 6 months, [indiscernible] to be ordered over the next 6 months. And so at that level of award opportunity, certainly several tens of millions of that represents revenue opportunity in 2026. Nehal Chokshi: Okay. And when you say tens of million, that includes the pro rating of the awards being pushed out to the right from 4Q '25 to 1Q '26 in 2Q '26? Mark Bendza: Yes. John Wood: And Nehal, it's several tens of millions. Mark Bendza: Yes. That's the total opportunity set, right? So the point is there's ample opportunity above that $180 million between Xacta.ai and our traditional pipeline. It's just a matter of what comes in the door and when. Nehal Chokshi: Can you remind us what has been your historical win rate of what's in your pipeline? Mark Bendza: No. We don't disclose that externally. Nehal Chokshi: Okay. All right. And then last question for me is that given the 60% incremental EBITDA margin in the current quarter and 20% EBITDA margin and 13% free cash flow margin, can you share any perspective on what's the sustainable free cash flow margin for Telos then? Mark Bendza: It's probably a little too early to forecast free cash flow margins. But what I think I'll say is at that base $180 million of revenue, again, before any new business wins, the base $180 million of revenue, we would -- we've managed -- we're targeting managing our OpEx to kind of a low double-digit adjusted EBITDA margin. So call it, 10%, 11% or so adjusted EBITDA margin as additional growth comes in above that $180 million, that adjusted EBITDA margin will run higher. But we'll toggle between additional growth investments and higher adjusted EBITDA margin depending on what that additional revenue is, what the margin profile is of that additional revenue. So that adjusted EBITDA margin can start to give you an indication of where free cash flow can trend. But we expect a very -- another good year of free cash flow in 2026. Nehal Chokshi: Okay. That's really helpful. Maybe just to further the -- what you're sort of giving color around with calendar '26 in terms of EBITDA margin? And then the potential, if you win the tens of millions of opportunity from the pipeline, would drive -- you would expect incremental EBITDA margin to be above that sort of 10% to 11% baseline EBITDA margin. But it doesn't sound like you would expect 60% incremental EBITDA margins, but it sounds like you would expect somewhere like what, in the 20%, 30% range? Mark Bendza: Yes. It's a little premature to commit to that for 2 reasons. One, it depends on what that additional revenue is and what the incremental gross margins are on that revenue. And then also how much of that we decide to commit to additional growth investments. So my point simply is there is upside to that kind of 10%, 11% base adjusted EBITDA margin. And it's just going to depend on, again, the margin profile of that additional revenue and then how much of that we hold back for some growth investment. Operator: I'm showing no further questions at this time. I'd now like to turn it back to John Wood for any further remarks. John Wood: Thank you very much, operator. First, I just want to say thank you to everybody for your ongoing support of the company. As shareholders, we certainly appreciate your staying behind the company. And obviously, we're going to continue to be intensely focused on executing our growth plans and continuing the same trend of year-over-year growth in the fourth quarter and into 2026. So finally, with our robust and recession-resistant end markets, well-funded customers and a decades-long track record of serving the world's most security-conscious organizations, Telos has a strong foundation for the future. Thanks a lot. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Instacart's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Rebecca Yoshiyama, Vice President of Investor Relations, Capital Markets and Treasury. Please go ahead. Rebecca Yoshiyama: Thank you, Michelle, and welcome, everyone, to Instacart's Third Quarter 2025 Earnings Call. On the call with me today are Chris Rogers, our Chief Executive Officer; and Emily Reuter, our Chief Financial Officer. During today's call, we will make forward-looking statements related to our business plans and strategy, developments in the grocery industry and our future performance and prospects, including our expectations regarding our financial results and share repurchases. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. You can find more information about these risks and uncertainties in our SEC filings, including our last Form 10-Q. We assume no obligation to update these statements after today's call, except as required by law. In addition, we will also discuss certain non-GAAP financial measures, which have limitations and should not be considered in isolation from or as a substitute for our GAAP results. A reconciliation between these GAAP and non-GAAP financial measures is included in our shareholder letter, which can be found on our Investor Relations website. Now I'll turn the call over to Chris for his opening remarks. Chris Rogers: Thank you, Rebecca. Good morning, everybody. It's great to be here as my first call as CEO, and I appreciate you taking the time to join us. Over the past 6 years, I've had the privilege to build many of the capabilities and partnerships that make Instacart so distinct. That experience gives me a unique perspective on our business, where we are today, what makes Instacart truly differentiated and why I'm so confident in our ability to extend our lead and win in this market. Our business is operating from a position of real strength. We have the leading online grocery marketplace, a best-in-class suite of enterprise technologies for retailers and a growing advertising ecosystem that all work better together and have helped us complete more than 1.5 billion lifetime orders. We're also unlocking new growth opportunities that build on that powerful foundation. I'll start by discussing our marketplace, which continues to be -- make up the majority of our business and serves as the backbone of our platform. We've built the best end-to-end online grocery marketplace in North America by staying focused on what matters to customers, great selection, high quality, affordable prices and the kind of experience that makes everyday life easier. Every quarter, we build on those strengths, expanding how people use our service, improving delivery, speed and reliability and making shopping even more seamless across every touch point. Because of that focus, we've built a growing and loyal customer base. We're attracting new customers to Instacart. We're retaining customers at higher rates year-over-year and increasing their order frequency, moving more customers from occasional use to regular monthly and weekly shopping. And what we see is the longer that customers stay with us, the more frequently they shop and the more that they spend across multiple vectors through even larger grocery baskets, more top-off orders and additional use cases like other retail categories and restaurants. Our most active customers, our Instacart+ members also continue to grow in number and deepen their engagement. All of this gives us confidence that our strategy is working and that -- it shows that demand for our service remains strong. And all of this growth continues to add to our scale, and that scale makes us more efficient and more profitable over time. To put a finer point on this, our unit economics are positive and continue to strengthen across all basket sizes. We achieved this by relentlessly improving our technology through things like routing and batching and replacements to make orders faster and more accurate. That creates a flywheel, better earning opportunities for shoppers, better experiences for customers and a lower cost to serve for us. That, in turn, allows us to reinvest to make the service more affordable and to spend more on marketing to acquire and engage customers while staying disciplined within our guardrails. So our marketplace is healthy and growing. And then we do what nobody else does. We take all of the innovation and scale and learnings that we've built on our marketplace, and we put that directly in the hands of retailers through our enterprise platform. That's what truly differentiates Instacart. We are not just a marketplace, we are a technology and enablement partner for the grocery industry. Through our enterprise platform, our technologies empower retailers to win on their owned and operated sites and in their physical stores. I want to spend a few minutes on this today because it is a key growth driver for us, and honestly, it's one of the most underappreciated parts of our business. Our enterprise platform is built around 5 key pillars. First, our storefront or white label e-commerce technologies now powers more than 350 retailer e-commerce storefronts on retailers' own websites from large retailers like Costco, Publix and Sprouts to specialty stores and local independents. Grocery tech is very complex, and every retailer is unique in how they operate and how they serve customers, which is exactly why this matters. We've built the best grocery-specific platform that can handle that complexity at scale and make it simple for retailers to grow online with us. Second, we offer highly versatile and high-quality fulfillment services, where we enable the picking and packing and delivery for retailers like Kroger and Wegmans and other retailers like ALDI and Sprouts put our picking technology directly in the hands of their employees. Our partners use our best-in-class technology and our flexible labor network to serve their customers more efficiently. Third is our Carrot Ads technology, which brings all of our advertising formats, our tools, our capabilities that we've built on the Instacart Marketplace as well as all of the advertising demand from the more than 7,500 brand partners and uses that to power ads on more than 240 partner websites. That includes major retailers like Sprouts and Hy-Vee as well as other marketplaces like Uber Eats, grocery and retail in the U.S., Thrive Market and more. Fourth, our in-store technology brings the power of our data, technology and innovation into the physical grocery store, where most shopping still happens. We're doing this with our Caper Carts, which will soon be available in nearly 20% of Wakefern stores as well as with retailers, including Kroger and Sprouts and Wegmans. In addition, FoodStorm, which provides retailers with technology to digitize the perimeter aisles of their stores like the deli and bakery and prepared foods continues to build momentum with retailers like Ahold Delhaize, Sprouts in the fresh market. Finally, our newest pillar, AI solutions. Just last week, we launched a suite of AI products that will help retailers use generative and agentic AI to gain a real competitive advantage across online, store shelves, smart carts and more. Every single retailer that I talked to so far has been highly interested in partnering with us on AI. They already see us as their grocery technology partner, and these tools come at the exact moment that retailers need us most, as AI transforms how people shop for groceries and feed their families. That's our enterprise platform. It's designed to help retailers of all sizes compete and grow by powering every aspect of their digital strategy. It's built on the same innovation, scale and learning that come from running North America's largest online grocery marketplace. That gives retailers a clear advantage. They get access to world-class technology and engineering resources that would be impossible to build at the same quality, pace or price. And retailers can customize their approach, picking and choosing products to solve their specific goals and needs while also benefiting from the simplicity of integrating with a single trusted technology partner. Our enterprise platform is also a highly strategic growth lever for Instacart. Each time we land a new enterprise solution with a retailer, we get access to a growing and durable part of their business, and we have the opportunity to expand from there. And because the market is still so underpenetrated, we have years of runway ahead of us to deepen these relationships and layer on additional solutions. These enterprise relationships make us a true technology enablement partner, deeply embedded in retailers' operations to drive durable long-term growth together, and the benefits are self-reinforcing. Every innovation that we build at scale on enterprise strengthens our marketplace and vice versa. As you'll see in my shareholder letter, we shared a chart that clearly illustrates the power of our enterprise platform and why exclusivity is critical to our strategy. When we partner deeply with retailers across both the marketplace and the enterprise platform, we grow faster together. That's why we're not concerned when a retailer like Kroger works with other marketplaces. What matters is the depth of our relationships. Kroger announced last week that they're doubling down with us as their primary delivery fulfillment partner across all of their digital properties. That's a great example, a strong vote of confidence in the value that we bring. Moving on to advertising. Our advertising ecosystem enhances our entire platform. When brands advertise with us, they get access to over 1,800 retail banners on our marketplace, more than 240 partner websites through Carrot Ads, dynamic in-store advertising capabilities and increasingly valuable off-platform insights that help them drive performance across other channels. This has been a foundational year for our advertising capabilities. On our platform, we've added new formats unique to the digital aisleless world, including occasions and recipes and bundles. We've added AI tools like AI-generated landing pages, one-click recommendations and universal campaigns that make it easier and more effective for brands, especially emerging ones to advertise with us. And all of this has helped us diversify our advertising base and deepen our partnership with more than 7,500 brands. And we're proud that across those brands, we're driving real results. On average, our brand partners see a 25% boost in sales when they advertise on Instacart, translating into measurable growth and higher revenue. We've also expanded our supply with more Carrot Ads partners, entirely new in-store services on Caper Carts, and we've established off-platform partnerships with TikTok and Pinterest as well as Google, Meta, the Trade Desk and more. These partnerships allow us to help brands optimize their campaigns using the power of our data. Last but not least, we also launched the consumer insights portal to give subscribers another tool to help them make strategic decisions based on our rich data. All of this lays the foundation for a powerful ads and data ecosystem that delivered over $1 billion of ads and other revenue over the past 12 months. Now while it's not an easy operating environment for many food and beverage CPGs right now, we're confident that by improving our offering, expanding our reach and continuing to diversify our advertising partners, we're positioned well to meaningfully grow our advertising platform over time. When you think about the power of our platform and you really see us as a grocery technology enablement company, you can fully appreciate how scalable our core advantages are, and you can imagine the growth opportunities that open up for us in new categories and regions. Let me give you a couple of examples of what I mean by this. Our capabilities extend beyond individual customers to businesses and from grocers to B2B distributors. Over the past few years, we've built a suite of products tailored to business needs, including features like invoicing and will call delivery, where we leverage our shopper network to complete urgent fill-in orders from a distributor's warehouse. And now we're rolling out business features beyond our marketplace to our storefront technology as well, so more retailers can benefit from these capabilities and reach more businesses -- business customers on their own website. This also means our enterprise products are relevant for partners further up the supply chain. We're partnering with distributors like Gordon Food Service on will call, and we recently launched Storefront Pro with Restaurant Depot, a wholesale supplier that sells primarily to foodservice professionals. Another example is international expansion. Today, the vast majority of our success is in just North America, but we see tremendous opportunity to grow internationally with an enterprise-led strategy, primarily focused on Storefront, Caper and FoodStorm. We know that there's demand for our technologies because we've already started to make inroads in Europe and Australia with Wynshop and with Caper, and we're in active conversations with more retailers who face the same challenges that we know how to solve. Overall, we are closing out the year with strong fundamentals, and we have multiple growth engines for the future. We're building momentum across our marketplace, enterprise and ads platform, and we're leveraging this foundation to expand to new categories. This gives us confidence in our ability to drive sustainable growth in the short, medium and long term, and we're doing this while remaining committed to driving long-term profit and cash flow per share expansion. I'll say this one more time because I think it's so important. We're not just a marketplace, we're the leading technology and enablement partner for the grocery industry, transforming and empowering the entire grocery ecosystem to succeed. We're just getting started, and we believe deeply in the strength of this business and the opportunities ahead. That's why we increased our share repurchase program by $1.5 billion, our largest increase yet to underscore our confidence in our path forward. We're leading from a position of strength. We're focused on execution, and we're building a company designed to create lasting value for our customers, our partners and our shareholders. With that, I'm going to hand it over to Emily to walk through our quarterly results. Emily Maher: Thank you, Chris. This is an incredibly exciting time for Instacart. We're executing on a robust strategic road map supported by a strong financial foundation. This enables us to confidently reinvest in the business while continuing to drive more profitable growth over time. Now let's dive into our financial results and outlook. We delivered another strong quarter in Q3. Orders reached $83.4 million, up 14% year-over-year, driving GTV of $9.17 billion, up 10% year-over-year. This performance reflects strong operating fundamentals, fueled by growth in both users and order frequency. As expected, our average order value decreased 4% year-over-year. This was primarily driven by growth in restaurant orders and introduction of a $10 basket minimum for Instacart+ members, partially offset by growth in basket sizes elsewhere. Transaction revenue grew 10% year-over-year and represented 7.3% of GTV, which was flat year-over-year. This was driven by improved shopper efficiencies and lower consumer incentives, which allowed us to reinvest in affordability initiatives aimed at increasing customer engagement. As a reminder, we manage multiple levers across our P&L, so transaction revenue may fluctuate quarter-to-quarter as we strategically reinvest in growth. Advertising and other revenue grew 10% year-over-year, reflecting the strength of our ads platform. Advertising and other revenue represented 2.9% of GTV, which was effectively flat year-over-year, even as restaurant orders contributed to overall GTV growth while not being advertising addressable. We continue to demonstrate strong financial discipline and operating leverage. GAAP net income was $144 million, up 22% year-over-year, and adjusted EBITDA also grew 22% year-over-year to $278 million. We generated operating cash flow of $287 million, which increased by $102 million year-over-year, primarily driven by strong operational performance. In Q3, we repurchased $67 million worth of shares and ended the quarter with approximately $1.9 billion in cash and similar assets on our balance sheet. Stock-based compensation in Q3 was $82 million, down $24 million quarter-over-quarter, largely due to just over $20 million in expected reversals tied to executive departures in the period. In Q4, we expect stock-based compensation to normalize and be more in line with Q2 2025 levels. Now for our Q4 outlook. We anticipate GTV to range between $9.45 billion to $9.6 billion. This represents year-over-year growth between 9% to 11% with orders growth expected to outpace GTV growth. It also reflects strong customer demand in October, continued momentum from landing and expanding enterprise partnerships and is partially offset by the impact of a variety of EBT SNAP funding scenarios. We expect advertising and other revenue to grow 6% to 9% year-over-year. This reflects ongoing strength from emerging and midsized brands, partially offset by some large partners adjusting spend as they manage macro uncertainty and changing consumer trends. While this creates near-term pressure, the fundamentals of our ads ecosystem remains stronger than ever. With our performance reach and diversification, we are confident in returning advertising and other revenue to double-digit growth in 2026 and meaningfully growing this part of our business over time. We are also guiding to Q4 adjusted EBITDA of $285 million to $295 million, reflecting our commitment to disciplined execution and steadily increasing profitability. In summary, we delivered a great Q3 and our momentum continues to build as we look to finish 2025 strong. As a clear category leader, operating at tremendous scale and driving efficiencies, we're taking a disciplined but aggressive approach to investing to further accelerate our growth and advance the broader industry. To underscore our confidence in long-term value creation, we authorized a $1.5 billion increase to our share repurchase program, bringing our total capacity to $1.65 billion as of this morning. We plan to enter into a $250 million accelerated share repurchase program while continuing to opportunistically repurchase shares. With that, we will open up the call for live questions. Operator, you may begin. Operator: [Operator Instructions] And the first question is going to come from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe just to dovetail with the comments and all the details in the materials so far today. If you had to isolate what you see as some of the biggest strategic investments you want to make across your technology stack, growing supply or aggregating demand, how should we think about what those key investments are to build the types of growth narratives you're talking about today? Chris Rogers: Yes. Thank you, Eric, for the question. As you can see from our Q3 results, the business is in good shape. We have momentum. We've been driving consistent growth, 7 quarters of double-digit growth with consistent EBITDA expansion. So considering the strength of the core business, I'm not coming in and rewriting our entire playbook or making dramatic changes to our underlying vision and strategy. It's going to be fairly consistent. That said, I have started to outline various focus areas that I strongly believe can help us accelerate into the next chapter. There's 3 of them. One of them is affordability. We know that affordability is the #1 reason why people churn off of the platform. We also think it's a barrier to customers placing their first order. So we've made some significant traction with some of our largest affordability issues like loyalty integrations with retailers, the weekly flyer integrations that we've been doing. But we do believe that there's more we can do with retailers, including working with retailers on their own pricing strategy, including having conversations about price parity on the platform. The second area you're going to see us continue to invest in is to accelerate enterprise even more. I continue to see significant opportunity to accelerate our enterprise platform based on everything I hear when I talk to retailers. And even though we're already over 350 e-commerce storefronts, there is more room here for us to sign and launch a lot more retailers across North America, and I also see this opportunity to expand outside of North America for the first time in a real way. And once we've landed with a retail partner, there's an opportunity for us to cross-sell with other partners like with Caper Carts and with FoodStorm. And the final area that I want to highlight is ads and data. Our ads business is very strong and highly performing. And I plan to continue to invest to build an ads ecosystem that really innovates on-platform with our high-performing and strong measurement, off-platform through partnerships with Google and Meta and the Trade Desk and now Pinterest and TikTok and then, of course, with Carrot Ads, where we're now powering 240 ad partners. So I feel strongly that these are going to accelerate our business. And then as a tech company operating in the grocery space, we believe that we can do incredible things with AI together both on our platform and together with our retail partners to accelerate even further. Operator: And our next question will come from Colin Sebastian with Baird. Colin Sebastian: I guess 2 questions, one and a follow-up. On the AI solutions, Chris, I guess, how should we think about the monetization model here? And how are you using those deeper relationships to expand the marketplace side where there are an increasing number of options for consumers? And in terms of the acceleration you're expecting next year within advertising, Emily, I was maybe just hoping for a little more context around how much of that depends on the macro environment versus platform-specific initiatives and maybe opportunities with partners like TikTok and Uber Eats. Chris Rogers: Yes. Thank you, Colin. For the first part of the question about AI, I mean, it's still early days. We announced our launch last week. Again, we have seen -- I have personally experienced that 100% of the retailers that I've spoken to so far are excited about this. So we do believe we're on to something. And I just think that it's basically going to be a collection of enterprise offerings that brings AI-powered capabilities to our retail partners, all of our retail partners regardless of size, and it's going to connect every part of the shopping journey from how products are discovered online to how shelves are stocked in stores. And so for retailers and why we believe there's a monetization opportunity for us here because it means things like smarter operations, it means better product visibility with the in-store view that we're creating and in-store intelligence. It means more personalized shopping experience for their customers. So we -- early days, very promising start out of the gate, and we do believe that this is going to be something we can monetize over time. And for the second part of the question on advertising, look, I'll say -- I'll start by saying, given the somewhat challenging macro that we're seeing, we are very proud of our Q3 results of plus 10%, which was in line with our expectations. And as we think about our guide for Q4 of 6% to 9% and over 10% for the full year, we are waiting several puts and takes across our brand partners. So on the one hand, we're seeing real ongoing strength from mid-market and emerging brands. We have seen strong growth from this cohort all year. And then on the other hand, some of our large brand partners are moderating their spend as they navigate a tougher macro environment. In addition, in Q4, we're up against some brands that leaned in heavily towards the end of last year. All of that said, I'm not satisfied with where we're guiding for Q4, and I'm focused on reaccelerating as another. I'm confident that we can return to double-digit growth next year, and I'm confident in our ability to achieve our long-term target of 4% to 5% of GTV. And this is because of the foundation that we've been laying over the past year with multiple irons in the fire. And I really believe it's a combination of things that are going to get us there. As a starting point, we are consistently innovating on-platform, on-site, on Instacart, where we can attract larger and larger budgets by innovating and by being laser-focused on driving performance for brands. We have new formats like the ones I mentioned, shoppable recipes and bundles, but we're also doing enhanced optimizations, including ad relevance systems with LLMs driving stronger sponsored product engagement and higher click-through rates. But in addition to everything that we're doing on-site, we're making significant progress across this ad ecosystem that I referenced. We're up to 240 Carrot Ads partners again, that's where we power ad tech on our retailer websites like Hy-Vee, who recently launched and on third-party marketplaces like Uber, grocery and retail in the U.S. But we've also signed Vroom Delivery, which is a convenience marketplace, and we just signed Bottlecapps, which is an alcohol marketplace. And we have a robust pipeline of other potential partners, which we think can contribute to long-term growth. We also recently launched ads on our Caper Carts with Wakefern, where carts will soon be deployed at 20% of their stores. And we're also just very pleased with our off-platform partnerships. This is a foundational year for us on our off-platform with our newest partners, Pinterest, which we announced in Q2 and then TikTok in Q3, where we're their first end-to-end retail media partner to enable targeting and closed-loop measurement. So when you stack all of these pieces together, combining our high performance on our platform and then extending that high performance onto all of this new supply, we see real growth opportunity over the long term. Operator: And the next question will come from Shweta Khajuria with Wolfe Research. Shweta Khajuria: Let me try 2, please. One for Chris and one for Emily. The new partnerships as well as international growth plans, can you please talk to both of those? One is how impactful do you think that the new partnerships can be in the near to midterm as well as where are you focused on for international growth? And what is your go-to-market strategy versus how should we be thinking about your plans for near to midterm? And then Emily, the guidance for the fourth quarter, could you please provide a little bit more color in terms of framing the impact of potential EBT SNAP headwinds versus the incrementality of enterprise and the ongoing strength in order growth? Chris Rogers: Thank you for the question. On new partnerships, look, we see potential in so many of our partnerships across the broader business. If you're asking about enterprise specifically, we have, again, 350 storefronts, but we continue to launch more storefronts. We launched 40 new storefronts in the first half alone. We just launched Restaurant Depot, which is our first wholesaler that supplies for foodservice. We just launched Cub last week, another retailer. So we do believe that this is a very important part of our strategy, and you're going to see us continue to lean into this. Our partnerships on the ad front with off-platform are also going to be critical. Again, this was a foundational year where we struck many partnerships, and we're working through integrations and what our go-to-market motion is going to look like as we talk to brand advertisers about those capabilities. And then when it comes to international, first of all, I want to say I'm very excited about our plan to take our technology to new markets. We have already spent some time in other countries. We've spoken to retailers. And again, they're trying to solve the same problems as the retailers that I talked to in North America, how to build scalable e-commerce solutions, ads and in-store digital solutions for customers. And that said, while I believe that this is going to be a very promising growth lever for us, I'm also focused on ensuring that we're disciplined on expenses in the way that we do this in a way that's aligned with our profitability objectives and our ability to deliver annual EBITDA progression. So it is probably worth sharing a little bit more about our approach here. So we're exploring the major markets like Europe, but we're doing that with our existing products like Storefront Pro and Caper and FoodStorm. We're not building a new suite of technology specific to these markets. So we will be investing some. There will be resources applied to this effort, obviously, to do the selling and to localize our products. But again, I intend to be super disciplined and extremely focused on how we do that. And truthfully, this is, I think, another great example where our internal adoption of AI with our tech teams can help us accelerate and accomplish our goals in North America at the same time as abroad. Emily Maher: Great. And I can jump in on your question around framing the impact of EBT SNAP. Shweta, that I think about it is that, first of all, EBT is a relatively small part of our overall business. Obviously, as a company, we're very focused on making sure that we can help families get food on the table. But what we've looked at in terms of our modeling is a variety of funding scenarios because there has been continued uncertainty about how the rest of the year will play out. And ultimately, we believe that we can achieve our guidance in any of those scenarios. Now what does that mean? It means that we have strong fundamentals in terms of how the business is performing. We did have strong performance in October. That's reflected in our guidance. And as Chris mentioned earlier, we also are seeing continued momentum from our land and expand strategy with our enterprise partnerships. So for example, we are deepening relationships with retailers like Wakefern and Cub. As Chris mentioned, we launched 40 net new retailer sites in H1 alone, and so we're starting to see the benefit of that. We launched Restaurant Depot, and that is off to a great start. Our embedded marketplace on Grubhub. So a lot of little things that are all coming together to drive overall strength in the business. Operator: And the next question will come from Nikhil Devnani with Bernstein. Nikhil Devnani: Chris, you've spoken a lot about affordability. Can you maybe level set for us where we are today? What is the direction of travel been on markups over the past year or 2? And where are we today versus your desired end goal on this objective? And then when you think about pushing towards price parity or reduced markups, it all makes a lot of sense, but there obviously is some tension with merchant partners that worry about their margins on third-party platforms. So how do you get the partner base to buy into the strategy longer term? And does anything have to evolve or change about the Instacart model or structure as more retailers adopt this? Chris Rogers: Thank you, Nikhil, for the question. So I think we all know, including our retail partners, how important it is to work on affordability, especially with the competitive environment and the fact that people are increasingly comparing prices online. Oftentimes, actually, it's the retailer that brings us up with me. And as a result, we're working with almost all of our retail partners on our strategy, and this can take many forms, including surfacing deals more aggressively or reducing the markup or offering sale pricing or going all the way to same as in-store pricing, which I think is what you're getting at with the question. On same as in-store pricing specifically, we know it's going to have a positive impact. We can see it in the data. Price parity retailers are growing 10 percentage points faster versus marked-up retailers. We know they retain better. And that's why many retailers have moved. In the first half, we announced that Heritage Grocers has moved to price parity. Schnucks went full price parity. And now we have several banners testing their way into it in major markets like Nashville and Chicago and Dallas and Tucson. So I don't know exactly where it's going to net out, but I do think that, that trend is going to continue. We don't break it out, Nikhil, because it's simply not binary. How would we capture a retailer that reduces their markup from 6% to 4%, which just happened. It's good news for the customer, but it wouldn't get recorded if we were tracking price parity full stop or retailers that offer price parity, but only for loyalty-linked members as an example. All that said, I will likely report out on a quarterly basis any retailers that have moved to price parity so that you can see any movement. And then from -- for the third part of your question around our approach, for the most part, we're taking a consultative approach. We're sharing the data with what they might expect to see on Instacart from a sales lift perspective and a retention perspective. We're also sharing longer-term share and sales trends of digital overall, including where a retailer might be losing share to some of the largest players that are going after digital baskets. And to the extent that we would invest, there are many kind of financial puts and takes with retailers given the breadth of products and services that we have with most of them. So depending on the broader context, we might put some small dollars towards this. But for the most part, it's the retailers that need to lean in and make the decision and decide how to price their products. Operator: The next question will come from Ron Josey with Citi. Ronald Josey: Maybe Chris, as a follow-up to that one, and I wanted to ask about the chart in the letter around cart's top enterprise partners and the cadence here. It looks for those retailers, the 6 retailers that were highlighted on the multiple platforms, maybe with the exception of 2, most had a dip and then flattish growth before returning to that 10% average. So talk to us about the evolution here as competition ramps up or as exclusivity sort of dissipates here. Emily Maher: Yes, sure. Ron, this is Emily. I can start. I think just to sort of level set on sort of why we included the chart and what we thought was interesting about it. Obviously, we've had a lot of questions around loss of exclusivity and about how our enterprise relationships really solidify us for the future. And so what we looked at here was for retailers where we had an enterprise relationship, what happens to the business when we go nonexclusive. And of course, we're quite pleased to see that in those cases, we're able to continue very strong growth across all of the retailers. And as you likely know, the vast majority, over 80% of our business is nonexclusive today. And of the remaining that is exclusive, the majority of those have an enterprise relationship with us. And so again, just wanted to underscore why we feel confident in our ability to continue to grow our business. Now fluctuations in the chart can be [Audio Gap] there's nothing specific I would call out outside of things like seasonality or launches with individual retailers. So that's what is going to drive some of the fluctuations you see in the chart. Operator: And the next question will come from Ross Sandler with Barclays. Ross Sandler: Yes. Great. Just following up on the price parity topic from a couple of questions back. Has Amazon's big push changed the nature of the conversation between you guys and your merchants around price parity? That would be question one. And then the second question is, the new AI offerings look super interesting. Could you just elaborate on how some of this might speed up adoption of merchants migrating to a solution like Instacart? Or is this just more like kind of offering another service that just adds to the plethora of services that you guys already provide? Is this the materiality of the AI offerings, I guess, is the question. Chris Rogers: Yes. Thanks for the question, Ross. On the first one, as it relates to the competitive environment with Amazon and how retailers are thinking about that and how we're thinking about it. We have assessed the top markets that overlap with where Amazon's rolled out, including the top 30, and we continue to grow in those markets and grow overall, as you can see from our results and guide. And our mix looks good. We're not seeing a shift in basket composition between small and large baskets. We're not seeing anything meaningful in our AOV. That said, third-party data is showing that the largest source of amazon.com grocery customers has been the in-store customers. And so we are using this as a routing cry with retailers where we're already deeply embedded and who need omnichannel strategies to compete. This can show up in a bunch of different ways. It could show up as us more actively and aggressively engaging in our existing road map depending on what we're working on with that retailer. It might mean that we're moving faster with in-store technologies like Caper Carts. And as part of this, we are discussing pricing strategies. And as mentioned, some of our large retailers are testing price parity pilots right now in some of the major cities that I outlined. But I do think that retailers are keenly aware of what's happening in the competitive dynamic. We're helping bring them solutions in order to address that and compete and win. On the second one, as it relates to AI solutions specifically and how it might speed up adoption of merchants. Look, I do believe that this is going to speed up the entire industry. And the way that we're going about this is very similar to the way that we go about all of our enterprise technology. We're going to be innovating directly on Instacart, and then we're going to take that technology to retailers. And we're going to -- when we do these types of things, what we see is technology accelerates across the grocery ecosystem. So on Instacart, we're going to be building out agentic experiences directly. We have incredible data from our 1.5 billion orders to date. We have a rich catalog from 17 million unique items. We understand people's preferences, and we have the best UX. And as a result, we do think we can deliver the most relevant agentic experience for grocery with a great user interface directly on Instacart. And then with what we called Cart Assistant last week, we will be bringing these conversational capabilities to our retail partners so that they're going to have similar capabilities at the same pace and scale that we're building out directly on our marketplace. And this is going to, we think, enhance the grocery experience in several ways. You could interact with an assistant upfront or you could interact with a digital assistant throughout the journey. So for example, you could give a Cart Assistant a prompt around a party for 10 people, and it would help you build a cart based on your past preferences and any other context that you provide about the other guests or you can shop normally and engage as needed. So for example, at the end of the shop, you could say, check my entire basket for any gluten as an example. And so we're going to take that technology. We're going to make it available to our retail partners in the form of this AI solution. And that means that we're going to be building agentic experiences on retailers' owned and operated websites like the ones that we've already highlighted, Sprouts and Kroger. Operator: And the next question will come from Justin Post, Bank of America. Justin Post: A couple of questions. I wonder if you could help us understand the Enterprise Solutions contribution maybe to revenues or just overall to your business besides just retention of retailers, just financially, how you think about it? And then second, you did mention that October is off to a strong start. I know there's some competitive concerns out there, but are you seeing any changes from new competition in October? Chris Rogers: Okay. Justin, I'll start. I'm glad you're asking about the enterprise business because, again, we think it's one of our biggest critical advantages. From an economic perspective, there are some nondirect benefits. It increases our order density. It gives us cost to serve advantages. It allows us to reinvest back into the business. But we don't break out growth or unit economics on enterprise or marketplace because it differs retailer by retailer. And we're constantly working with retailers to launch a host of new services. But what I can tell you is that both marketplace and enterprise are growing parts of our business, both add to our bottom line, both reinforce each other in a virtuous cycle. We're an investment in one. If we make an investment on marketplace, it helps us with our investment in enterprise. Emily Maher: Yes. I think the only thing I would add to that is just that enterprise is not a new part of our business. We're obviously talking about the opportunity for growth. But if you recall back at the time of the S-1, at that time, we talked about how enterprise was about 20% of our business. So I just wanted to call out that the enterprise economics have been included to date. And so I thought that might be helpful add. Chris Rogers: Great. And on your -- the second part of your question, Justin, around competition. Look, it's an attractive market. Fortunately, competition isn't new to us, and we're not at all surprised by the evolving competitive landscape given the massive TAM and the market penetration is relatively small relative to other e-commerce categories. But when I take a step back here, it's clear that we're playing a different game. We're leading in areas of the market that our competitors don't really touch, such as big baskets. So over $75, which still represents 75% of the online grocery market and on retailers owned and operated sites, which I've already -- as I've already said, we're an enterprise platform. And because of these key differences, we continue to be the clear leader in online grocery among digital-first players. We're leading in share of sales by far. We're 3x higher than the next largest digital player. We're leading in new activation GTV. We're multiples higher in large basket activation. We're multiples more effective at converting small basket activations to large baskets. So in my mind, we've proven that we can compete and win in a highly competitive space, and we haven't seen anything in the short term that would change that. Operator: And the next question is going to come from Deepak Mathivanan with Cantor Fitzgerald. Deepak Mathivanan: So Chris, the new AI tools are very interesting. Can you talk about the strategy to kind of merchandise the tools more extensively in front of consumers and perhaps aim to make Instacart a bigger part of the meal planning service for consumers just beyond the weekly grocery delivery service? And how much of this experience needs is dependent on sort of like a retailer integrations versus some of the data and tools that you have? And then maybe one for Emily. I think Chris noted that the unit economics is positive for all types of orders. Can you talk about the factors that help small basket orders reach profitability? And do you think there's runway to kind of improve the incremental margins for these over time? Chris Rogers: Thank you, Deepak. I'll take the first one around AI tools. So we are actively using AI directly on Instacart in order to enhance the experience, and we're looking for ways constantly to merchandise those. We're focused on better personalization, the most relevant digital shelf for better recommendations, better replacements. And we want to use our rich data set to really capitalize on the rise of GenAI. Our product catalog spans 2 billion product instances refined in the 17 million unique items. We've completed over 1.5 billion lifetime orders. And that gives us a real advantage to put personalized experience at the forefront of the consumer experience going forward, including things like meals, which you've called out. We will have the ability to create customized meal plans based on inputs from consumers in the future, and that's all coming. There's also -- you can start to see some of the things that we're doing on our site already from a merchandising perspective with things like Smart Shop, which is our AI-powered personalized shopping experience, which analyzes customer behavior from -- and dietary preferences to surface the most relevant products faster. So we've created virtual aisles today, which are live, which are tailored to specific household needs. So if you have a baby or if you have a pet or a dietary need, we were also doing personalized replacements, which is showing up today to consumers. That includes incorporating again, dietary needs as well as pricing and past preferences. So we've really started to surface AI-driven experiences, and you're just going to see that continue to accelerate into the future. Emily Maher: On unit economics for various basket sizes, so one of the most important things that drives our ability to create unit economics that we like is really about the density of orders at the same place at the same time because that allows us ultimately to batch orders. And what you've seen is that the number of orders that we have per batch has increased by double digits over the last 4 years. So that's been a key focus of ours. Additionally, we started to talk about how we were able to batch priority orders, which was something that was new for us over the last several quarters. And we're now batching about 1/4 of priority orders. And that, again, allows us to really take advantage of that overall density. The other thing that we focus on is just time to fulfill an order. And again, the time it takes for a shopper to fulfill an order has gone down by 25% over the last 4 years. So it's these kind of things that we're really focused on. Again, it's really about shaving off seconds or minutes of an order that allows us to get to a place where when we launched the minimum basket size sort of end of last year into early this year, we said we could do it at economics we like. That said, if I look at the sort of economics of basket sizes since that launch, I'm really, really pleased with our ability to improve the overall profile and really seeing effectively convergence of our ability to be profitable across any basket size. So that allows us ultimately to be the provider that can service any of the consumer needs. Now we've talked about our strength in big baskets. And of course, we think that's critical to being able to serve the primary use case for groceries for families. But the fact that we're able to do that across small baskets as well means that we can be there for you regardless of the use case. Operator: And the next question comes from Ken Gawrelski with Wells Fargo. Kenneth Gawrelski: Two, if I may, please. First, as digital grocery delivery becomes more ubiquitous, are you seeing any changes to shopper behavior? Are basket sizes becoming smaller and maybe shopping occasions becoming more frequent? Do you see any of this in kind of any of your customer cohorts? And if so, what does it mean for Instacart? That's question one. Second question, please. Just any updates you might have on the New York City delivery minimum wage changes expected in early '26 and any ways you anticipate to mitigate those impacts? Emily Maher: Sure. Yes, I can start with the shopping behavior. So no, we're really not seeing what I would describe as change in, I'll say, consumer because I think when I think of shoppers, I think of the person executing the basket in the store. So on the consumer side, which I think where your question was, but correct me if I'm wrong, what we're seeing actually is that large basket growth remains consistent. So it is continuing to be the majority of the market at 75% of the market. And so really, what we're seeing is that by reducing the basket size, what we're adding is incremental use cases. And so overall, I think about it more as capturing the full set of needs of the consumer. But the -- in terms of what we're seeing in terms of just general behavior, we continue to see large baskets playing a critical role. Chris Rogers: And for the second one on New York, I'll speak to it at a high level and then Emily can speak to how we're thinking about it financially. So what we know is that New York City Council passed a bill that establishes a minimum earnings standard for grocery delivery workers. Mayor Adams did redo the bill, but the council ultimately overwrote it. The bill extends existing earning standards that restaurant delivery platforms have been operating under since 2014 to grocery delivery workers. And now we're working with the city during the rule-making process. So it's a little early to determine the impact. But look, our mission is to help families put food on the table. And the reason we don't support these types of extreme regulations is that they do the opposite. We know that this is going to come at the detriment of customers and shoppers and retailers in New York City. Customers could see increased fees, shoppers could see fewer earning opportunities, and they may lose the flexibility to choose when and where they shop. Retailers will likely see fewer orders given the cost increase to consumers. But we have dealt with many regulatory changes over the course of Instacart's history, and we're confident we're going to be able to navigate this one and still deliver on our profitability objectives at a company level. To be clear, this is not an outcome that we want or believe is good for stakeholders in the New York City. Emily Maher: Yes. I think the only thing I would add there is just that for us, New York represents a pretty small percentage of overall GTV. So I agree with everything Chris said in terms of navigating the potential to see increased fees on the consumer side, but not something we haven't seen before and certainly able to navigate at a total company level. Operator: And the next question is going to come from Steven Fox with Fox Advisors. Steven Fox: I just had one question. I was curious if you could talk a little bit more of the reasons behind even pursuing any international expansion at this point as opposed to doubling down on your advantages that you've talked about in the U.S. from 2 aspects: one, just the here and now that I just mentioned; and secondly, the fact that as you have moderate success there, it's going to lead to bigger and bigger investments, which maybe your investors are less inclined to accept. Chris Rogers: Yes. Thank you, Steven. I mean we think this is the right moment in time for us to start exploring markets outside of North America. For the last few years, we've been working with retailers throughout North America, and we've established a very strong base. We know -- we understand retailers and the types of challenges that they're trying to solve locally in U.S. and Canada. And we believe, based on all of our conversations, that it's the exact same challenges that they're trying to solve in these other markets. And so the opportunity feels right. Again, we're going with our existing set of products, Storefront Pro and Caper and FoodStorm. These are built. So yes, we're going to need to invest in the go-to-market motion. But for the most part, we're taking our existing technology, and we're extending that to retailers beyond just North America so that we can continue to grow our business in new markets. Emily Maher: Yes. I think the one thing I would just add just to clarify, the difference that Chris just mentioned is we're building on products that already exist today. What we didn't mention was trying to build a marketplace solution, which I think has a different investment profile, as you mentioned, Steven, than going with what are sort of effectively enterprise-led solutions. Operator: And our next question will come from Andrew Boone with Citizens. Andrew Boone: Chris, you mentioned in an earlier response, the path to 4% to 5% take rates for ads. Can you just walk us through the path there? Is that on-platform? Or do Carrot Ads need to grow larger for you guys to be able to reach that target? Any help there would be great. And then is there any update you guys can provide in terms of Instacart+? We haven't talked about that this quarter. What's new? What's changing? Kind of what's the plan to grow penetration there? Chris Rogers: Yes. Thank you for the question, Andrew. Again, I want to reiterate that we do believe we're very confident in our ability to achieve our long-term targets of 4% to 5%. But I do think it's going to come from a combination of things that are going to get us there. As a starting point, we're consistently innovating on platform with new formats, optimizations. We're building out new tooling like one-click recommendations, which is now out to 3,000 brands. We just launched AI landing pages, which are now broadly available to brands. And then what's going to build on top of that, everything that we're doing on our own platform is just the ad ecosystem that we're building and the foundation that we've been building throughout the last couple of years. Carrot Ads is going to be a big part of our growth engine longer term, right? Again, we're up to 240 Carrot Ads partners today. So we're extending our existing tech and demand onto all of these retailer sites, and we're continuing to launch more. And then ads on Caper is, we believe, very promising. We -- again, we've just launched ads on Caper at Wakefern, where we're at 20% of stores having Caper Carts. And we believe that, that's going to be a very exciting use case -- in-store use case. Actually, I think it's one of the most exciting omnichannel advertising use cases that exists today because we have the ability to target customers and work with retailers to deliver personalized ads in the store. And so that is an exciting vector for us. And then again, we're really pleased with the foundation that we've made with off-platform partnerships this year and extending that to more partners, including Pinterest and TikTok. So again, when you take all of these, it's not just one thing. When you take all of these strategic pieces together, that's what's going to drive our long-term growth. We're going to extend our high-performance on-platform that brands trust. They trust our performance, they trust our measurement. And then we're taking all of that performance to all of these new surface areas where we see real growth potential over the long term. Emily Maher: In terms of Instacart+, so this continues to be a really critical part of our overall strategy. We are focused on doubling down on Instacart+ because these are our best customers. In terms of where we are today, paid Instacart+ members continue to grow. The engagement of those users as a percentage of our monthly users continues to deepen. So that's something we like to see. It has been and continues to represent a majority of activity on the platform. And then last but not least, I think I would just say that they are more engaged and have higher retention than non-Instacart+, and that's why we continue to look for ways to make the Instacart+ membership even more valuable. You've seen us add subscriptions like New York Times Cooking. You've seen us add restaurants, free delivery on restaurants over the course of the last year. So you can expect us to continue to find ways to make membership even more valuable and drive continued penetration of the membership. Operator: And the next question comes from Jason Helfstein with Oppenheimer. Jason Helfstein: Two questions kind of related. So I mean, as you're thinking about adding new Instacart+ members, how much of the growth at this point is still like greenfield, meaning like either people who don't have, let's say, another subscription program. And again, you can kind of answer that question however you want. And then second, it seemed like this earnings season, we heard more commentary from some competitors about deemphasizing large baskets and focusing more on small baskets, which seems like it will be positive for Instacart. But just if you want to elaborate maybe on some of the competitive dynamics you're seeing in the market around basket size. Emily Maher: Sure. In terms of Instacart+ -- sorry, I think the first question was just around whether we think there is greenfield opportunity. I mean I think, look, the reality is we're focused on sort of our own product and service and what we're able to bring to the table. And we know that our membership brings the best of grocery capabilities to users as well as through our partnership with Uber Eats, a leading grocery selection. And so we've seen that be a really powerful combination. And we haven't seen specifically any competitive impacts in terms of our ability to grow those users. So again, it's really about focusing on the suite of services we provide, which is far and away best-in-class grocery across selection, affordability, quality and convenience, layering on the restaurants capability and then additional partnerships. The other thing that we try to do is continue to make that membership more valuable, things like we extended family accounts to 3 members. We have partnerships extended with programs like Chase United, their co-brand cards, the Chase Inc. cards with in-app monthly credit. So again, we're continuing to find new ways to make these more valuable. But we do think there's continued opportunity to grow our Instacart+ membership base. And again, ultimately, that will drive growth for us. Chris Rogers: And on your second question around small baskets versus large baskets and whether or not there's a trend, we aren't seeing an overall shift towards smaller baskets. 75% of the market is still in large baskets, $75 and above. And as I mentioned, we're not seeing a shift in basket composition between the 2. We're not seeing a meaningful change in our AOV. What -- I think it's possible that new entrants and new use cases are driving incremental small baskets online. And I think those baskets are coming from the physical store, which is what we're seeing with the Amazon baskets. I'll also just point out that although we're exceptionally strong in large baskets, we do also participate in small baskets as well. We want to meet the needs of our customers regardless of where they shop. That's why we introduced things like $10 minimum basket, for example. And we're successful in small baskets. As Emily mentioned, we drive efficiencies. We're also converting small basket users to large basket users at multiples times higher than others. And so yes, we're not seeing an overall trend towards small basket, but it is an area that we also do well in. Operator: And due to the time, this does conclude our question-and-answer session for today. And I do want to thank you for participating, and this will conclude today's conference call. You may now disconnect.
Operator: Good day, and welcome to the Tyson Foods Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Jon Kathol, Vice President of Investor Relations. Please go ahead. Jon Kathol: Good morning, and welcome to Tyson Foods Fourth Quarter Fiscal 2025 Earnings Conference Call. On today's call, Tyson's President and Chief Executive Officer, Donnie King; Chief Financial Officer, Curt Calaway; and Chief Operating Officer, Devin Cole, will provide prepared remarks. Following the prepared remarks, we will have a Q&A session with the participants who will be joined by our Chief Growth Officer, Kristina Lambert. We have also provided a supplemental presentation, which may be referenced on today's call and is available on Tyson's Investor Relations website and via the link in our webcast. During today's call, we will make forward-looking statements regarding our expectations for the future. These forward-looking statements made during the call are provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events or performance that do not relate solely to historical periods. These forward-looking statements are subject to risks, uncertainties and assumptions, which may cause actual results to differ materially from our current projections. Please refer to our forward-looking statement disclaimers on Slide 2 as well as our SEC filings for any additional information concerning risk factors that could cause our actual results to differ materially from our projections. We assume no obligation to update any forward-looking statements. Please note that references to earnings per share, operating income and operating margin in our remarks are on an adjusted basis for our fiscal periods unless otherwise noted. For reconciliations of these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. Now I will turn the call over to Donnie. Donnie King: Thank you, Jon, and thanks to everyone joining us today. I'm pleased to report that our business delivered solid progress and performance this quarter and throughout the year. Looking ahead, we see even more opportunities for growth across all our business units. This quarter, we achieved increases in sales, adjusted operating income and adjusted earnings per share, continuing our upward trajectory for the full year. Our annual growth in adjusted operating income was driven by the Chicken, Pork and Prepared Foods segments, along with notable contributions from our international business. In the fourth quarter, our team executed well across our portfolio with momentum in value-added protein offerings. The Chicken segment stood out, delivering $457 million in adjusted operating income, thanks to higher volumes, better operational execution and lower feed costs. These gains were partially offset by increased marketing and promotional expenses. We believe there's still untapped potential in areas we can control within this business. Prepared Foods saw growth in both sales and adjusted operating income. Our production facilities made significant performance improvement through disciplined operational efficiencies. Meanwhile, our innovation pipeline is evolving to better match consumer preferences and emerging trends. As a result, our Prepared Foods business is capturing more market share by volume and dollars, driven by innovation and targeted MAT spending that is showing measurable returns. In our Beef and Pork segments, we are increasing yield and revenue by developing more value-added products, such as season marinated and specialty trim cuts using portions that were previously undervalued. These offerings are reaching more consumers through our branded portfolio, and we're also enhancing operational efficiencies in these areas. As anticipated, the Beef segment remains our only soft spot. Cattle supplies are at record lows due to drought, potential herd rebuilding and the impact of New World screwworm in Mexico. These factors created market headwinds during the quarter. Despite these challenges, we are strengthening our fundamentals by prioritizing efficiency, reducing cost and introducing innovative products. This positions us to emerge stronger in beef when market conditions improve. Looking forward, we expect cattle supplies to remain tight as we move into 2026. During this period, chicken is likely to benefit most from changing consumer preferences, both at retail and in foodservice. 2026 presents further opportunities for our Chicken business. Chicken is an affordable, high-quality protein and our innovative value-added offerings position us uniquely to serve both retail and foodservice customers amid high beef prices. While we are not satisfied with our current beef results, our diversified business model continues to build resilience and drive profitability across the company. Overall, our financial position is strong with net leverage maintained at 2.1x, a direct result of deliberate actions and disciplined capital allocation to fortify our balance sheet. While consumers remain cautious and selective with their spending, we continue to expand our market share in both volume and dollars. Protein remains a top priority for shoppers. Despite rising prices, beef, pork and chicken are clear favorites with consumers viewing protein as an essential purchase and continuing to buy meat. According to Nielsen data, food and beverage retail volume declined 1.5% over the 13 weeks ending in September. In contrast, our retail branded products grew by 2.4% in volume, significantly outperforming the broader sector. This growth was broad-based, highlighted by strong performances across several key brands. Hillshire Farm lunch meat increased by 10.3%. Hillshire Snacking grew by 12.5%. Tyson branded frozen value-added chicken rose by 8.7% and Jimmy Dean breakfast sausage advanced by 1.6%. Our ongoing investments in innovation, wider distribution and effective marketing are driving growth and keeping us competitive, providing substantial opportunities for further progress. As more shoppers turn to the perimeter of the store, we are meeting their demand for fresh, high-quality options with Tyson branded fresh chicken volume growing 7.8% during this period. Our retail branded products now reach nearly 72% of U.S. households, a rate that exceeds both private label and other branded competitors. Although private label sales are rising, their growth comes at the expense of other brands, not Tyson, as we continue to outpace the category in both volume and performance. We are committed to engaging consumers wherever they are, leveraging our brand strength to thoughtfully expand into new markets and opportunities. Our recent launch of Tyson high-protein chicken cuts, each offering at least 30 grams of protein per serving, has achieved nationwide distribution. This success confirms strong consumer demand for convenient protein packed options. Excitement for these products is evident across social media and at retail, reinforcing our strategy to connect our brands with consumers and deliver innovative ways to enjoy our protein-rich foods. Hillshire Farm, long trusted for lunch meat has now entered the freezer section with stuff croissant and ciabatta deli sandwiches. These new additions offer consumers even more convenient, delicious and protein-rich meal solutions. We're also seeing growing interest from Gen Z shoppers in the frozen aisle. Our latest offerings are designed to meet their demand for convenience, bold flavors and high quality. Sales from our innovation pipeline has steadily increased over the past 3 years. Our innovation spans all brands and segments, ensuring we address both current and future consumer needs. Tyson Foods is proud to lead the industry by developing products with simpler, recognizable ingredients, just like those found in your own kitchen pantry. We recently introduced our simpler product line, now available in stores nationwide. The preference for healthier options is clear. Last quarter, we announced that by year-end, we will remove high fructose corn syrup, sucralose, BHA, BHT and titanium dioxide from our branded products produced in the United States. As a world-class food company and a recognized leader in protein, Tyson Foods is well positioned to meet the growing demand for high-quality protein. In the fourth quarter, we welcomed Devin Cole as our new Chief Operating Officer. Devin has over 30 years of experience in food industry leadership across both retail and foodservice. He has a proven track record working with our largest strategic customers worldwide and most recently led our Chicken and international businesses to significant improvement last year. Now I would like to invite Devin to share more about our segment performance. Devin Cole: Thank you, Donnie. I'm excited to step into the role of Chief Operating Officer. Over the past 2 months, I have taken a deep dive into our operations across the entire portfolio. My promise to you, our shareholders, is clear, we will streamline our business by reducing complexity and bureaucracy, challenging the status quo every step of the way. Our team is committed to delivering best-in-class performance and holding ourselves accountable to our customers' expectations. Now let's review our fourth quarter segment performance. Prepared Foods delivered a strong quarter with sales up 3% versus last year or up 5.7%, excluding the effect of the product recall, primarily driven by higher pricing because of higher raw material cost recovery while continuing to enhance our product mix. Adjusted operating income was also affected by the higher raw material cost and achieved a margin of 7.4% in the quarter. Despite the higher raw material costs, the full year adjusted operating income was up 1%, reflecting continued progress on our multiyear plan to enhance profitability in this business. Our fill rates in Prepared Foods were the highest since 2013. This progress is a testament to the improved S&OP process and unlocked efficiencies in our plants and distribution systems. As Donnie noted, our retail businesses delivered the strongest volume and dollar sales growth of the year in Q4 according to Nielsen syndicated data, outpacing category performance in both measures. This has enabled us to better serve our strategic customers with greater consistency and reliability. This momentum in 2025 lays the groundwork for an exciting 2026. We see significant opportunities ahead to drive growth and improve profits. Our conviction in the multiyear opportunity to expand profitability in Prepared Foods remains strong. In Chicken, we delivered another quarter of solid top line performance with sales up 3.8% year-over-year. Volume contributed nearly all of the increase, including a notable contribution from value-added product sales, which also drove a favorable mix reflected in price. This is our fourth consecutive quarter of year-over-year volume growth, demonstrating continued demand for chicken. Quarterly adjusted operating income for the Chicken segment was $457 million, an increase of 28%, building on a strong base in Q4 of last year. Our improved performance in Chicken is a reflection of executing our strategy of operational excellence, combined with a focus on innovation and customer satisfaction. We recognize that continued improvement is necessary and expected. Over the last year, we grew volume, net sales and adjusted operating income. We have taken the necessary steps to stabilize the margins of a substantial portion of our portfolio by providing a high level of service during the periods of market challenges for our strategic customers. Chicken is positioned to be the best value protein for consumers as overall food inflation remains high. In our Beef segment, we continue to focus on the controllable aspects of a challenging and dynamic market. Sales in beef increased primarily due to a higher average price per pound, reflecting ongoing healthy demand. We continue to believe we may be seeing the initial stages of heifer retention. Any retention is likely to further restrict cattle supply in the short run before seeing more supply as we work our way further through the cattle cycle a few years out. Adjusted operating income declined versus the year ago period as higher cattle costs outpaced the higher sales from a strong cutout and resilient demand. Despite continued headwinds, we are focused on the pieces we can control like shifting further processing volumes back into our harvest facilities and tools to increase our ability to adapt to changing market dynamics. In pork adjusted operating income increased 70 basis points or 63%, fueled by network optimization and operational efficiencies, leading to the strongest fourth quarter results since 2021. Sales were down 1.7%, driven by a lower number of hogs harvested during the year. The lower volume was offset by higher prices. The access of raw material supply for our Prepared Foods division is a key part of our end-to-end pork strategy. We have made substantial progress in utilizing raw materials like pork bellies to support our branded bacon, hams to supply lunch meat and trimmings to supply sausage. We will continue to push for higher utilization as it will improve access, quality and landed cost of our raw materials. Overall, I am encouraged by the incremental steps we have taken through the year, but I'm confident that we have room to grow and improve across the operational and controllable aspects of our business in 2026. Despite challenging market conditions, we are driven to focus on our strategic customers and consumers while delivering value to our shareholders. With protein remaining a clear winner in the mind of consumers, the diversity of our portfolio enables us to make investments by partnering with our strategic customers to drive category expansion. With that, I will turn it over to Curt to walk through our financial results and outlook in more detail. Curt Calaway: Thanks, Devin. For the fourth quarter, total company sales grew 4.8% to $13.9 billion compared to the prior year, led by beef with solid contributions from pork, chicken and prepared foods, reflecting the healthy demand environment for protein. For comparative purposes, the sales increase was calculated excluding the effect of a $355 million legal contingency reserve that was recognized in the quarter. Full year 2025 sales were $54.4 billion, an increase of 3.3% compared to prior year, excluding the effect of legal contingency reserves recognized during the year. Q4 adjusted operating income was $608 million, up 19% compared to prior year, driven by growth in chicken, international and pork, which more than offset the decline in Beef and Prepared Foods. For the full year, adjusted operating income was $2.3 billion, an increase of 26%. Once again, the increase was driven by the record performance in chicken. Adjusted earnings per share for the quarter were $1.15, up 25% versus last year, and full year adjusted EPS was $4.12, up 33% from the prior year. Our multi-protein, multichannel portfolio, combined with our team's focus on operational execution in a dynamic macro environment continues to deliver results. Turning to our financial position. Our approach to capital allocation remains disciplined, deliberate and forward-looking. We are focused on maintaining financial strength, investing in the business and returning cash to shareholders. Free cash flow is critical to us, and I'm pleased with how cash has trended. Full year operating cash flow was $2.2 billion and capital expenditures were $978 million, resulting in free cash flow of $1.2 billion, well ahead of dividends, which were $697 million. We ended the year with $3.7 billion in liquidity and net leverage at 2.1x, an improvement of 0.5 turn compared to last year. If you step back and look at our balance sheet and leverage over the last few years, we've made immense progress in strengthening our foundation. With leverage continuing to decline and cash flow remaining strong, we continued share repurchases of $154 million during the quarter, and we returned $327 million to shareholders through a combination of dividends and repurchases. And for the year, we returned a total of $893 million. While dividends remain our primary way of returning cash to shareholders, at current Tyson stock valuations, we believe share repurchases represent an attractive opportunity. Our balance sheet remains healthy as we prioritize financial strength, our investment-grade credit rating and cash management to drive long-term shareholder value. Let's take a moment to review our outlook for 2026. As our accounting cycle results in a 53-week year in fiscal 2026 as compared to a 52-week year in 2025, the 2026 outlook is based on a comparative 52-week year. We anticipate full year sales to be up 2% to 4% year-over-year. We expect the range for total company adjusted operating income to be between $2.1 billion to $2.3 billion. We anticipate interest expense of approximately $390 million and a tax rate of around 25%. We remain disciplined in managing cash with CapEx expected to be $700 million to $1 billion and free cash flow in the range of $800 million to $1.3 billion. Now to provide more color on our segment outlook. In Prepared Foods, we expect adjusted operating income between $950 million and $1.05 billion. We expect an improved level of performance next year as a result of improved operational discipline and strategic investment in our categories. We anticipate our adjusted operating income for chicken to be between $1.25 billion and $1.5 billion. We believe chicken will be the primary beneficiary of higher beef costs in the upcoming year. We also expect our operational execution to continue to perform at a high level. Based on the continuation of current variables of tight cattle supply conditions and the potential for heifer retention, we expect adjusted operating income in beef to be a loss between $600 million and $400 million. We anticipate adjusted operating income for pork to be $150 million to $250 million based on our ample supply of hogs and with continued emphasis on the operational metrics of our business. Our international business has performed well in 2025 by managing controllable costs, maximizing efficiencies and lowering conversion costs. We expect adjusted operating income in international/other to be $100 million to $150 million. Overall, I'm confident that 2026 will be another strong year for our company. That covers our segment performance, financial highlights and outlook for 2026. Now I will turn the call over to Donnie. Donnie King: Thanks, Curt. In 2025, our team delivered strong results despite navigating a dynamic and challenging market landscape. These achievements are a direct result of our collective dedication, and we look forward to building on this momentum as we move into 2026. Our diverse portfolio, commitment to innovation, operational excellence and robust balance sheet empower us to allocate capital strategically and reinforce our leadership in the industry. We remain focused on meeting growing global demand for protein while delivering value to our customers, consumers and shareholders. I would especially like to thank our team members for all you do. Your unwavering dedication and hard work are the driving force behind our progress, propelling us toward even greater success and solidifying our reputation as a world-class food company and a leader in protein. With that, I'll turn things back over to Jon as we begin the Q&A session. Jon Kathol: Thanks, Donnie. We will now move forward to your questions. Please recall that our cautions on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions. Operator: [Operator Instructions] The first question comes from Ben Theurer with Barclays. Benjamin Theurer: Donnie, Devin and Curt, congrats on a good finish for '25. Picking up on the guidance on my first question, really on chicken. '25, you had a probably better year than even expected at the beginning. And now looking at the outlook looks very strong, the $1.25 billion to $1.5 billion. Can you give us maybe your assumptions for that piece of the guidance as to the high end, the low end, that would be great. Donnie King: Ben, thank you for the question. In 2025, we did have a great year in chicken. Let me digress a little bit and tell you that what we saw in '25 is a result of what I would call setting the table over the past 3 years in our Chicken business. You may remember, and I'm certain others will, that we had our share of issues with genetics and hatch and the capacity issues as we worked over the past 3 years. But we're now starting to see the fruit of our labor. But if I think about 2026 and some of the assumptions that we made in putting our guidance out there, we expect the operating conditions in '26 to be similar to those in FY '25. In short, we expect it to be a constructive environment for us. USDA projects chicken production to increase approximately 1% in FY '26. We don't see a runaway chicken supply. In fact, I would caution against using September's numbers and obviously, the commodity price impacts of that as you do your model. But the 6% was the result of perfect growing conditions and environment, and that has now returned to normal. And so we see a constructive environment from that standpoint. In terms of grain, we see stable grains. You can -- we're in line with forward futures markets. And then the confidence that we have in our Chicken business is based on execution. And for us, execution across every one of our businesses is critical to us. And so if you look at those individual components of execution in our supply chain, we believe they are sustainable. For example, better yields. We're seeing some incredible numbers out of that capacity utilization. I talked earlier about some of the things we're growing the business, but at the same time, we've got a great footprint underneath us at this point. Labor utilization is really good. We have ample labor, productive labor. And our live performance is kind of a standout for us. It has been all year, but it was particularly in the Q4, and we're seeing some performance out of live that we've not seen in many years. And so we've made tremendous strides in operational improvements from live operations through the plant with room to continue to improve our performance. We're all aligned against -- there is more to go do. We've seen commodity chicken prices move downward, just like you have and mostly because of the bird weight corrections that I mentioned in September of this year. We're somewhat insulated in our business, but we're not immune to commodity markets. And we also continue to evolve our commercial relationships with our strategic customers to build long-term win-win partnerships. This allows us to focus on jointly growing the categories and stabilizing our earnings and the collective earnings of us and our customers. Further evidence of that is in our Q4, our branded fresh chicken business in retail was up 7.8% and our frozen value-added chicken was up 8.7%. These are volume numbers. And so we had higher volume and a better mix. We finished '25 with momentum in chicken, and we've seen that performance carry through in the start of '26. And we expect '26 to be another great year in chicken. Benjamin Theurer: Okay. Perfect. Very clear. And then second, real quick on Prepared Foods. It looks like the finish was a little bit softer than expected. So first, what drove that with input costs, maybe poor beef pricing? And how should we really think as we move into '26 on the midpoint, give or take, $1 billion outlook and the expected growth here? Devin Cole: Yes. Thanks, Ben. Let me first say that the fundamentals of our Prepared Foods business are very good. We did have a much better overall performance in FY '25, and that was really driven by growing distribution, optimizing our operations and winning innovation with strategic customers. In fact, we are winning with consumers, and we did grow both net sales and operating income by about 1% in FY '25. The volume gap to last year has continued to narrow each quarter. So we're seeing good momentum there. And as mentioned, our volume and dollar share did grow at retail for the first time in 2.5 years. The miss that you referenced, it was, in fact, driven by a rapid rise in commodity costs and our pricing lags just didn't fully have time for those to flow through in the quarter. For the [ fourth ] quarter, we had $135 million in commodity cost pressure, and we had $344 million, I would point out for the whole year. So not insignificant. The operational excellence that I mentioned, it is occurring inside of all of our plants, and it did really drive substantial value this year. And some of that was partially covered up by those higher raw material costs. We continue to have very good fill rates, the best since 2013. And so a lot of good things to talk about in this business as we go into FY '26. As we see those raw materials stabilize, we do expect to see volume growth, market share growth, and that's really driven by our world-class innovation pipeline, continuing work with the operational excellence that I mentioned and our customer partnerships. We will drive top and bottom line growth with our strategic customers. And I would point out that's not just in retail with much of the brand work that we've talked about. We're also seeing strength and increased distribution with foodservice. So what we're doing is working. We're pleased with the resilience of this business this past year, but we also acknowledge that there's more work to be done. I am confident that we have the right products, the right team, the right customer relationships to achieve the metrics that we've laid out. Operator: The next question comes from Leah Jordan with Goldman Sachs. Leah Jordan: Thanks for all the detail today, and great job on the quarter. I just wanted to switch over to beef. It came in a bit better than we were expecting in the quarter, but you're still guiding for a pretty challenging environment in '26, which makes a ton of sense, right, with her rebuilding likely underway. I just looking at the guide for next year, maybe you could provide more detail on how you're thinking about the underlying cattle supply and costs as we move throughout the year to frame that view. And then I know you've made a lot of improvements on yields and the like, but what other opportunities do you have to mitigate the cost pressures in this business? Donnie King: Sure. Thanks for the question. So let me get into that. In terms of heifer retention, this is obviously something we've talked about for a while, but there are potential signs that there is heifer retention. What is a little bit different as we have a little bit better picture is, is we see regional disparity. For example, out West, we're not seeing meaningful -- anything meaningful. In the South, nothing there. But in the North, Upper Midwest, we're seeing some retention. So if I look at what data or what we see, it's a lower percentage of heifers either being harvested in feed yards and then fewer feeder calfs. Heifer numbers at harvest will need to remain lower for us to be able to say that heifer retention is sustainable. And remember, more heifer retention implies less beef in the near term. But to the second part of your question, so what are we doing about that? So with herd being rebuilding, which we're all looking for, means supply of market-ready cattle will fall before it increases in future years. We continue at Tyson to focus on the controllables and optimizing our business. Kind of the macro question on the table is this, the continuing challenge of inadequate cattle availability that has been further impacted by cattle inflows from Mexico associated with border closure related to New World screwworm. Our volume was down 8.4% for the quarter and 1.9% for the full year. So certainly having an impact. Even heavier animals, they've helped, but they've only partially offset the lack of cattle availability. In our guidance, the negative $600 million to negative $400 million is what we see relative to the market presently. Leah Jordan: That's very helpful. For my follow-up, I wanted to ask about the CapEx guidance. The range for next year seems somewhat wide and is notably lower than the typical level you guys do. So just maybe you could talk about the main buckets of what projects you're planning for next year? What are the variables driving that range? Is it anything timing related? Or has anything changed in how you're thinking about capital allocation overall? Donnie King: Thanks, Leah. Maybe to start with just a reminder on our capital allocation approach. And I made a comment this morning around that it remains very disciplined, deliberate, but also forward-looking. We're focused on maintaining our financial strength, certainly investing in the business, as you asked the question on, but also returning cash to shareholders. And acknowledge the range that we provided this morning for CapEx for '26 is $700 million to $1 billion. I'll hurry on to remind everyone that across the last 5 years, we've spent just over $7 billion in CapEx. We've invested heavily across our network and that included a lot of capacity expansion during that time period. And where we sit today, we have the capacity to grow inside our existing network. Our range that we shared today, acknowledging it's [ 300 wide ] is really not that different than what we've shared over the last few years relative to a range as we start the year. But that range is really going to -- is reflective of the pacing of the spend of our current projects, but also the timing of new projects that we'll launch in 2026. But the range does include both our maintenance spend as well as profit improvement projects that we'll execute across the year. Operator: The next question comes from Tom Palmer with JPMorgan. Thomas Palmer: Wanted to just follow up on the chicken commentary. You noted that you were insulated but not immune from lower prices, and we did see the lower prices in September at an industry level, especially jumbo cuts. I guess I'm trying to think through to what extent this flowed through in 4Q and you still put up those results versus maybe there's some timing considerations and maybe more of a call out to start out the year. Donnie King: Thanks for the question. I will tell you that, I mean, we obviously considered commodity markets in giving our guidance, but the $1.25 billion to $1.5 billion, I think, is a good starting point for us right now. We've said that we think '26 will be very similar to 2025. I think that's still true. I think that what you're seeing in terms of pricing that has created a concern, I referenced earlier the 6% increase in supply in September. I think it's skewing a lot of information. And some of the pricing you're seeing are very simply is just spot market or excess that was taking place at that point. I would remind you that demand is still strong, and I believe that will continue in '26. This is a data point for you. Breast meat pricing is the third highest in the last decade, and we have stable grains. So it's a pretty good environment to be in. 2026 is looking to be another good year for us. And then if you look at -- in terms of the insulated and not immune, if you look at where we're growing in the value-added and the retail and foodservice, that value-added mix gives us the opportunity to put our -- the #1 brand of chicken on the product. And so it provides some insulation. The fact that it's value-added provides some insulation from commodity markets. So we believe our mix in our portfolio positions us well to be very successful in 2026. Thomas Palmer: In Prepared Foods last year, at the start of the year, you noted maybe a little bit less seasonal than you might see in a typical year in terms of first half versus second half. Maybe an update just on how you're thinking about 2026. Devin Cole: Yes. Thank you. Yes, you're right. FY '25, I would tell you, was a bit out of balance from historical norms, and that really was due to the raw material pressure and somewhat unseasonality that we saw there. As we think about what we can determine from FY '26 currently and what the forecast look like, we do see FY '26 being more balanced in that regard. Thomas Palmer: And so we might expect a pretty big bounce back here just to start out the year to clarify versus what we saw in 4Q? Curt Calaway: We don't -- thanks. Obviously, we don't give quarterly guidance. But I think we've talked historically maybe slightly better performance in the first half. We shared the message last year being '25 that it would be more balanced given the operational improvements as they built throughout the year. And I go back to Devin's comments, I think this will revert closer to a normal cadence, but certainly acknowledging we did have the run-up in raw material as we shared earlier that impacted Q4. And that -- there's some level of that, that was still in inventory as we finished the year as well. Operator: The next question comes from Alexia Howard with Bernstein. Alexia Howard: Can I start with just a broader question on the key uncertainties for fiscal '26. We know the consumer is struggling a bit in the U.S. commodities are all over the place, tariffs, I think, are less of an issue for you. But if you had to sort of prioritize the top 2 or 3 things that could go positively or negatively versus your forecast, what would those be? Donnie King: Kristina, why don't you take that? Kristina Lambert: Alexia, thank you for the question. As we think about the consumer, we definitely are seeing a continued divergence in incomes with higher incomes continuing to drive growth and others reallocating some of their nonfood dollars to food categories. So we do anticipate demand for protein to continue, and we are really excited about the opportunity for consumers with our chicken being a preferred choice for value and for convenience. If we look at our extensive product portfolio, we have products that do cater to everyone, whether they're shopping in retail or our foodservice channels, ensuring that we can meet those consumer needs wherever they may be. And as we remain positive, one of those reasons would be over the past year, 72% of households have purchased a Tyson Foods branded product, which helps demonstrate our strong market presence and our consumer trust. Additionally, we've increased our household penetration with younger consumers under the age of 35, which is a testament really to our ability to resonate with those new demographics. As Donnie talked about, we grew market share in our Tyson retail value-added poultry and our fresh businesses. We also grew our market share with our prepared on a volume basis with Hillshire lunch meats really being a standout with a 10% volume growth. So I'm confident that Tyson Foods is excellently positioned for growth today and into the future. Alexia Howard: And as a follow-up, it sounds as though you're fairly confident that the first quarter results in Prepared Foods will come through reasonably well. Are you seeing any impact from the delay and disruption in the SNAP benefit payouts as a result of the government shutdown? Or is it too early to tell on that front? Kristina Lambert: Yes. Thanks, Alexia. I'll continue on that. I think it's an evolving situation on the funding for the supplemental nutrition assistance program. So we are closely monitoring it. We do see consumer spending patterns, again, changing from nonfood to more food categories, but we feel resilient and well positioned to navigate those challenges probably for 3 real reasons: one being our diverse product portfolio. We have a wide range of product offerings at different budget levels. And this allows us to meet the consumer needs, whether they're price sensitive or whether they're looking for premium offerings and really do believe that our chicken and our prepared products are both going to be able to provide affordable and nutritious options for the families. The second reason is our brand trust and loyalty. We have 3 of the top 10 brands in packaged protein with our Tyson, Jimmy Dean and Hillshire Farm. And then third, really our market adaptability. We're really committed to driving volume growth. And so watching the challenging -- or changing market conditions, it's one of our core strengths. And so we actively watch what consumers are buying, their behaviors and adjusting our marketing and promotional strategies in order to continue to drive our volume growth. So again, I feel really optimistic with our strategic approach, our diverse product portfolio and our strong brand loyalty that will help us continue to grow. Operator: The next question comes from Heather Jones Heather Jones Research. Heather Jones: Congratulations on the quarter. I want to start out with beef, and I understand the normal seasonality of that business. But given the volatility that we've -- I mean, pretty extreme volatility that we've seen in the cattle futures recently, I was wondering if we should think about the seasonality of Q1 any differently than normal? Because I think it was Q1 of '24 had some impact because there was volatility in the curve. So just curious if you could help us think about that. Donnie King: Sure. And thanks for the question. We're seeing good retail demand here in Q1 of '26. I think that from an operational perspective, we continue to perform well. We're -- if you look at things like yield, if you look at how we're diversifying the mix into more value-added, and we have a pretty good supply right now in regions from a cattle perspective. But we think '26, it's shaping up for us, very much in line with what we built into our guidance. We don't know -- I mean, there's obviously -- we should expect volatility. I think that's going to be the order of the day as it relates to beef. But we have considered the current future cattle costs and the estimated pricing while expecting that volatility. And could it be worse? I don't know. If we could -- Mexico and border closure and New World screwworm and the impact of that, I mean, that's pretty significant for us, particularly in one of our plants in the region. And so we're just -- we've given you the best guidance that we know how to give you relative to those dynamics that we're dealing with presently. Heather Jones: Okay. And then I wanted to had a clarifying question on chicken. So Donnie, it sounds like based on your comments that you all's guidance assumes more than normal seasonal improvement in pricing. You found September to be an aberration. So as we're thinking about '26, you're expecting price appreciation from current levels higher than just normal seasonal. Am I understanding your commentary correctly? Donnie King: So there's really about 3 or 4 points relative to that, but your assumptions are generally correct. I think the first one is that chicken will be very much in favor in terms of protein. It's the most affordable protein on the market, and consumers are favoring that. And so that's one thing. The aberration, as we talked about it in September, that is, I think, a point in time. I think there are physical limitations to -- from an industry perspective in terms of increasing supply. And I've seen some headlines that talk about runaway supply. I don't see that at all. In fact, my biggest concern today is with the supply of chicken that we have is the demand that we're going to have for chicken, are we going to be tight? And could we see a little bit better market. But overall, what gives me confidence is our level of execution from one end of the chicken supply chain to the other. I've been doing this a long, long time. I've not seen us, but a few times be -- operate at this level as one team, one Tyson across our chicken business. And a lot of people deserve credit for that. And so think of my confidence being from the execution of the business and never gets sold. Operator: The next question comes from Pooran Sharma with Stephens Inc. Pooran Sharma: Congrats on posting strong results there. Donnie, I wanted to start out by asking about something you said on the call. You said you've taken steps to stabilize the margin -- stabilize margins on a substantial portion of the portfolio. Donnie, I think in the past, you've mentioned just for chicken alone, we've seen somewhere upwards of a $500 million to $700 million self-improvement. Was just wondering if you could give us an updated view on chicken? And also, if you're able to -- would you be able to provide a view across the rest of the businesses just because of the work you've done in Prepared Foods and in pork as well? Donnie King: Sure. I think let me start with a few things here. When we were sitting here a year ago talking about '25, we said or made a few commitments, and I would point this out. We did exactly what we said we were going to do in the year. We said we would continue to shift our mix from core protein to more branded and value-added. We did that. We said we were going to increase household penetration in branded and value-added, and we were going to engage with the younger consumers. We have done that. We told you protein would be viewed as essential by consumers, and it is. We improved our returns on invested capital and creating shareholder value. We've done that. We told you we would execute with excellence in all that we do, and we continue to do that, and you will see more and more of that coming as we move through '26. In Q1, we're off to a great start across all the businesses. They're very much in line with our expectations and outlook. So we feel very good about that. In terms of some program, I would tell you that the expectation, whether it's chicken, beef, pork or Prepared Foods or international. The expectation is you be the very best regardless of the protein at everything you do from one end of that supply chain to the other. And also, that makes us from a corporate perspective, manage our costs so that what gets allocated to a business is more in line and realistic -- is more in line with what a competitor of ours in that space would be. So there's a lot of pressure put on the spend side of the business with a lot of work done relative to determining whether every activity, whether it adds value or it creates waste. And if it creates waste, we stop it. If it's something that a shareholder, a customer or a consumer isn't willing to pay for, we're stopping doing that. And so that's kind of my view. I don't have a number to give you, but I would tell you, using chicken, which was a little bit of what you talked about, but it could apply to the rest of the proteins is we believe there to be significant upside and improvement across the landscape. Devin Cole: Yes. Maybe I'll just make a couple of comments relative to your part of your question with Prepared Foods and pork. I would just add on to what Donnie said. What he's talking about is really a multiyear cultural shift that we've been on the journey of. And it's not just in the facilities. It's in everything that we do, whether that be in our investments regarding our marketing spend, whether that be our sales, sales support or even things that we do here at the corporate office. It's about finding efficiency in everything. But to the point of prepared, we talked a good bit about that. Those plants do operate on a system of standards. And not only does it help offset the inflationary factors, but it also provides us additional capacity without having to spend CapEx. We did see achievements in that area that exceeded our goals in FY '25 and certainly see a pathway to have that progress continue in FY '26. And maybe just touching on pork because we don't talk a lot about that. There has been exceptional improvement in that business in this year and see that continuing. They did improve their margins by 70 basis points, and they did that through improved efficiencies and yield. They are capturing more revenue per animal. And a lot of that has to do with the work that they're doing around special trimming, marinating, just typically adding value for our customers. But a data point here is their cost per head in FY '25 was basically the same as FY '24 on fewer head. So very proud of the work that has been accomplished in the pork group and do continue to see that momentum in FY '26. Pooran Sharma: Great. Appreciate the color there, Devin and Donnie. Just for my follow-up, I wanted to maybe understand heifer retention a little bit better. You gave us some great commentary on the call. Donnie, I think you mentioned retention happening in the North and the Midwest versus kind of in the West and the South, are not quite seeing it there. I was wondering if you could maybe share some of the reasons as to here and why? Is it like drought conditions better in those regions? Or are the economics better in those regions? Any color there would be appreciated. Donnie King: Well, thanks for the question. I think I would say that the situation we're in was largely created because of drought conditions. And there were areas that were more harmed than others. And so in terms of this, and when I talk about heifer retention, it sounds like you know all the different components that are required to actually start rebuilding the herd and the impacts of that. But that lower percent of heifers being harvested, feed yards and fewer feeder calfs, I mean, we're looking at all that constantly. And so -- but I think what makes this challenging to do is the data we get to see relative to what's actually going on because somebody could hold a heifer back for a short period of time, they may be taking advantage, for example, of cheaper corn, and they're going to feed that and put some weight on the animal and then they may ultimately take it to harvest. So it's not -- there's a little bit of flexibility around that. And rightfully so, that cattle rancher, they're trying to maximize their earnings through this time period in these market conditions and certainly understand and appreciate that. But they're making those business decisions based on what's best for them. And we're just trying to react to what that looks like. Operator: The next question comes from Peter Galbo with Bank of America. Peter Galbo: Donnie, Curt, Devin and Jon, it feels like Eagles reunion tour out here. So excited to have you guys all back together. Wanted to ask on chicken, and I know there's been a lot of discussion. But Curt, maybe you could just help us a little bit with the phasing of profitability over the course of the year. I know you don't want to give specific quarterly guidance. I am asking for it, but I'll leave it to your discretion in terms of how you want to kind of help us adjust the profit expectations for the year. Curt Calaway: Yes. Thanks, Pete. Certainly, as I said earlier, don't provide quarterly guidance. I think certainly, as Donnie had illustrated earlier, there'll be a little bit of volatility as we work our way through beef. But otherwise, I think kind of normal seasonality would play its way through each of the individual segments. Peter Galbo: Okay. And then I wanted to ask on Prepared Foods and maybe this is a bit too granular, but on lunch meat specifically, there's been, I guess, a lot of different signals out of the different market participants, some on taking price, some on being more competitive on pricing in terms of promotion. It seems like there's, I guess, a lot of different strategies that are going on. And again, it seems to be impacting a little bit the profitability. So I just -- I wanted to understand what you're seeing in the market specifically. I know your results kind of speak for themselves, but whether the competitive activity out there in deli specifically has been, I guess, rational is probably the word I would use in your view or if there's some other strategies that are going on that maybe are upsetting dynamics in the category. Devin Cole: Yes. Thanks for that. This is Devin. Listen, I'll just -- it's worth repeating, and I know you saw it in the notes, and we've said it, but we did see strong lunch meat growth in the quarter, 10.3%. In fact, we saw some pretty healthy indications across several of our categories that would tell you that we're -- we have what today is a winning combination, both with the price that we have in the marketplace, but also with the targeted map spending with our strategic customers. I would say today, we have more visibility from data that we have in software investments that we've made in terms of what's working in real time, how many adjustments that we need to make if we do see changes with the consumer. But we are very focused on increasing our distribution and also making sure that we not only have the right value for the consumer, but also the right products, and that's what makes our innovation pipeline so important. 10% share is not insignificant in this dynamic area. But I would just point out too, you've heard us talk a lot about this, but a large portion of our business is pass-through. It's got lags relative to our portfolio that's on a price list. When we do face sustained market-based input cost pressure, we will take price action as needed. And that's really just to make sure that we can continue to do those investments in our business. Peter Galbo: Sorry, Devin, can you just expand a little bit, though, on competitive dynamics in the category? I think that would be helpful. Kristina Lambert: This is Kristina. I'll speak up just a little bit on the distribution growth, as Devin was talking about, in Q4, almost every one of our categories, we saw distribution increases. And we also had increases in our MAT spending from first half to second half and really getting to those targeted promotional spends, reaching the consumer where they're at, whether they're shopping online or if they're shopping within the store. So we feel pretty confident about our continued success, and we've been able to leverage platforms to get those insights real time and adjust and pivot. And so our commitment to growing is demonstrated by that continued investment. Operator: The next question comes from Guilherme Palhares with Santander. Guilherme Palhares: I just want some color on the working capital, if you could just share bit of the details on the free cash guidance for the next year. So it seems that you guys have some cash burn expected. So if you could just give some color to us in terms of what are the lines that are impacting the most? And how are you thinking about 2026 when it comes to working capital? Donnie King: Thanks. So our free cash flow for the year '25, very proud of finishing at $1.2 billion. And I think part of your question there was around the free cash flow expectations and working capital and a couple of other elements. We did guide this morning to a free cash flow range of $800 million to $1.3 billion for '26. That's recognizing certainly the range of operating income that we shared this morning in addition to the range of CapEx. Obviously, we don't share a specific working capital expectation throughout the year, but we did provide expectation relative to sales growth. So there likely is some inflationary move on working capital as we work our way through the year, but would certainly indicate a free cash flow that exceeds our dividend up to nearly 2x our dividend rate for '26. Guilherme Palhares: Great. And just one follow-up here on the chicken business. If you could just remember us in terms of the exposure to the commodity market or if you could provide any color in terms of small chicken versus big everything that you could give us in terms of color to the exposure to that spot of market would be appreciated. Donnie King: So if I understand your question right, it's our market exposure to small bird versus big bird, right? Well, I would start with we obviously participate in both the small bird and big bird program. We have value-added products in both big and small bird. But in both cases, what we tried to do is to create to align with strategic customers and create these win-win relationships that grow our business and grow our customers' business. And we spend time doing that as opposed to arguing about what the price is or what the volume is going to be. Both of us collectively spend our time on growing the collective business for both. But -- in terms of big bird, small bird, I don't think I would want to tell you what percentage of our share of that is presently. But I would point out that our value-added business, and when I say value-added, I'm not just talking about chicken that is breading on it or that could be fully cooked, there could be value-added fresh chicken, and we participate in all of that. But in this -- in the year, we grew our value-added business 2x what we did commodity or the average of the commodity or the average of the segment, I should say. And so we feel very good about that. We told you we were going to do that in '24 and that we were going to do it in '25. I'm telling you in '26, we'll continue to do that. Operator: The next question comes from Andrew Strelzik with BMO. Andrew Strelzik: I wanted to go back to specifically to the fourth quarter chicken performance. And you talked about the growth on a strong quarter last year. If I look at relative performance to the industry even adjusted for your price lags, it seems like that took a step up as well. And I was trying to kind of decipher exactly or more precisely what drove that. You talked about live ops, but you've been talking about that all year. You talked about lower feed costs as well in some of the value-add components. So I guess, how do you think about what was the biggest driver there? Did you see a step function in your operational performance internally in the quarter? Any color around that would be great. Donnie King: Sure. Andrew, there's a lot of things that I could talk to you about relative to that. And I mentioned earlier that -- and you well know this, that for about 3 years now, we've been working on our chicken business and really doing what is necessary to improve the performance. We have one goal here. It's very simple in our chicken business is to be the best chicken company in America, period. Anything that doesn't deliver that is -- or doesn't work toward that end, we obviously look at and see whether we need to be doing that. But it's better yield, it's better live performance. And in that live performance, you'll remember we had our share of issues with genetics as well. Even our old genetics, we have new genetics, but we have older genetics that are actually performing at what I would call historical top-end performance. And then we have an answer for big bird genetics that is flowing through the pipeline today, and we feel good about that as well. Capacity utilization continues to improve for us as a company, and we made some really, really difficult decisions 2 years ago, 18 months ago around that. And then from a cost improvement, we're attacking every element of this from a cost, from a spend, from a non-value-added activity perspective. And then even to looking at what the allocation from corporate is into an individual business and addressing those things. So we're leaving those stone unturned with a clear objective, Andrew, of being the best chicken company in America. Andrew Strelzik: Okay. That's helpful. And if I could just squeeze one more in on beef. You talked about a lot of the moving pieces for '26, screwworm and heifer retention and demand and all the other things. The one thing I didn't hear you talk about was imports, and that's been obviously topical in the news. How have you factored potential beef imports into the U.S. into your outlook? And how would you think about that impacting your business? Donnie King: Well, we've obviously had imports into our beef business, and that looks more like box of lean. But those numbers, as you think about that exports are down about 10% for us, Andrew. Imports are up about 20%. Australia is a big market for that, and we're talking boneless beef and most of which ends up in our grinds. And so in this environment, the consumer, yes, they're trading around in proteins a little bit. But even within beef, you're seeing some trade from muscle cuts into grinds and the grind demand is very strong. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Donnie King for any closing remarks. Donnie King: Thank you for your time and continued interest in Tyson Foods. We look forward to sharing our progress with you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.